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TREASURY  DEPARTMENT 
BUREAU   OF    INTERNAL    REVENUE 


DIGEST  OF  TREASURY  DECISIONS 
RELATING  TO  INTERNAL  REVENUE 

ISSUED  PURSUANT  TO  THE  ACTS  OF 
1909,  1913,  1914,  1916.  1917 

DURING  THE  PERIOD  FROM  SEPTEMBER  9,  1916 
TO  DECEMBER  31.  1920 


(Treasury  Decisions  2359-31 1  1) 


WASHINGTON 

GOVERNMENT  PRINTING  OFFICE 

I92I 


ORGANIZATION  OF  INTERNAL  REVENUE  BUREAU. 


SECRETARY  OF  THE  TREAflUBT. 

David  F.  Houston. 

assistant  secretary  of  the  treasury. 
EWING  Laporte. 

commissioner  of  internal  revenue. 
William  M.  Williams. 

assistant  to  the  commissioner  of  internal  reventh, 
Paul  F.  Myers. 

solicitor  of  internal  revenue. 
Carl  A.  Mafes. 

COMMITTEE  ON  APPEALS  AND  REVIEW, 

N.  T.  Johnson,  Chairman. 

INCOME   TAX   UNIT. 

George  V.  Newton,  Deputy  Commissioner. 
E.  H.  Batson,  Assistant. 

ESTATE,  CAPITAL   STOCK,  AND   CHILD   LABOR   TAX    UNII. 

James  Hagerman,  Deputy  Commissioner. 
Lillian  S.  Ruddick,  Assistant. 

ACCOUNTS,  supplies,  STAMPS,  AND  PUBLICITY    UNIT. 

M.  A.  Cfam,  Deputy  Commus.uotw, 

Supervisor  of  Accounts. 

M.  F.  West. 

SALES  tax.  tobacco,  AND  MISCELLANEOUS  UNIT. 

James  M.  Baker,  Deputy  Commissioner, 
A.  C.  HoLDEN,  Assistant. 

supervisor  of  collectors'  officka 
Frank  E.  Frazier. 

special  intelligence  UNIT. 

E.  L.  Irey,  Chief. 

PROHIBITION  UNIT. 

John  F.  Kramer,  Commissioner. 
D.  S.  Bliss,  Assistant. 

APPOINTMENT  DIVISION. 
G.  S.  Paull,  Cfiiff. 

EDITOR   AND  COMPILER. 

H.  B.  Si,\iLLMAN,  Special  Attorney,  Solicitor's  Office 


Treasury  Department, 

Document  No.  L'819 
Internal  Revenue. 


oc 


-^  6 


INTRODUCTORY. 


Treasury  Department, 
Office  of  Commissioner  of  Internal  Revenue, 

Washington ,  D.  0.,  September  1,  1920. 
The  following  Digest  of  Treasury  Decisions  made  by  tlie  Commis- 
sioner of  Internal  Revenue,  with  the  approval  of  the  Secretary  of  the 
Treasury,  including  abstracts  of  judicial  decisions  and  opinions  of  the 
Attorney  General,  covers  the  decisions  under  the  acts  of  1909,  1913. 
1914,  1916,  1917,  and  other  acts  of  Congress  issued  during  the  period 
from  September  9,  1916,  to  December  31,  1920  (Trecisury  Decisions 
2359-3111),  excepting  only  the  decisions  under  the  Revenue  Act  of 
1918  and  the  National  Prohibition  Act  of  Octol)er  28.  1919.  In  con- 
nection with  decisions  imder  the  latter-mentioned  acts,  attention  is 
dii'ected  io  the  various  regulations  relating  thereto,  as  follows: 

35.  Narcotics. 

37.  Estate  tax  (T.  D.  2910). 

40.  Stamp  tax  on  isaue,  etc.,  of  stock  and  sales  of  products  for  future  deliAcry. 

43.  Admissions  and  dues  (T.  D.  2830). 

45.  Income  and  profits  taxes  (T.  D.  2831). 

46.  Employment  of  child  labor  (T.  D.  2823). 

47.  Excise  tax  on  sales  by  manufacturers  (T.  D.  2832). 

48.  Excise  tax  on  works  of  art  and  jewelry  (T.  D.  2833). 
41).  Transportation  tax  (T.  D.  2834). 

50.  Capital  stock  tax  (T.  D.  3039). 

51.  Excise  tax  on  toilet  and  medicinal  articles  (T.  D.  3040). 

52.  Soft  drinks,  etc.,  sold  in  closed  containers  (T.  D.  2838i. 

53.  Soft  drinks,  etc.,  sold  at  soda  fountains,  etc.  (T.  D.  2839). 

54.  Exci.se  tax  on  sales  by  dealer  of  wearing  apparel,  etc.  (T.  D.  2866). 

55.  Stamp  tax  on  documents  (T.  Ds.  2867,  3094). 
66.  Motion-picture  films  (T.  Ds.  2868,  3070). 

57.  Tax  on  telegraph,  telephone,  radio,  and  cable  facilities  (T.  Ds.  2890.  .3054). 

58.  Insurance  tax  (T.  Ds.  2939,  3063). 

59.  Special  taxes  upon  bu.sinesses  and  occupation.s  and  upon  u.se  of  boat^   T.  D. 

2983). 

60.  Intoxicating  li(iuor  iT.  D.  2985). 

61.  Industrial  alcohol  and  denatured  alcohol  (T.  D.  2986). 

This  Digest  is  published  for  the  information  of  officers  and  agents 
of  the  Internal  Revenue  Bureau  and  all  others  concerned. 

Wm.  ^I.  Williams, 
Commissioner  of  Internal  Reven  iie. 

3 


i'J 


DIGEST  OF  INTERNAL  REVENUE  DECISIONS. 


ABATEMENT  OF  TAX. 
See  "Chdnis." 

ABSCONDING. 

Income  taxes — Abatement. 

See  ''Income  Taxes  (Indhdduals).'' 

ABSENCE. 
Capital  stock  tax — Persons  liable  for  return. 

Where  failure  to  file  return  is  due  to  absence,  collector  may  allow  further  time, 
not  exceeding  30  days,  for  making  and  filing  return  as  he  deems  proper.  (T.  D. 
2750.  art.  21.  Appendixes  A,  B;  Aug.  9,  1918.) 

Excess  profits  and  income  taxes — Persons  liable  for  returns  or  pajrment. 

Where,  by  reason  of  absence  from  their  homes  or  places  of  business  in  the  mili- 
tary se^^'ice  of  the  countr.y,  it  is  impossible  for  individuals  to  receive  notice  and 
demand,  Form  17.  and  pay  taxes  assessed  so  that  taxes  can  Ije  received  by  collector 
within  10-day  period  following  service  of  notice,  collector  is  requested  to  enter  on 
Form  17  as  date  on  which  tax  becomes  due  and  payable,  as  near  as  possible,  dale 
10  days  subsequent  to  time  that  payment  should  be  received  in  ordinary  course 
of  mails;  and  where  it  appears  that  full  amotmt  of  tax  was  placed  in  mails  Avithiu 
10-day  period,  or  in  case  notice  is  not  delivered  in  due  time  by  reason  of  delay  in 
mail, "and  satisfactory  evidence  of  that  fact  is  furnished,  penalty  and  interest  will 
not  be  collected.     (T.  D.  2679;  Mar.  2.3,  1918.) 

Time  for  filing  war  excess  profits  tax  returns  by  nonresident  alien  individuals 
and  corporations  and  American  citizens  residing  or  traveling  abroad,  including 
persons  in  military  or  naval  establishments  stationed  or  on  duty  beyond  limits 
of  the  States  and  Territories  of  Hawaii  and  Alaska,  extending  for  such  period  as 
may  be  necessary  to  and  including  90  days  after  ])roclamation  of  President  of  the 
United  States  announcing  close  of  war  with  Germany,  any  such  person  filing 
return  after  April  1.  1918,  but  on  or  })efore  October  1.  1918,  emV)odying  therein 
or  attaching  thereto  written  stateiK^nt  showing  that  he  comes  within  cla-sses  des- 
ignated bv  T.  D.  2581.  need  not  file  supporting  affidavit  stating  cause  of  delay. 
(T.  D.  2672;  Mar.  16.  1918.) 

Return  may  be  made  by  an  agent  when  by  reason  of  illness,  absence,  or  nonresi- 
dence  person  liable  for  return  is  unable  to  make  same,  agent  assuming  responsi- 
bility of  making  return  and  incurring  penalties  provided  for  intentional  false  or 
fraudulent  return.     (T.  D.  2690;  art.  22. ) 

Where  corporation  fails  or  neglects  to  file  return  within  prescribed  time,  and  sui'h 
neglect  is  due  to  sickness  or  absence,  collector  ma\-  grant  extension  of  time  within 
which  to  file  return,  which  extension  must  not  exceed  30  days  from  normal  due 
date;  application  for  extension  must  be  made  prior  to  expiration  of  period  for  which 
extension  is  desired.     (T.  D.  2690;  art.  222.; 

.Vbsoiice  of  one  or  more  officers,  at  time  return  is  required  to  be  filed,  will  not  be 
accepted  as  reasonable  cause  for  failure  to  file  return  within  prescribed  time,  unlesa 
it  is  satisfactorily  shown  that  there  were  no  other  principal  officers  available  and 
sufficiently  informed  as  to  affairs  of  corporation  to  make  and  verify  return.  (T.  D. 
2690;  art.  223.) 

ACCEPT. 
Definition. 

The  word  "accept"  is  used  in  the  penal  provision  in  section  802  of  the  act  of 
October  3,  1917,  in  the  general  sense  of  "receive,"  not  in  the  special  sense  peculiar 
to  drafts.     (T.  D.  2082;  Mar.  26,  1918.; 

5 


g  ACCESSORIES ACCOUNTS. 

ACCESSORIES. 

See  "Exciee  Taxes." 

ACCIDENT  COMPENSATION. 
Income  tax. 

Payments  made  to  injured  employee  by  corporation  under  th«  accident  com- 
pensation laws  of  the  several  States  constitute  taxable  income  of  the  employee!. 
(T.  D.  2570;  Nov.  6,  1917.) 

Amount  received  by  individual  as  result  of  suit  or  compromise  for  personal 
injuries  sustained  by  him  through  accident  is  not  income  taxable  under  Title  I 
of  act  September  8,  1916,  as  amended  by  Title  XII  of  act  October  3,  1917,  and  of 
Title  I  of  act  October  3,  1917.     (T.  D.  2747;  July  12,  1918.) 

Proceeds  of  accident  insurance  policy  received  by  individual  on  account  of 
personal  injuries  sustained  through  accident  are  not  income  taxable  under  Title 
I  of  act  September  8,  1916,  as  amended  by  Title  XII  of  act  October  3,  1917,  and  of 
Title  I  of  act  October  3,  1917.     (T.  D.  2747;  July  12,  1918.) 

ACCOUNTS. 

Excess  profits  tax—"  Tangrible  property." 

Stocks,  bonds,  bills  and  accounts  receivable,  notes  and  other  evidences  of  indebt- 
edness, and  leaseholds,  when  paid  in  for  stock  or  shares  in  corporation  or  partner- 
ship, will  be  regarded  as  tangible  property  so  paid  in,  but  when  corporation  pays 
for  intangible  property  by  the  issuance  of  its  own  stock  or  bonds  this  will  not  be 
regarded  as  being  a  payment  bona  fide  made  in  cash  or  tangible  property  within 
meaning  of  section  207  of  act  October  3,  1917.     (T.  D.  2694;  art.  47.) 

Incojxie  taxes— Net  income. 

Corporations  keeping  accounts  in  strict  accord  with  methods  prescribed  by  munic- 
ipal, State,  or  Federal  authorities,  or  in  accord  with  approved  standard  accounting 
practices  consistently  followed  from  year  to  vear,  will  be  permitted  to  make  their 
returns  of  annual  net  income  on  basis  of  accounts  so  kept,  provided  such  systems 
of  accounting  clearly  and  correctly  reflect  net  income  of  each  year.  (T.  D.  2690; 
art.  127.) 

Every  individual  or  corporation  entitled  to  deduction  on  account  of  depletion  or 
for  return  of  capital  invested  shall  keep  accurate  ledger  account  in  which,  in  case 
of  fee  owner,  shall  be  charged  fair  market  value  as  of  March  1,  1913,  or  cost,  if 
acquired  subsequent  to  that  date,  of  oil  or  gas  property,  plus  cost  of  development, 
or,  in  case  of  lessee,  amount  actually  originally  invested  in  lease  and  its  develop- 
ment; this  amount  shall  be  credited  with  amount  claimed  and  allowed  each  year  as 
deduction  on  account  of  depletion  or  as  return  of  capital,  to  end  that  when  credits 
to  account  equal  debits  no  further  deductions  on  either  account,  with  respect  to  this 
property  and  capital  invested  therein,  will  be  allowed;  or,  in  lieu  of  direct  credit 
to  property  account,  amounts  so  claimed  and  allowed  as  deduction  may  be  cred- 
ited to  depletion  reserve  account.     (T.  D.  2690;  art.  170.) 

Both  owner  and  lessee  of  mining  properties  will  keep  accurate  ledger  accounts 
to  which  will  be  charged  capital  invested  in  mine  or  lease,  and  in  machinery, 
equipment,  etc.,  crediting  such  accounts  or  a  depreciation  and  depletion  reserve 
accoimt  with  amount  claimed  and  allowed  as  deduction  each  year  until,  as  result 
of  such  credits,  the  capital  charge  shall  be  extinguished,  after  which  no  further 
deduction  on  this  account  will  be  allowed.     (T.  D.  2690;  art.  172.) 

Hetuxns. 

Individual  keeping  accoimts  upon  any  basis  other  than  that  of  actual  receipts 
and  (lisbursements,  unless  such  other  basis  does  not  clearly  reflect  his  income,  may, 
subject  to  regulations  made  by  the  Commissioner  of  Internal  Revenue,  with 
approval  of  Secretary  of  the  Treasury,  make  his  return  upon  the  basis  on  wiiich 
his  accounts  are  kept.     (T.  D.  2690;  art.  24.) 

Returns  should  be  made  on  basis  of  receipt  unless  individual  liable  for  return 
keeps  account  on  some  other  basis  which  will  clearly  reflect  his  income.  (T.  D. 
2690;  art.  26.) 

Any  system  of  accounting  which  is  not  consistent  with  purpose  and  intent  of 
rules  set  out  in  Title  I  of  the  act  of  September  8,  1916,  as  amended  by  the  act  of 
October  3,  1917,  and  with  the  general  rules  set  out  in  Regulations  No.  33,  for  ascer- 
tainment of  net  income,  will  not  be  accepted  as  correct  basis  for  making  returns. 
(T.  D.  2690;  art.  128.)  ^ 


ACCRUED   INTEREST ACTIONS. 

ACCRUED  INTEREST. 
ACETIC  ACID. 

ACETONE. 

ACTIONS. 


See  "Interest." 

Denatured  alcohoL 

See  "Alcohol." 

Denatured  alcohoL 
See  "Alcohol." 

Adulterated  butter. 

Under  the  oIei)margarme  act  of  August  2,  1886.  section  14,  and  the  adulterated 
l)utter  act  of  May  9.  1902,  section  4,  where  there  has  been  a  hearing  on  contested 
facts  and  arbitrary  conduct  in  the  legal  sense  is  not  complained  of,  decision  of  Com- 
missioner that  certain  substance  or  compound  constitutes  adulterated  butter  is 
final  and  may  not  be  attacked  in  anv  action  at  law  to  recover  back  tax  and  penalty 
paid  under  protest.     (T.  D.  2803;  Mar.  12,  1919.     Ct.  Dec.) 

Conditions  precedent. 

Claim  for  refund  filed  in  August,  1903,  with  Commissioner  of  Internal  Revenue 
as  prerequisite  to  suit  against  collector  to  recover  succession  tax  collected  under  act 
of  June  13,  1898,  is  sufficient  to  meet  requirements  of  act  of  July  27,  1912;  effect  of 
claim  was  not  extinguished  by  judgment  in  suit  and  it  is  not  necessary  that  claim 
be  filed  under  the  1912  act.     (T.  D.  2885;  July  10,  1919.     Ct.  Dec.) 

The  bar  of  section  3226,  Revised  Statutes,  making  appeal  to  Commissioner  and 
decision  by  him  a  necessaiy  condition  precedent  to  action  to  recover  tax  illegally 
collected,  and  of  section  3228,  Revised  Statutes,  fixing  two  years  as  time  within 
which  to  bring  such  an  action,  is  removed  as  to  inheritance  taxes  imposed  by  act  of 
June  13,  1898,  if  taxpayer  has  complied  with  section  3  of  the  act  of  June  27,  1902, 
and  section  2  of  the  act  of  July  27,  1912,  and  presented  to  Commissioner  claim  for 
refund  of  the  tax.     (T.  D.  2886;  July  10,  1919.     Ct.  Dec.) 

Fact  that  tax  was  voluntarily  paid — that  is,  without  protest— is  no  impediment 
to  the  application  of  aci  of  July  27,  1912.     (T.  D.  2886;  July  10,  1919.     Ct.  Dec.) 

Suits  tf>  recover  internal-revenue  taxes  are  barred  by  failure  to  appeal  to  the 
Commissioner  of  Internal  Revenue,  as  required  by  section  3226,  Revised  Statutes. 
(T.  D.  3013;  May  3,  1920.     Ct.  Dec.) 

Debt — Recovery  of  tax. 

Common-law  action  of  debt  lies  in  favor  of  Government  whenever  by  accident, 
mistake,  or  fraud  taxes  have  not  been  paid;  Government  may  recover  personal 
judgment  for  tax  whenever  there  exists  duty  to  pay,  provided  another  remedy  haa 
not  been  made  exclusive  by  clear  and  specific  declaration;  reassessment  provided 
for  by  act  August  5  1909,  section  38,  is  not  prerequisite  to  action.  (T.  D.  2697; 
Apr.  16,  1918.     Ct.  Dec.) 

Income  taxes — Collection. 

No  suit  will  be  brought  to  recover  unpaid  taxes  until  collector  of  district  shall 
have  submitted  to  Commissioner  full  report  of  all  material  facts  and  circumstances 
of  the  case  and  shall  have  received  express  authority  to  report  case  to  United  States 
attorney  for  suit.     (T.  D.  2690;  art.  250.) 

Amounts  collected  by  distraint  or  otherwise  subsequent  to  institution  of  suit  for 
collection  by  I'^nited  States  attorney  should  be  at  once  reported  to  United  States 
attorney  for  his  guidance  in  his  further  prosecution  of  case  in  court.  (T.  D.  2690; 
art.  251.) 

\\'hen  suit  to  recover  tax  is  decided  in  favor  of  United  States  and  execution  issued 
and  returned  nulla  l)ona  aa  respects  whole  or  part  of  judgment,  collector  should 
satisfy  himself  whether  or  not  any  personal  property  can  be  found  to  satisfy  such 
judgment  and  whether  there  is  any  real  property  which  can  be  subjected,  by  dis- 
traint or  by  suit  in  equity,  under  section  ;V207,  Revised  Statutes,  to  sale  in  satisfac- 
tion of  judgment;  where  satistied  that  there  is  no  auch  real  or  personal  property 
collector  should  present  to  Commissioner  a  claim  on  Form  53  for  abatement  of 
anioiuit  not  collected  if  it  has  not  already  been  abated,  making  statement  thereon 
of  his  action,  accompanied  by  certificate  of  clerk  of  court  as  to  facts  in  case.  (T.  D. 
2690;  art.  253.) 


g  ADMINISTRATIVE. 

Income  taxes— Collection— Continued. 

\\'here  suit  for  taxes  not  abated  as  uncollectible  ia  dlBmiseed  upon  technical 
defect  in  proceedings,  or  when  adverse  verdict  is  rendered  on  some  technical 
ground  not  reaching  merits  of  case,  and  right  to  new  trial  or  to  appeal  has  elapsed 
and  tax  can  not  be  collected  by  distraint  or  by  suit  in  equity  to  subject  real  estate 
to  sale,  claim  for  abatement  should  be  made  on  Form  53.     (T.  D.  2690;  art.  2.54.) 

Collectors  are  authorized  to  pay  clerk  of  court  his  legal  fees  for  certificates  fur- 
nished by  him  relative  to  litigated  taxes,  and  will  be  credited  in  their  expense 
acroimts  for  amoimts  so  paid  on  filing  therewith  vouchers  covering  expenses  thus 
incurred.     (T.  U.  2690;  art.  255.) 

Judgment  as  bar. 

Judgment  in  suit  against  collector  to  recover  succession  tax  collected  under  act 
of  June  13,  1898,  for  part  of  claim  only,  certain  interests  involved  being  erroneously 
held  to  be  taxable  as  being  vested  in  possession  or  enjoyment  before  July  1,  1902, 
which  judgment  was  satisfied  by  the  United  States,  is  no  bar  to  suit  against  United 
States  in  Court  of  Claims  to  recover  unpaid  residue.  (T.  D.  2885;  July  10,  1919. 
Ct.  Dec.) 

ADMINISTRATIVE. 

Accountings — Allowances  for  expenses  and  disbursements. 

No  expense  shall  be  incurred  or  disbtusement  made  by  any  administrative  or 
disl)ursing  officer  of  Internal  Revenue  Ser\'ice  involving  internal-revenue  appro- 
priation, unless  allowance  therefor  has  previously  been  granted  by  the  Secretaiy 
of  the  Treasurj',  or  by  hi?  authority,  upon  the  recommendation  of  the  Commis.sioner 
of  Internal  Revenue^  in  case?  of  emergency,  requests  for  such  allowance  or  the  pre- 
liminarv  notification  of  the  granting  thereof,  or  both,  may  be  made  by  telegraph. 
(T.  D.  2872;  June  20,  1919.  ''T.  D.  2996;  Mar.  24,  1920.) 

Bureau  at  Washington. 

The  administration  of  granting  of  all  allowances  for  the  Bureau  of  Internal  Reve- 
nue at  Washington  shall  be  centralized  in  Division  of  Appointments,  which  will 
have  jurisdiction  over  granting  of  allowances  for  salaries  and  expenses  of  Bureau 
officers  and  employees,  and  Division  of  Siipplies  and  Equipment,  which  will  have 
jurisdiction  over  granting  of  all  Bureau  allowances  other  than  those  for  salaries  and 
expenses  of  officers  and  employees,  and  all  requests  for  said  allowances  will  be  made 
upon  the  Commissioner  of  Internal  Re\enue  through  these  divisions.  (T.  D.  2872; 
June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

Classes  of  allowances. 

Allowances  are  divided  into  two  classes,  viz,  (a)  annual  allowances;  (b)  special 
allowances. 

(a)  Annual  allowances  comprise  tho.^e  covering  fixed  charges  which  recur  regu- 
larly from  month  to  month  and  which  are  granted  for  full  fiscal  year  or  such  portion 
thereof  a,s  is  unexpired  at  time  of  their  becoming  effective;  charges  accruing  regu- 
larly, although  made  to  cover  period  of  fiscal  year,  or  which  are  not  paid  regularly 
each  month,  should  not  be  classed  as  annual  allowances;  all  unused  balances  of 
monthly  portion  cf  allotment  of  annual  allow ances  will  be  regularly  liquidated  by 
the  Division  of  Accounts  and  become  available  for  allowance  under  the  respective 
appropriations  for  other  purposes;  salaries  and  fixed  allowances  of  permanent  em- 
ployees are  the  most  comra  m  examples  cf  annual  allowances. 

'b)  Special  allowances  comprise  those  which  are  not  included  in  above  definition 
of  annual  allowances,  and  which  are  made  for  some  special  purpose  or  on  account  of 
which  charges  accrue  or  payments  are  made  irregularly,  or  both;  balances  of  special 
allowances  will  be  carried  in  Division  of  Accounts,  against  which  all  payments  will  be 
checked,  and  any  final  balances  will  be  liquidated  and  made  available  for  allow- 
ance for  other  purposes;  disbursing  agents  in  reporting  payments  upon  the  schedules 
should  indicate  when  they  are  final  as  to  each  special  allowance;  salaries  and  travel 
allowances  of  temporary  employees,  office  supplies  and  equipment,  leases,  printing, 
and  lump  sums  for  miscellaneous  expenses  are  examples  of  special  allowances 
(T.  D.  2872;  June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

• —  Copies  of  allowances. 

(  opies  of  all  allowances  granted  and  withdrawn  will  be  furnished  each  day,  as 
designated  upon  printed  forms,  <&)  to  disbursing  agents  in  field  sendee  who  are  to 
pay  amounts  of  allowances  granted,  or  to  proper  requisitioners  in  case  of  bureau 
service  at  Washington,  (b)  to  Division  of  Accounts,  (c)  to  Auditor  for  the  Treasury 


ai>mi^isti;atiye.  9 

Accountings — Contimiefl . 

Copies  of  allowances — Continued. 

Department,  except  that  in  lieu  of  furnishing  copie?  of  Form  62  to  the  auditor,  a 
copy  of  each  order  (Chief  Clerk,  Treaeurj'  Department  Form  20Ai  based  upon 
requests  made  upon  said  Form  62  will  be  continued  to  be  furnished  to  Division  of 
Accounts,  to  be  subsequently  sent  to  auditor  with  voucher  to  which  it  pertains, 
(d)  one  copy  to  be  retained  as  an  office  copv  by  the  issuing  department.  ("T.  D. 
2872;  June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

Disbursing  agents'  accounts  current. 

Disbursing  agents  are  required  to  submit  their  accounts  current  (Torm  44)  and 
schedules  of  disbursements  (Form  63,  Revised)  in  duplicate,  one  copy  for  the  audi- 
tor and  one  copy  to  be  retained  in  the  files  of  the  Division  of  Accoimts.  (T.  D.  2872; 
June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

Field  service,  in  general. 

Administration  of  granting  of  allowances  shall,  in  case  of  allowances  for  field 
service,  be  centralized  in  (a)  Supervisor  of  ("ollectors'  Offices,  (b)  Head,  Field 
Audit  Di\dsion,  Income  Tax  Unit,  and  (c)  Federal  Prohibition  <  ommissioner,  and 
all  requests  for  such  allowances  will  be  made  upon  the  Commissioner  of  Internal 
Revenue  through  these  offices;  issuing  of  grants  of  said  allo^^•ances  through  the 
medium  of  the  formal  allo\s'ance  documents  will  be  centralized  in  (d)  Di\ision  of 
Appointments  and  (e)  Di\i8ion  of  Supplies  and  Equipment.  (T.  D.  2996;  'Siar. 
24,  1920.) 

The  Supervisor  of  Collectors'  Offices  will  have  jurisdiction  over  granting  of  all 
allowances  for  salaries  and  expenses  of  officers  and  employees,  for  supplies  and 
equipment,  and  for  other  requirements  of  collectors'  offices.  (T.  D.  2872;  June  20, 
1919.     T.  D.  2996;  Mar.  24,  1920.) 

The  Head,  Field  Audit  Division,  Income  Tax  Unit,  will  have  jurisdiction  over 
granting  of  allowances  for  salaries  and  expenses  of  officers  and  employees,  for  sup- 
plies and  equipment,  and  for  other  requirements  of  the  offices  of  Revenue  Agents 
in  (  harge,  subject  to  re\iew  and  control  in  estate  tax  matters  by  the  Deputy  Com- 
missioner in  Charge  of  Estate  Tax  Di\ision.     (T.  D.  2996:  Mar.  24,  1920.) 

The  Federal  Prohibition  Commissioner  v-ill  have  jurisdiction  over  the  granting 
of  all  allowances  for  salaries  and  expenses  of  officers  and  employees,  for  supplies 
and  equipment,  and  for  other  requirements  of  the  offices  of  Federal  Prohibition 
Directors  and  Super\-ising  Federal  Prohibition  .\  gents.     (T.  D.  2996:  Mar.  24,  1920.) 

The  Division  of  Appointments  will  have  jurisdiction  over  issuing  of  formal  allow- 
ance documents  covering  salaries  and  expenses  of  internal  revenue  oflicers  and 
emploj^ees  in  the  field  ser\ice ;  expenses  will  include  railroad  and  other  fares,  sub- 
sistence, and  any  other  travel  or  other  expenses  personal  to  officers  and  employees; 
said  di"vision,  under  the  immediate  direction  of  the  assistant  to  the  Commissioner, 
will  keep  all  files  and  records  relating  to  appointments  in  the  field,  as  well  as  in  the 
Bureau,  and  ^ill  include  decisions  as  to  field  appointments  but  will  not  exercise 
discretion  with  respect  to  anj'  appointment,  transfer,  promotion,  or  separation  from 
the  service  of  any  officer  oi  employee,  this  discretion  being  lodged  in  the  Super- 
visor of  Collectors'  Offices,  Head,  Field  Audit  DiAision,  income  Tax  Unit,  and  the 
Federal  Prohibition  Commissioner,  subject  to  the  discretion  of  the  Commissioner 
of  Internal  Revenue.     (T.  D.  2996;  Mar.  24,  1920.) 

The  Division  of  Supplies  and  Equipment  will  have  jurisdiction  over  the  issuing 
of  the  formal  documents  covering  allov,-ances  for  field  service  other  than  .expenses 
for  railroad  and  other  fares,  for  subsistence,  and  other  travel  or  other  expenses  per- 
sonal to  officers  and  emplo.yees,  including  supplies  and  equipment,  freight  and 
express  transportation,  rentals,  printing  and  binding,  and  miscellaneous  expenses 
other  than  personal.     (T.  D.  2872;  June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

— Transmission  of  requests. 

As  requests  for  allowances  are  received  from  field  serA'ice  and  indorsed  by  the 
SuperAdsor  of  Collectors'  Offices,  the  Head,  Federal  Audit  Dix-ision,  Income  Tax 
Unit,  and  Federal  Prohibition  Division,  within  their  respective  jurisdictions,  said 
requests  will  be  transmitted  to  Di\ision  of  Appointments  in  case  of  allowances  for 
railroad  and  other  fares,  for  subsistence,  and  other  travel  or  other  expenses  personal 
to  officers  and  employees,  and  to  the  Division  of  Supplies  and  Equipment  in  case 
of  allowances  for  supplies  and  equipment,  freight  and  express  transportation,  rentals, 
printing  and  binding,  and  miscellaneous  expenses  other  than  personal,  where  the 
formal  allowance  documents  will  be  prepared  and  submitted  to  the  Commissioner 
of  Internal  Revenue  for  approval.     (T.  D.  2996;  Mar.  24,  1920.) 


IQ  ADMINISTRATIVE. 

Accounting    fontinued. 

(Jrants  of  allowances,  as  well  as  withdrawals  of  same,  must  be  made  through 
rneiiiiim  of  standard  forms  provided  therefor,  and  no  charges  encumbering  appro- 
priations will  be  made  in  the  Di\-i8ion  of  Accounts  or  credits  allowed  for  disbuise- 
ments  made  unless  the  formal  allowance  documents  covering  same  have  been  re- 
ceived in  said  division.     (T.  D.  2872;  June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

For  purpose  of  granting  and  withdrawing  allowances  the  following  forms  are  pro- 
vided and  their  iise  enjoined:  Form  7367,  "Grant  of  Annual  Allowances";  Form 
7369  "Grant  of  Special  Allowances";  Form  7368,  "Withdrawal  of  Annual  Allow- 
ance's"; Form  7370,  "Withdrawal  of  Special  Allowances";  Form  62,  "Purchase  or 
Stores  Reiiuisition  upon  the  Chief  (Merle  of  the  Treasury  Department."  These 
forms,  serially  numbered,  are  kept  in  stock  in  Division  of  Accounts,  and  custodian 
thereof  will  be  held  responsible  for  care  and  duly  authorized  issue  thereof;  as  re- 
quired for  issue,  said  forms  will  be  supplied  upon  requisition  therefor;  the  Di\asion 
of  Vccounta  will  keep  a  check  upon  the  forms  issued  and  require  that  the  numbered 
sheets  be  accounted  for.     (T.  D.  2872;  June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

Withdrawals  of  armual  and  special  allowances,  in  whole  or  in  part,  will  in  case  of 
each  class  of  allowances  be  covered  by  separate  series  of  forms,  issued  by  DiAdsion  of 
Appointments  and  Division  of  Supplies  and  Equipment,  as  provided  in  case  of 
?rantin?  of  annual  and  special  allowances.  (T.  D.  2872;  June  20,  1919.  T.  D.  2996; 
Mar.  24,  1920.) 

Method  of  estimating  expenses,  etc. 

Nothing  in  the  regulations,  as  set  forth  in  T.  Ds.  2872  and  2996,  shall  be  construed 
to  change  the  present  method  of  estimating  and  allowing  expenses  or  making  and 
accoimting  for  disbursements  under  indefinite  appropriations,  whether  permanent 
(e.  g.,  "Refundinff  Taxes  Illegally  Collected")  or  annual  (e.  g.,  "Increase  of  Com- 
pensation").    (T.^D.  2872;  June  20,  1919.     T.  D.  2996;  Mar.  24,  1920.) 

Writing  up  allowance  documents. 

In  writing  up  allowance  documents  it  is  essential  not  only  that  necessary  details 
be  given  respecting  items  sought  to  be  allowed,  as  provided  for  upon  the  standard 
forms  or  as  may  be  required,  but  that  documents  show  in  every  case  the  exact 
amount  for  which  it  is  proposed  to  charge  an  appropriation;  separate  documents  will 
be  used  for  each  appropriation.  (T.  D.  2872;  June  20,  1919.  T.  D.  2996;  Mar.  24, 
1920.) 

Bonds — Additional  taxes. 

Form  of  bond  t«i  be  executed  in  duplicate  with  approved  surety  company  pre- 
scribed for  extending  payment  to  date  not  exceeding  seven  months  from  passage 
of  act  of  October  3,  1917,  of  additional  taxes  imposed  by  act.  (T.  D.  2533;  Oct.  0, 
1917.)  Penal  sura  of  bond  fixed  at  not  leas  than  tax  due;  if  tax  as  shown  by  return 
is  less  than  $1,000,  penal  sum  of  bond  mav  be  less  than  $1,000.  (T.  D.  2574;  Oct 
31,  1917.) 

Payment  of  tax  shown  to  be  due  under  section  403  of  act  of  October  3,  1917,  may, 
upon  filing  of  bond,  be  extended  to  date  not  exceeding  seven  months  from  pas  age 
of  such  act;  bond  to  be  executed  in  duplicate,  with  approved  surety  company,  in 
penal  sum  of  not  less  than  double  the  tax  due  and  in  no  case  less  than  $1,000.  (T  D 
2.556:  Oct.  16,  1917.     But  see  T.  D.  2574  as  to  penal  sum  of  bond.) 

Payment  of  additional  ta,xes  on  account  of  stamps  for  pavment  of  tax  on  cigars, 
cigarettes,  etc.,  on  hand  on  October  4,  1917,  and  -November  2,  1917,  must  be  made 
at  time  manufacturer  files  return— in  case  of  inventories  of  October  4,  1917,  on  or 
before  November  2,  1917;  and  in  case  of  inventories  of  November  2,  1917,  on  or 
before  December  1,  1917— and  in  no  case  can  this  time  be  extended  beyond  such 
dates;  no  bond  for  extending  payment  mil  be  accepted,  as  in  case  of  additional 
^^^  ''^-^^^K^  ^  ^^^^^  ^^  dealers,  as  the  law  makes  no  provision  to  that  effect. 
(T.  D.  2.^69;  Oct.  17,  1917.) 

Pvf'tums  required  by  section  1002  of  act  of  October  3,  1917,  required  to  be  filed 
on  or  before  November  2,  1917;  time  for  filing  return  can  not  be  extended  by 
givinjiof  bond.     (T.  D.  2584;  Nov.  20,  1917.) 

Where  satisfactory  bonds  have  not  been  given  for  extension  of  time  for  making 
^t^JTJll  notice  and  demand  should  be  mailed  as  provided  by  section  3184,  Re- 
v^«l  SUtutes,  which  notice  and  demand  should  be  served  on  Form  1-17,  and  should 
othpr  n'^if.i^^hl-'"  ^•'  ^''- """^  t^^  'ft  ^'°™  ^9  ^"thin  intervals  of  10  days  of  each 
(T  D  2648    jL  28  S)  ^''^''  ^'''^"'  P^""^^^^^''  ""^^'  «"  ^''''''^^- 


ADMINISTRATIVE.  11 

Bonds — Continued. 
Collateral  seciirity. 

Bonds  depoaited  ae  security  must  be  immediately  forwarded  to  Commissioner  of 
Internal  Revenue  by  registered  mail  for  safe-keeping,  except  where  collector's 
office  is  in  same  city  as  Federal  reserve  bank,  in  which  case  coupon  bonds  received 
should  be  deposited  with  such  bank,  which  will  issue  its  receipt;  disposition  of 
receipts;  assignment  of  registered  bonds;  insurance  of  packages.  (T.  D.  2554; 
Oct  25,  1917.) 

Form  of  bond  with  personal  8uret>-  to  be  executed  in  penal  sum  of  not  less  than 
tax  due  and  in  no  case  less  than  $1,000  prescribed;  personal  surety  need  not  be 
required  to  qualify  on  Form  33  when  he  is  supported  by  collateral  security  of  a 
value  clearly  in  excess  of  amount  of  tax  due.  (T.  D.  2557;  Oct.  27,  1917.  But 
see  T.  D.  2574  as  to  penal  siun  of  bond.) 

Where  collateral  other  than  Liberty  bonds  is  deposited  as  security,  principal 
must  execute  bond  in  stated  form,  and  collector  is  required  to  give  certain  receipt; 
collateral  should  be  surrendered  to  taxpayer  as  soon  as  tax  and  interest  have  been 
paid ;  if  tax  is  paid  in  installments  proportionate  amount  of  collateral  deposited  may 
be  surrendered  in  discretion  of  collector.     (T.  D.  2574;  Oct.  31,  1917.) 

Bond  as  security  for  payment  of  floor  taxes  filed  before  expiration  of  10  days 
after  the  date  of  notice  and  demand  for  pa>Tnent  should  be  accepted  as  security; 
bond  may  be  accepted  after  such  10  da\s  if  sufficient  in  amount  to  cover  tax  and 
accrued  penalties.     (T.  D.  2574;  Oct.  31,  1917.) 

Collectors  should  use  vigilance  in  collection  of  taxes  and  issue  distraint  warrant 
wherever  necessary;  if  taxes  secured  by  filing  of  bond  are  not  paid  within  time 
limit,  collector  should  endeavor  to  collect  bv  distraint.  (T.  D.  2574;  Oct.  31, 
1917.) 

Any  registered  or  coupon  bonds  of  the  United  States  may  be  accepted  as  security 
for  pavment  of  floor  taxes,  in  accordance  with  T.  D.  2537,  T.  D.  2554,  and  T.  D. 
2557.  ■  (T.  D.  2606;  Dec.  13,  1917.) 

Taxpayer  may  give  personal  bond  with  one  or  more  personal  sureties,  as  required 
by  statute,  supported  b\'  deposit  of  registered  bonds  of  United  States,  at  face  value 
equal  to  penal  sum  of  bond,  assigned  to  'The  Commissioner  of  Internal  Revenue"; 
forms  of  bonds  prescribed  in  existing  regulations  may  be  modified  to  conform  with 
requirements  of  this  holding ;  bonds  need  not  be  deposited  when  personal  sureties  are 
sufficient,  but  where  bonds  are  deposited  as  collateral,  sureties  will  not  be  required 
to  qualify  on  Form  33;  registered  bonds  deposited  to  be  forwarded  to  Commissioner 
by  registered  mail  for  saf e-keepin» ;  upon  cancellation  of  bonds  given  by  taxpayer 
bonds  forwarded  will  be  reissued  in  accordance  with  instructions  of  taxpayer. 
(T.  D.  2606;  Dec.  13,  1917.) 

Liberty  bonds. 

Collectors  authorized  to  accept  in  lieu  of  surety  bonds  as  security  for  payment  of 
floor  taxes  covered  by  section  1002  of  act  of  October  3,  1917,  Liberty  bonds  of  the 
United  States  equivalent  to  the  actual  amount  of  the  taxes  due.  (T.  D.  2537; 
Oct.  17,  1917.) 

Collectors  authorized  to  accept  certificate  of  bank  or  trust  company,  member 
of  Federal  reserve  system,  sufficiency  and  solvency  of  which  are  satisfactory  to 
collector,  to  effect  that  taxpayer  has  deposited  cash  or  Treasury  certificates  of 
indebtedness  in  full  payment  of  Liberty  loan  bond  subscriptions  in  name  of  "Com- 
missioner of  Internal  Revenue  in  trust  for ,"  or  in  event  bond  transaction  is 

not  consummated  taxes  will  be  paid  to  collector  in  cash  or  corporate  surety  bond 
filed;  form  of  certificate  indicated;  certificate  to  be  forwarded  to  Commissioner  of 
Internal  Revenue.     (T.  D.  2554;  Oct.  25,  1917.) 

WTiere  Liberty  bonds  are  deposited  as  security,  principal  must  execute  bond  in 
stated  form;  Liberty  bonds  deposited  and  in  possession  of  collector  of  internal 
revenue  should  be  surrendered  to  taxpayer  as  soon  as  the  tax  and  interest  have  been 
paid;  if  tax  is  paid  in  installments,  a  proportionate  amount  of  the  collateral  de- 
posited may  be  surrendered  in  the  discretion  of  the  collector.  (T.  D.  2574;  Oct. 
31,  1917.) 

AMne  maker  producing  not  exceeding  1,000  gallons  may  either  file  bond.  Form 
699,  or  may  deposit  with  collector  as  security  Liberty  loan  bonds  or  cash  equal  to 
amount  of  tax;  if  Liberty  loan  bonds  are  deposited,  he  must  execute  bond,  in 
duplicate,  in  stated  form,  and  in  such  form  with  appropriate  substitutions  in  case 
cash  is  deposited;  bond  and  security  must  be  fUed  with  collector  prior  to  time  of 
crushing  grapes.     (T.  D.  2765;  Oct.  21,  1918.) 


12  AU-MiiS'ltiTliATIVE. 

Bonds — Coiiti  nued . 

Collateral  security— Continued. 

_ Liberty  bonds— Continued. 

When  Liljertv  l<«n  bonds  or  cash  are  deposited  as  security  by  wine  maker  pro- 
ducing not  exceeding  1,000  gallons  per  year,  the  collector  should  give  the  depositor 
a  receipt  in  stated  form,  wliich  receipt  should  he  made  in  triplicate,  one  copv  being 
immediately  transmitted  to  rommi.ssioner  of  Internal  Revenue;  safekeeping  of 
bonds:  assigning  of  registered  bonds;  security  thus  pledged  should  not  be  held  by 
collector  except  upon  instructions  from  Commissioner,  and  security  will  be  sur- 
rendered as  soon  as  tax  and  any  accrued  penalty  and  interest  have  been  paid. 
(T.  D.  27f)5;  Oct.  21.  1918.) 

Claims  for  abatement  or  refund. 
See   ■Claims." 

Collection  and  payment  of  taxes. 
See  specific  heads. 

Advance  payment. 

Instructions  with  reference  to  time  for  making  advance  payments  in  installmenta 
or  in  whole  of  income  and  excess-profits  taxes  under  section  1009  of  act  of  Oct.  3, 
1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to  tax- 
paver;  refund  of  excess  pavment;  entries  to  be  made  on  specified  forms;  interest 
table.  (T.  D.  2622;  Dec."  26,  1917.  T.  D.  26,'4;  Mar.  18,  1918.  T.  D.  2695; 
Apr.  11,  1918.) 

Certificates  of  indebtedness  accepted. 

Collectors  (lirocted  to  receive  United  States  certificates  of  indebtedness,  maturing 
June  25,  1918,  at  par  and  accrued  interest,  in  payment  of  income  and  excess-profits 
taxes,  when  payable  at  or  before  maturity  of  certificates;  amount  of  such  certificates 
must  not  exceed  amount  of  taxes  due;  deposits  of  such  certificates  to  be  made  in 
Federal  reserve  banks  of  districts  in  which  collectors'  offices  are  located;  insurance, 
where  amounts  are  transmitted  by  registered  mail;  until  certificates  of  deposits 
arc  received  from  banks  amounts  must  be  carried  as  "cash  on  hand;"  schedule 
showing  amount  of  accrued  interRst  pavable  per  certificate  of  each  issue  on  any 
date  from  Jan.  2  to  June  25,  1918.     (T.  t).  2639;  Jan.  28,  1918.1 

Schedule  sho\\ing  exact  amount  of  accrued  interest  payable  on  any  day  fr.  m 
Feb.  15,  1918,  to  June  25,  1918.     (T.  D.  2656;  Feb.  15,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
Mar.  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excress  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  pavable  on  any  dav  from  Mar. 
15,  to  June  25,  1918.     (T.  D.  2680;  Mar.  23,  1918.) 

»  ollectora  directed  to  recei\e  United  States  certificates  of  indebtedness,  dated 
Ajnil  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amoimt  of  accrued  interest  on  any  day  fi'om  April  15  to 
June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

'  ollectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
May  15,  1918,  and  maturing  June  25,  1918,  at  par  and  accrued  interest  in  payment 
of  income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certifi- 
cates; schedules  showing  the  exact  amount  of  accrued  interest  payable  on  anv  day 
hom  May  15  to  June  25,  1918.     (T.  D.  2718;  May  28,  1918.) 

'  ollectors  directed  to  receive  at  par  Ignited  States  Treasury  certificates  of  indebt- 
edne.'o  of  tax  series  of  1919,  dated  August  20,  1918,  and  maturing  July  15,  1919,  and 
of  Series  T,  dated  Noyemi)er  7.  1918,  and  maturing  March  15,  1919.  'in  payment  of 
income  and  profits  taxes  when  payable  at  or  before  maturity  of  certificates;  deposits 
of  certificates  must  be  made  with  "Federal  reserve  banks  of  districts  in  which  respec- 
ti\e  collectors'  oflTices  are  located  and  must  be  forwarded  by  registered  mail;  until 
certificates  of  deposit  are  recei\  ed  from  banks,  amounts  must  be  carried  as  cash  on 
hand:  schedules  of  certificates  reciuired  to  be  kept  by  collectors:  deposit  of  certifi- 
cates in  banks  by  taxpayers  permitted  under  stated  conditions.  (T.  D.  2778"  Dec 
11.1918.) 

- —    Collection  and  deposit  of  checks. 

Department  Circular  No.  14  1.  it^suod  under  date  of  May  20,  1919,  with  reference 
to  collection  and  deposit  of  checks  received  in  payment  of  internal  revenue  taxes, 
publi.shed  for  information  of  internal  revenue  officers  and  others  concerned.     (T.  D. 


ADMISSIONS.  18 

Collection  and  payment  of  taxes — Continued. 
Fractional  part  of  cent — Beverages. 

In  computing  tax  a  fractional  part  of  a  cent  shotild  be  dinregarded  unless  it 
amounts  to  one-naif  cent  or  more,  in  which  case  it  should  be  increased  to  a  full  cent. 
(T.  D.  2719;  Art.  XXXIX.) 

Excise  taxes. 

In  computing  tax  a  fractional  part  of  a  cent  should  be  disregarded  unless  it  amounts 
to  one-half  cent  or  more,  in  which  case  it  should  be  increased  to  a  full  cent.  (T.  D. 
2719;  Art.  XXXIX.) 

Income  taxes. 

In  payment  of  income  tax  a  fractional  part  of  a  cent  shall  be  disregarded  unless 
it  amounts  to  a  half  cent  or  more,  in  which  case  the  fraction  shall  be  increased  to 
1  cent.     (T.  D.  2690;  art.  41.) 

Uncertified  checks  received. 

If  uncertified  check,  accepted  by  collectors,  is  not  paid,  person  by  whom  it  has 
been  tendered  remains  liable  for  tax;  such  uncertified  checks  as  depositary  bank  is 
willing  to  accept  should  be  included  in  certificate  of  deposit  issued  to  collector: 
all  other  certificates  will  be  carried  by  collector  as  "cash  on  hand;"  date  on  which 
collector  receives  check  considered  date  on  which  payment  is  made  unless  check 
is  returned  dishonored;  such  uncertified  checks  as  bank  is  not  willing  to  accept 
for  immediate  credit  may  be  deposited  for  collection,  and  when  collection  is  made 
proceeds  should  be  immediately  deposited  with  other  collections  for  the  day, 
collector  chaining  his  account  "cash  on  hand,"  and  crediting  taxpayer  from  whom 
check  was  received.     (T.  D.  2627;  Dec.  28,  1917.) 

Penalties  for  violation  of  laws  and  regulations. 
See  specific  heads. 

Returns  of  taxpayers. 

See  specific  heads. 

ADMISSIONS. 

Accommodations  included  in  admissions. 

Where  an  admission  charge  is  made  at  the  main  entrance  and  an  additional 
charge  is  made  for  admission  to  seats,  tables,  or  other  space,  tax  is  payable  on  ag- 
gregate charge.     (T.  D.  2681;  Mar.  26,  1918.) 

Agents  selling  tickets. 

See  "Brokers  in  tickets,"  post. 

Agricultural  fairs. 

The  term  "agricultural  fairs,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
includes  live  stock  and  similar  shows  for  promotion  of  agricultural  interests,  but 
not  bench  shows  or  other  indoor  exhibitions.     (T.  D.  2681;  Mar.  26,  1918.) 

Airdromes. 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act 
of  October  3,  1917,  appHes  only  to  such  permanent  outdoor  parks  as  include  a  con- 
siderable variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  inclosiires  or  on  vacant  lota;  outdoor  amusement  parks 
include  similar  enterprises  conducted  on  piers,  but  not  motion  picture  or  other 
theaters  known  as  "airdromes."     (T.  D.  2681;  Mar.  26,  1918.) 

"All  the  proceeds." 

The  term  "all  the  proceeds,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
means  the  net  proceeds  after  payment  of  actual  reasonable  expenses.  (T.  D. 
2681;  Mar.  26,  1918.) 

Athletic  contests. 

See  "Baseball,"  post. 

Admissions  to  school  or  college  athletic  contests  and  other  college  entertainments 
are  not  taxable  if  proceeds  go  to  the  school  or  the  college,  but  they  are  if  proceeds  are 
used  for  support  of  athletics  or  other  separate  purposes.     (T.  D.  2681;  Mar.  26,  1918.) 


j[4  ADMISSIONS. 

Attorneys  for  theaters. 

Attonieva  for  theaters  are  exempt  from  tax  imposed  by  section  700  of  act  of  Octo- 
ber 3  1917,  when  entering  theater  in  course  of  their  employment,  but  must  pay  it 
when'  attending  aa  mere  spectators  and  occupying  seats  in  the  audience.  (T.  D. 
2HH1;  Mar.  26,  1918.) 

Baseball — Bain  checks. 

\\Tiere  rain  checks  attached  to  tickets  sold  for  canceled  baseball  game  are  redeem- 
able in  cash  with  refxmd  of  the  tax,  or  by  issue  of  ticket  for  another  game,  tJie  box- 
office  statement  for  the  canceled  game  rnay  be  marked  "Canceled,"  but  in  its  next 
return  the  tax  must  be  accounted  for  by 'the  club  on  any  tickets  not  redeemed  as 
shown  by  comparison  of  box-office  statement  for  canceled  game  with  statements  for 
subsequent  games.     (T.  D.  2681;  Mar.  26,  1918.) 

Reporters  and  telegraphers. 

Admissions  of  baseball  reporters  and  telegraphers,  occupying  special  space  at 
baseball  parks,  and  admitted  by  passes  issued  by  baseball  writers'  association,  are 
exempt  from  tax  under  section  700  of  the  act  of  October  3,  1917.  (T.  D.  2681;  Mar. 
26,  1918.) 

Basis  of  tax. 

Where  an  admission  charge  is  made  at  the  main  entrance  and  an  additional  charge 
io  made  for  admission  to  seats,  tables,  or  other  a].'.ice,  tax  is  payable  on  aggregate 
charge.     (T.  D.  2681;  Mar.  26,  1918.) 

Bench  ahowg. 

The  term  "agricultural  fairs,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
includes  live  stock  and  similar  shows  for  promotion  of  agricultural  interests,  but 
not  i),-nch  shows  or  other  indoor  exhibitions.     (T.  D.  2681;  Mar.  26,  1918.) 

Bona  fide  employees. 

See  "Employees,"  post. 

Boxes  at  places  of  entertainment. 

Tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  must  be  paid  in  respect 
to  performance  for  which  boxes  or  seats  are  sold  or  reserved,  whether  or  not  they 
are  used;  if  there  are  no  boxes  of  similar  size,  tax  is  to  be  computed  by  di%dding  tax 

Eayable  on  smaller  box  by  number  of  seats  in  it  and  multiplying  tax  of  seat  by  mim- 
er  of  seats  in  larger  box,  and  if  there  are  no  boxes  occupying  similar  position  tax  ia 
to  be  based,  on  price  of  single  seats  in  same  part  of  house;  in  case  of  seats  or  boxes 
leased  or  reserved  for  period  before  and  after  November  1,  1917,  tax  is  payable  on 
admissions  after  October  31,  1917,  and  should  be  collected  for  ail  such  admissions 
upon  first  use  of  box  or  seat  after  that  date;  where  lease  only  entitles  lessee  to  right 
of  occupancy  upon  payment  of  re;.jular  price  charged  for  admission,  tax  of  10  per 
cent  is  to  be  collected  also  on  additional  charge  when  paid.  (T.  D.  2681 ;  Mar.  26, 
1918.) 

Brokers  in  tickets. 

Where  a  broker  piu-chases  tickets  for  resale,  with  right  to  return  those  not  sold, 
proprietor  of  entertainment  held  responsible  for  collecting  tax  on  full  price  paid  for 
actual  use  of  tickets;  independent  brokers  and  dealers  must  collect  and  account  for 
tax  on  their  sales,  less  amount  of  tax  on  each  ticket  collected  and  accounted  for  by 
amusement  enterprise;  if  ticket  is  sold  for  use  and  not  for  resale,  at  less  than  face 
value,  tax  is  on  price  paid,  but  seller  must  collect  tax  on  face  value  unless  he  can 
furnish  sxlisfactory  e\idence  that  presumptive  purchaser  was  not  agent  of,  or  acting 
in  collusion  with,  the  seller.     (T.  D.  2681;  Mar.  26,  1918.) 

If  Ti')^*^*^^-'-^^'*^'"^''®^"'*^^  ^°  collect  tax  on  admissions,  shall,  on  the  Ist  dav  of  April, 
l.)18  (and  it  not  on  that  date  engatjed  in  business,  then  within  10  davs  after  enca«^iii" 
in  busmess),  and  annually  thereafter  on  the  1st  dav  of  July,  file  in'  the  office  of^the 
collector  ot  internal  revenue  of  the  district  in  which  his  place  of  business  is  located, 
an  application  for  registry,  setting  forth  certain  stated  information;  traveling  or  itin- 
erant shows;  collects,  if  satisfied  that  all  statements  given  in  application  are  cor- 
rect, will  issue  certificate  of  registration  on  certain  form,  which  proprietor  shall 
keep  conspicuoiis  y  posted  in  hia  place  of  business,  or  carry  on  his  person  if  he  has 
no  tixed  place  o[  buameas.    (T.  D.  2681;  Mar.  26,  1918  ) 


ADMISSIONS.  15 

Brokers  in  tickets — Continued. 

Ticket  brokers  required  to  keep  daily  records  showing  tickets  sold  for  each  enter- 
tainment; proceede;  cost  of  tickets  and  tax  returnable;  monthly  return,  which 
shall  be  recapitulation  of  daily  records,  required  to  be  made  in  duplicate  on  Form 
729  and  to  be  transmitted  to  office  of  collector,  with  amount  of  tax,  on  or  before  last 
day  of  month  following  that  for  which  return  is  made;  daily  record  of  brokers,  with 
copies  of  their  monthly  returns,  reqtiired  to  be  kept  on  file  for  two  years,  in  such 
manner  as  to  be  readily  accesaiole  to  internal  revenue  officers.  (T.  D.  2681;  Mar. 
26,  1918.) 

Business. 

If  person  admitted  free  to  place  of  entertainment  attends  purely  for  business 
reasons  and  does  not  occupy  space  that  might  otherwise  be  sold,  tax  provided  for  by 
section  700  of  the  act  of  October  3, 1917,  is  not  payable.     (T.  D.  2681;  Mar.  26, 1918.) 

Cabarets — -Basis  of  tax. 

Where  an  adequate  fixed  charge  is  made  for  admission,  seats,  and  tables,  the  tax 
of  1  cent  for  each  10  cents  or  fraction  thereof  paid  for  admission,  imposed  by  section 
700  of  the  act  of  October  3, 1917,  shall  be  based  upon  such  charge;  where  a  nominal 
admiesion,  not  actually  covering  cost  of  entertainment  is  charged,  admission  being 
wholly  or  partlv  absorbed  in  price  of  refreshmeiits  and  serAice,  such  charge  will  not 
be  accepted  as'basis  of  tax.     (T.  D.  2681;  Mar.  26,  1918.) 

Checks  and  coupons. 

Cabaret  proprietors  mTist  furnish  each  guest,  upon  paying  his  check,  a  coupon 
receipt  to  be  detached  therefrom,  containing  separately  in  indelible  figures  the  total 
of  the  amount  paid  for  refreshments,  etc.,  and  the  war  tax  paid  thereon;  the  checks 
and  coupons  must  be  serially  numbered.     (T.  D.  2681;  Mar.  26,  1918.) 

Computation  of  charge  for  admission. 

Twenty  per  cent  of  total  amount  paid  for  refreshments,  merchandise,  serAdce, 
couvert  charge,  etc.,  including  any  sum  paid  for  seats  and  tables,  at  any  public  per- 
formance for  profit,  to  which  charge  for  admission  is  included  in  amount  so  paid, 
shall  be  deemed  to  be  paid  for  admission,  unless  satisfactory  e^'idence  is  submitted 
to  Commissioner  of  Internal  Revenue  that  different  percentage  should  be  fixed,  on 
basis  of  which  commissioner  shall  approve  different  percentage;  tax  is  at  rate  of  1 
cent  on  each  10  cents  or  fraction  thereof  of  such  20  per  cent  of  total  charge  to  each 
patron,  and  must  be  paid  by  person  pajang  for  such  refreshment,  service,  etc.,  and 
can  not  be  reckoned  or  paid  by  proprietor  upon  monthly  gross  receipts.  (T.  D. 
2681;  Mar.  26,  1918.) 

Definition. 

The  words  "cabaret  or  other  similar  entertainment,"  as  used  in  section  700  of  the 
act  of  October  3,  1917,  include  every  hotel,  or  room  therein,  restaurant,  hall,  or 
other  public  place,  at  or  in  which,  in  connection  with  ser^'ice  or  sale  of  food  or 
other  refreshments  or  merchandise,  any  vaiideville  or  other  performance  or  div  er- 
sion  in  way  of  acting,  singing,  declamation,  or  dancing,  either  with  or  without 
instrumental  or  other  music,  is  conducted;  every  form  of  entertainment  so  con- 
ducted is  inchided,  except  that  furnished  by  orchestras  such  as  were  usual  in 
hotels  and  restaurants  before  advent  of  cabarets,  performing  instnmieutal  music 
only,  unaccompanied  by  any  other  form  of  entertainment;  hotel,  restaurant,  or 
hall,  affording,  in  connection  with  service  of  refreshment,  food,  or  merchandise, 
entertainment  in  form  of  dancing  by  its  patrons,  is  inchided;  performance  must 
be  public  and  for  profit;  where  there  is  entertainment  in  one  dining  room  and  not 
in  an  entirely  separate  dining  room  of  same  hotel  or  restaurant,  only  admissions  to 
first  room  are  taxable.     (T.  1).  2681;  Mar.  26,  1918.) 

Payment  of  tax. 

Tax  must  be  paid  by  pers:  m  paying  for  refreshments,  service,  merchandise,  etc., 
it  can  not  be  reckoned  or  paid  by  proprietor  upon  monthly  gross  receipts;  tax  to 
be  collected  only  from  persons  present  or  who  have  paid  or  agreed  to  pay  for  accom- 
modations during  some  period  of  day  at  which  entertainment  is  in  progress  or  there 
is  opportunity  for  public  dancing  in  case  of  public  banquets  including  dancing. 
(T.  D.  2681;  Mar.  26,  1918.) 

Returns. 

Every  person,  corporation,  partnership,  or  association,  recei\ang  any  payments 
for  admission  to  cabarets  and  other  similar  entertainments,  or  admitting  any  person 
free  wliere  admission  is  charged,  must  collect  tax  on  such  admissi<ins  from  persona 
admitted  or  making  such  payments,  and  make  monthly  return  and  payment  of 
collections  as  provided  in  section  503.     (T.  D.  2681;  Mar.  26,  1918.') 


-^^  ADMISSIOKS. 

CarnivaJs. 

The  term  "outdoor  general  amusement,  parks,"  aa  tised  in  section  700  of  the 
act  of  October  3,  1917,  applies  only  to  such  permanent  out  door  parks  aa  inchule  a 
considerable  variety  of  entertainments,  such  as  mechanical  shows,  musical  attrac- 
tions riding  deWces,  and  vaude\'ille  shows,  and  not  to  carnivals  or  entertainment 
enterprises  with  temporary  inclosures  or  on  vacant  lots.     (T.  I).  2t)81;  Mar.  26, 1918.) 

Charitable  institutions,  entertainnaents  for. 

Where  proceeds  of  admissions  inure  exclusively  to  benefit  of  charitable  institu- 
tions societies,  or  organizations,  admissions  are  not  taxable;  character  of  organiza- 
tion for  which  benefit  is  given  and  not  purpose  of  particular  benefit  is  controlling; 
admissions  to  any  entertainment  for  charity  are  taxable  if  funds  are  administered 
b\-  any  })erson8  or  organization  other  than  religious,  educational,  or  charitable 
iiistitiitions,  societies,  or  organizations.     (T.  I).  2681;  Mar.  26,  1918.) 

Every  institution,  society,  or  organization,  claiming  exemption  from  collecting 
tax  on  admissions  by  reason  of  being  charitable,  required  to  file  with  collector  of 
district  affida^■it  upon  stated  I'^orm,  prior  to  conducting  any  entertainment  or 
amusement  or  permitting  either  to  be  conducted  for  its  benefit;  unless  affida^^t 
shall  be  filed  sufficiently  before  date  of  entertainment  to  permit  of  full  advance 
investigation  of  circumstances  and  a  decision  thereon,  managers  of  entertaininent 
shall  ke(>p  and  exhibit  to  internal  revenue  officer  complete  record  of  admissions 
to  each  performance,  and  will  be  held  responsible  for  collection  of  tax  in  case  claim 
fur  exemption  is  not  allowed.     (T.  D.  2681;  Ma-.  26,  1918.) 

Children. 

Tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  on  th"  "^~^'T.""^  '* 
children  under  12  years  of  age,  must  be  collected  in  all  cases  at  f^  ^^  jgj^j 
1  cent  for  each  10  cents  or  fraction  thereof,  except  where  distinctive  i,.^^-  -.1 
issued  for  children  under  12  years,  or  tickets  for  their  use  are  indelibly  stampea 
to  show  that  tliey  are  good  only  for  the  admission  of  children  under  12  years,  or 
where,  in  absence  of  tickets,  tax  is  paid  at  time  of  admission  of  children  under  12 
years;  children  under  12  vears  of  age  when  admitted  free  are  not  taxable.  (T.  D. 
2681;  Mar.  26,  1918.) 

Circuses. 

Proprietor,  manager,  or  duly  authorized  officer  of  traveling  or  itinerant  shows, 
exhibitions,  or  amusement  enterprises,  which  have  fixed  or  established  head- 
quarters, required  to  register  with  collector  of  district  in  which  headquarters  are 
located,  and  required  to  file  at  same  time,  or  an  soon  thereafter  as  possible,  a  schedule 
of  the  itinerary,  and  to  keep  a  daily  record  and  render  monthly  retiu'ns  to  the  col- 
lector of  said  district.     (T.  D.  268i;  Mar.  26,  1918.) 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the 
act  of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a 
considerable  variety  of  entertainments,  such  as  mechanical  shows,  musical  attrac- 
tions, riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment 
enterprises  with  temporary  inclosures  or  on  vacant  lots.     (T.  D.  2681;  Mar.  26,  1918.) 

Collection  of  tax. 

Tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  is  to  be  paid  by  the 
person  paying  for  the  admission,  and  must  be  collected  by  the  proprietor  of  every 
place  to  wliich  admissions  are  charged.     (T.  D.  2681;  Mar.  26,  1918.) 

Every  person,  corporation,  partnership,  or  association,  receiving  any  payments 
for  admission,  including  admission  to  cabarets  and  other  similar  entertainments, 
or  admitting  any  person  free  to  anyplace  where  admission  is  charged,  must  collect 
the  tax  imposed  by  section  700  of  the  act  of  October  3, 1917,  on  such  admissions, 
from  the  persons  admitted  or  making  such  payments.     (T.  D.  2681;  Mar.  26,  1918.) 

Every  institution,  society,  or  organization,  claiming  exemption  from  collecting 
tax,  required  to  file  with  collector  of  district  affidavit  upon  stated  Form,  prior  to 
conducting  any  entertainment  or  amasement  or  permitting  either  to  be  conducted 
lor  Its  benefit;  unless  affida\dt  shall  be  filed  sufficiently  before  date  of  entertain- 
ment to  permit  of  full  advance  investigation  of  circumstonces  and  a  decision  thereon, 
managers  of  entertainment  shall  keep  and  exhibit  to  internal  revenue  officers  com- 
plete record  of  admissions  to  each  performance,  and  will  be  held  responsible  for 
collection  ol  tax  m  case  claim  for  exemption  is  not  allowed.  (T.  D.  2681;  Mar.  26, 
l"io.) 


ADMISSIONS.  17 

Collection  of  tax — Continuod. 

Whero  a  broker  purchagea  ticketa  for  resale  with  riglit  to  return  those  not  sol.l, 
or  relation  exists  other  than  that  of  buyer  and  seller,  proprietor  of  entertainment 
lield  responaible  for  collecting  tax  on  full  price  paid  by  actual  uaer  of  ticketa;  inde- 
pendent brokers  and  dealers  in  tickets  must  collect  and  account  for  tax  on  their 
sales;  if  ticket  ia  suld  for  use  and  uQt  for  resale,  at  loss  than  face  value,  seller  must 
tollcct  tax  on  face  value,  unless  he  can  furnish  satisfactory  evidence  that  pro- 
sumpti\'e  purchaser  was  not  agent  of,  or  acting  in  collusion  with  seller;  in  case  of 
season  tickets  and  subscriptions,  tax  is  to  be  collected  at  time  of  paying  therefor,  and 
where  such  tickets  and  subscriptions  cover  a  period  before  and  after  November  1, 
1917,  tax  should  be  collected  upon  first  presentation  of  ticket  or  exercise  of  sub- 
scription right  after  October  31, 1917;  the  tax  paid  by  person  paying  for  admission 
must  be  collected  by  the  proprietor  of  everyplace  to  which  admissions  are  charg?d. 
(T.  D.  2GS1;  Mar.  20,  1918.) 

Whcj'o  a  person  or  organization  leases  a  theater,  hall,  park,  or  place,  lessee  is 
required  by  law  to  collect  tax  on  admissions  to  entertainments  or  amusements  con- 
ducted in  ouch  place,  but  for  convenience  of  parties  and  safeguarding  of  the  revenue, 
lessor  will  bo  permitted  to  assume  resoonaibility  for  collection  of  tax.  (T.  D.  2081; 
Mar.  26,  1918.) 

College    cntertaiiunents. 

Admissions  to  school  or  college  athletic  contests  and  other  college  entertainments 
arc  not  taxable  if  proceeds  go  to  the  school  or  the  college,  but  they  arc  if  proceeds 
are  used  for  support  of  athletics  or  other  separate  purposes.     (T.  t).  2G81;  Mar.  2(:, 

l'.)is.) 

'"'^'  -Uai,  of  tax — Aggregate  charge. 

~  :,  nere  an  admission  charge  is  made  at  the  main  entrance  and  an  additional  charge 
is  m.ade  for  admission  to  seats,  tables,  or  other  space,  tax  is  payable  on  aggregate 
charge.     (T.  D.  2681;  Mar.  26,  1918.) 

— —  Cabarets. 

Twenty  per  cent  of  total  amount  paid  for  refreshments,  merchandise,  service, 
convert  charge,  etc.,  including  any  sum  paid  for  seats  and  tables,  at  any  public 
performance  for  profit,  to  which  charge  for  admission  is  included  in  amount  so 
paid,  shall  be  deemed  to  be  paid  for  admission,  unlesj  satisfactory  evidence  i^ 
submitted  to  Commissioner  of  Internal  Revenue  that  different  percentage  should  be 
fixed,  on  basis  of  which  Commissioner  shall  approve  different  persentage;  tax  is 
at  rate  of  1  cent  on  each  10  cents  or  fraction  thereof  of  such  20  per  cent  of  total  charge 
to  each  patron,  and  must  be  paid  by  person  paying  for  such  refreshment,  service, 
etc.,  and  can  not  be  reckoned  or  paid  by  proprietor  upon  monthly  gro.'ss  receipts. 
(T.  D.  2081;  Mar.  26,  1918.) 

— —  Leases  of  boxea  and  scats. 

Tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  must  be  paid  in  respect 
to  performance  for  which  boxes  or  seats  are  sold  or  reserved,  whether  or  not  they 
are  used;  if  there  are  no  boxes  of  similar  size,  tax  is  to  be  computed  by  dividing 
tax  payable  on  smaller  box  by  number  of  seats  in  it  and  multiplying  tax  of  seat 
by  number  of  seats  in  larger  box,  and  if  there  are  no  boxes  occupjung "similar  posi- 
tion tax  is  to  be  based  on  price  of  single  seats  in  same  part  of  house;  in  case  of  seats 
or  boxes  leased  or  reserved  for  period  before  and  after  November  1,  1917,  tax  is 
payable  on  admissions  after  October  31,  1917,  and  shoidd  be  collected  for  all  such 
admissions  upon  first  use  of  box  or  seat  after  that  date;  where  lease  only  entitles 
lessee  to  right  of  occupancy  upon  payment  of  reg\ilar  price  charged  for  aclmi.osion, 
tax  of  10  per  cent  is  to  be  collected  also  on  additional  charge  when  paid.  (T.  D. 
2081;  Mar.  20,  1918.) 

Resale  of  tickets. 

Where  all  the  admissions  to  an  entertainment  arc  sold  en  bloc  to  a  purchaser  for  a 
specific  sum  and  no  charge  is  made  for  individual  tickets,  the  tax  is  on  the  price  paid 
for  the  entertainment,  and  the  purchaser  must  account  for  the  tax  on  any  excess  over 
the  purchase  price  for  which  he  may  resell  the  tickets;  where  broker  purcha.se3 
tickets  for  resale,  with  right  to  return  those  not  sold,  proprietor  of  entertainment  held 
responsible  for  collecting  tax  on  full  price  paid  for  actual  use  of  tickets;  independ- 
ent brokers  and  dealers  must  collect  and  account  for  tax  on  their  sales,  less  amount 
of  tax  on  each  ticket  collected  and  accounted  for  by  amusement  enterprise;  if  ticket 

70420°— 21 2 


jg  ADMISSIONS, 

Computation  of  tax— Continued. 

Besale  of  tickets— Continued . 

is  sold  for  use  and  not  for  resale,  at  less  than  face  value,  tax  is  on  price  paid,  but 
.-eller  must  collect  tax  on  face  value  unless  he  can  furnish  satisfactory  c\adenco 
that  presumptive  purchaser  was  not  a^^ent  of,  or  acting  in  collusion  with,  the  seller. 
(T.  D.  2681:  Mar.  26,  1918.) 

C  onceasionaires. 

Vdmi'=;?ions  of  cmplovees  of  concessionaires  selling  refreshments,  etc.,  to  patrons 
an-  exempt  from  tax  under  .section  709  of  act  of  October  3, 1917.  (T.  D.  2G81 ;  Mar. 
26,  1918.) 

Critic  of  performances. 

Newspaper  critics  occupying  space  in  audience  must  pay  tax  imposed  by  sef'tinn 
700  of  act  of  October  3,  1&17.     (T.  D.  2G81:   Mar.  26,  1018.) 

Dances. 

Where  a  dancing  school  charges  an  admission  and  additional  charge  for  instruc- 
tion, tax  is  only  on  admission,  but  if  there  is  single  charge  for  adrnission  with  in- 
struction to  those  who  wish  it.  tax  is  on  entire  cliarge;  whore  admission  charge  is 
made  to  dancing  pavilion  and  separate  charge  made  for  each  dance  for  admission 
to  dancing  floor  within  pavilion,  every  admission  to  pa\dlion  or  dancing  floor  is  tax- 
able; charges  of  excarsion  boats  pro^'iding  opportunity  for  dancing  are  subject  to 
tax  where  such  charges  exceed  the  usual  or  reasonable  rates  for  transportatioji 
furnished.     (T.  D.  2681;   liar.  26,  1918.) 

Where  a  dance  hall  charges  no  initial  admission,  it  charge  of  not  more  than  5  cents 
is  made  for  admission  to  dance  floor  for  each  dancr ,  no  tax  is  payable,  but  if  charge  is 
10  cents  for  each  dance  or  if  p\irchase  at  one  time  of  more  than  one  5-cent  ticket  is 
required,  then  tax  is  payable.     (T.  D.  2681;   Mar.  26,  191S.) 

Hotel,  restaurant,  or  hall,  affording,  in  connection  with  service  of  refreshment, 
food,  or  merchandise,  entertainment  in  form  of  dancing  by  its  ])atrons,  i.s  included 
in  term  ''cabaret  or  other  similar  entertainment,"  as  used  in  section  700  of  the  act  of 
October  3,  1917;  performance  must  be  public  and  for  profit,  so  that  admissions  to 
private  dance  given  by  society  are  not  taxable  if  members  and  bona  fide  guests  only 
are  admittetl.  but  admissions  to  public  banquet,  including,-  dancing,  are  taxable  if 
performance  is  for  profit,  as  to  the  person,  if  any,  who  provides  bath  the  dinner  and 
the  entertainment.     (T.  D.  2681;   xMar.  26,  1918.) 

A  dance  hall  located  within  an  outdoor  general  amusement  park  loses  its  char- 
acter as  an  "amusement  within  an  outdoor  general  amusement  park"  during  those 
seasons  when  the  various  other  amusement  ventures  conaected  with  the  park  ai'e 
not  operated,  and  admissions  to  such  a  dance  hall  are  taxable  if  the  charge  for 
admission  excee<ls  5  cents.     (T.  D.  2782;  Dec.  24,  1918.) 

Corporation  conducting  dance  hall  is  agent  of  Government  to  collect  tax  on 
admissions,  and  when  T.  D.  2590  was  complied  with  it  is  not  liable  for  failure  to 
collect  the  tax  until  such  time  as  it  liad  actual  or  constructive  notice  of  the  modifica- 
tion of  T.  D.  2.590  by  issuance  of  Regulations  No.  43.     (T.  D.  2782;  Dec.  24,  1918.) 

Payments  for  admiadons  to  dances  given  by  Home  Guaixl  to  raise  money  for  uni- 
forms and  other  expeni=es  are  not  exempt  from  admissions  tax.  (T.  D.  2782;  Dec. 
24,  1918.) 

Date  tax  effective. 

Liability  to  tax  imposed  by  section  700  of  theact  of  Octobers,  1917,  di^pends  upon 
the  date  of  admission  to  any  place;  if  on  or  after  NoA-eraber  1,  1917,  amount  paid 
therefor  is  taxable,  notwithstanding  ticket  may  have  been  procured  or  admission 
paid  for  before  that  date.     (T.  D.  2681;   Mar.  26,  1918.) 

Definitions— "Agricultural  fairs." 

•  '^i'^^i  ^^V"  '"agricultui'al  faii-s,"  as  used  in  section  700  of  the  act  oi  October  3,  1917, 
includes  live  stock  and  similar  shows  for  promotion  of  agidcultural  interests,  but 
not  bench  shoAva  or  other  indoor  exhibition.s.     (T.  D.  2681;    Mar.  26,  1918.) 

"All  the  proceeds." 

The  term  "all  the  proc-eeds,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
means  the  net  proceeds  after  payment  of  actual  reasonable  expenses.  (T.  D.  2mi  ■ 
Mar.  26,  1918.)  i      -         \  > 


Doctors  for  theater  are  exempt  from  tax  imposed  by  section  700  of  act  of  October 
cr  in  course  of  theii-  employment,  but  must  pay  it  Avhcu 


ADMISSIONS.  19 

Definitions-  -ContiniK  (1 . 

"Outdoor  general  amusement  parks." 

The  term  "outdoor  general  amusement  parki<,"  as  used  in  section  700  of  the  act  of 
October  3, 1917,  a^jplies  only  to  such  permanent  outdoor  parks  as  include  a  considera- 
ble variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions,  riding 
devices,  and  vaudeAalle  shows,  and  not  to  carnivals  or  entertainment  enterprises 
with  temporary  inclcsures  or  on  vacant  lots;  outdoor  amusement  parks  include 
similar  enterprises  conducted  on  piei"s,  but  not  motion  picture  or  other  thea,ters 
known  as  "airdromes."     (T.  1).  2681;   Mar.  20,  J918.) 

"Place." 

The  word  ' '  place,"  as  used  in  f'sction  7{X)  of  the  act  of  October  3.  1 91 7,  is  not  defined 
in  the  section,  but  the  context  indicates  that  in  sreneral  only  admissions  to  places 
of  amusem.ent  and  entertainments  were  intended  to  Ik-  taxable.  (T.  D.  2G81;  Mar. 
26,  1918.) 

Deposits  of  payments  for  taxes. 

Collector  of  internal  revenue  may,  in  his  discretion,  require  the  person  receiving 
payments  for  taxes  to  make  daily  deposit  of  sums  so  received  in  special  account  in 
such  bank  as  collector  shall  designate.     (T.  D.  2681;  Mar.  26,  1918.) 

Doctors  for  theaters. 

Doctors  for  theater  L j.. i... ...  „_.  ... 

3,  1917,  when  entering  theater  in  course  of  theii-  employment,  but  must  pay  it  Avhen 
attending  as  mere  spectators  and  occupWng  seats  in  the  audience.  (T.  D.  2681; 
Mar.  26,1918.^ 

Educational  institutions,  entertainments  for. 

Where  proceeds  of  admissions  inure  exclusively  to  benefit  of  educaiional  institu- 
tions, societies,  or  organizations,  a<lniissions  are  not  taxable;  character  of  organiza- 
tion for  which  benefit  is  given  and  not  purpose  of  particular  benefit  is  controlling; 
admissions  to  any  entertainment  for  charity  arc  taxable  if  funds  are  administered  by 
any  persons  or  organization  other  than  religious,  educational,  or  charitable  institu- 
tions, societies,  or  organizations;  admissions  to  school  or  college  athletic  contests 
and  other  college  entertainments  are  not  taxable  if  proceeds  go  to  the  school  or  to 
the  college,     (t.  D.  2881;  Mar.  26,  1918.) 

Eveiy  institution,  society,  or  organization^  claiming  exemption  from  collecting 
tax  on  admissions  by  reason  of  being  educational,  required  to  file  with  collector  of 
district  affidavit  upon  stated  form,  prior  to  conducting  any  entertainment  or  amuse- 
ment or  permitting  either  to  be  conducted  for  its  benefit;  unless  affidavit  shall  be 
fded  sufhciently  before  date  of  entertainment  to  permit  of  full  advance  investiga- 
tion of  circumstances  and  a  decision  thereon,  managers  of  entertainment  shall  keep 
and  exhibit  to  internal  revenue  officers  complete  record  of  admissi-oiLs  to  each  per- 
formance, and  will  be  held  responsible  for  collection  of  tax  in  case  claim  for  exemp- 
tion is  not  allowed.     (T.  D.  2681;  Mar.  26,  1918.) 

Employees. 

Bona  fide  employees  when  admitted  free  are  not  taxable  under  section  700  of  act 
of  October  3,  1917;  employees  include  persons  necessary  to  the  production  of  the 
performance  or  entertainment  v/ho  are  not  admitted  as  spectators  and  wdio  do  not 
occupy  seals  or  space  intended  for  the  use  of  spectators,  except  where  such 
occupancy  is  necessary  to  the  performance  of  duties  of  such  persons;  baseball 
reporters  and  telegraphers  are  exempt,  as  are  employees  of  management  or  other 
concessionaires  selling  refreshments  to  patrons,  and  newsboys  selling  newspapers; 
persons  recovering  or  aiding  in  custody  of  property  necessary  to  performance  may  be 
admitted  tax  free,  but  newspaper  critics  and  reporters  occu])ying  space  in  audience 
must  pay  tax;  doctors  and  attorneys  for  theaters  are  exempt  when  entering  theater 
in  course  of  employment.     (T.  D.  2081;   Mar.  26,  1918.) 

En  bloc  sale  of  tickets. 

Where  all  the  admissions  to  an  entertainment  are  sold  en  bloc  to  a  purchaser  for  a 
specific  sum  and  no  charge  is  made  for  individual  tickets,  the  tax  is  on  the  price 
paid  for  the  entertainment,  but  purchaser  must  account  for  tax  on  any  excess  over 
the  piu'chase  price  for  which  he  may  resell  the  tickets;  where  all  the  admissions  are 
sold  to  an  organization  or  societj^  for  a  specific  sum,  the  tickets  sold  by  such  organiza- 
tion or  society  shall  be  exchanged  for  regular  box-office  tickets,  for  which  pro- 
prietor must  account.     (T.  1).  2681;   Mar.  26,  1918.) 


20  ADMISSIONS. 

En  bloc  sale  of  tickets— Continued. 

W  Ikto  all  admissions  to  an  entertainment  are  sold  to  an  organization  or  society 
for  a  specific  sum,  the  tickets  sold  by  such  organization  or  society  shall  be  exchanged 
for'regnhir  box-office  tickets,  for  whi<h  proprietor  must  account.  (T.  D.  2^)81; 
Mar.  26,  1018.) 

Exchange  of  tickets. 

I'pon  an  exchange  of  tickets  for  other  tickets  of  a  higher  price,  the  difference 
between  the  lax  on  the  more  expensive  tickets  and  the  tax  already  paid  shall  be 
roUected.     (T.  D.  2681;  Mar.  26,  1918.) 

When  general  admission  tickets  are  sold  by  societies  or  organizations  leasing 
theaters,  lialls,  parks,  or  places,  they  must  be  exchanged  for  regular  box-office 
lickels  for  which  proprietor  must  account.     (T.  D.  2681;  Mar.  26,  1918.) 

Excursion  boats. 

Charsjes  of  excursion  boats  providing  opportunity  for  dancing,  are  subject  to  tax 
imposed  by  section  700  of  act  of  October  3,  1917,  where  such  charges  exceed  the 
usual  or  reasonable  rates  for  transportation  furnished.     (T.  D.  2681;  Mar.  26,  1918.) 

Ex  emp  ti  ons— Affidavit. 

I'Acry  institution,  society,  or  organization,  claiming  exemption  from  collecting 
tax.  required  to  file  with  collector  of  district  affidavit  upon  stated  form,  prior  to 
conducting  any  entertainment  or  amusement  or  permitting  either  to  be  conducted  for 
its  benefit;  unless  afRda^•it  shall  be  filed  sufficiently  before  date  of  entertairunpnt 
to  permit  of  full  advance  investigation  of  circumstances  and  a  decision  thereon, 
managers  of  entertainment  shall  keep  and  exhibit  to  internal  revenue  officers  com- 
plete record  of  admissions  to  each  performance,  and  will  be  held  responsible  for 
collection  of  tax  in  case  claim  for  exemption  is  not  allowed.  (T.  D.  2681;  Mar.  26, 
1918.) 

Agricultural  fairs. 

The  term  "agricultural  fairs,  "  as  used  in  section  700  of  the  act  of  October  3,  1917, 
includes  live  stock  and  similar  shows  for  promotion  of  agricultural  interests,  but 
not  ])ench  shows  or  other  indoor  exhibitions.     (T.  D.  2681;  Mar.  26,  1918.) 

Attorneys  for  theaters. 

Attorneys  for  theaters  are  exempt  from  tax  imposed  by  section  700  of  the  act  of 
October  3,  1917,  when  entering  theater  in  course  of  their  employment,  but  must 
pay  tax  Avhen  attending  as  mere  spectators  and  occupying  seats  in  the  audience. 
(T.  D.  2681;  Mar.  26,  1918.) 

— —  Business. 

If  person  admitted  free  to  place  of  entertainment  attends  purely  for  business 
reasons  and  does  not  occupy  space  that  might  otherwise  be  sold,  tax  proAdded  by 
t'cction  700  of  the  act  of  October  3,  1917,  is  not  payable.     (T.  D.  2681 ;  Mar.  26,  1 918.) 

■ Children. 

Children  under  12  years  of  age  when  admitted  free  are  not  taxable  under  section 
700  of  the  act  of  October  3,  1917.     (T.  D.  2681;  Mar.  26,  1918.) 

■ Doctors. 

Doctors  for  theaters  arc  exempt  from  tax  imposed  by  section  700  of  the  act  of 
f>ctol»er  3,  1917,  when  entering  theater  in  course  of  their  employment,  but  must 
pay  tax  when  attending  as  mere  spectators  and  occupying  seats'in  the  audience. 
(T.  D.  2681;  Mar.  26,  1918.) 

■ Employees. 

Hfina  fide  employees  when  admitted  free  are  not  taxable  under  section  700  of  act 
of  October  3,  1917;  employees  include  persons  necessary  to  the  production  of  the 


eeiiing  reln-shments  to  patrons,  and  newsbovs  selling  newspapers;  persons  recov- 
ering or  aiding  in  custody  of  property  necessarv  to  performance  may  be  admitted 
tax  tree,  but  newspaper  critics  and  reporters  occupj-ihg  space  in  audience  must  pay 
tax;  doctors  and  attorneys  for  theaters  are  exempt  when  entering  theater  in  course 
of  employment.     (T.  D.  2081;  Mar.  26,  1918.) 


ADMISSIONS.  21 

Exemptions — Continued. 

— —  Entertainments  exempt. 

Where  proceeds  of  admission  inure  exclusively  to  benefit  of  religious,  educational, 
or  charitable  inslitutiouK,  societies,  or  organizations,  the  admissions  are  not  taxable; 
<  haracter  of  organization  for  which  benefit  is  given  and  not  purpose  of  particular 
bone/it  is  controlling.     (T.  1).  2681;  Mar.  26,  1918.) 

Where  a  place  has  admission  charges  in  excess  of  5  cents,  tax  imposed  by  section 
700  of  act  of  October  3,  1917,  is  applicable  to  all  admissions,  including  charges  of  5 
cents  or  less;  if  place  charges  no  more  than  5  cents  in  afternoon,  and  more  than 
5  cents  in  evening,  tax  applies  to  all  admissions  when  higher  rate  is  effective;  where 
dance  hall  charges  no  initial  admission,  if  charge  of  not  more  than  5  cents  is  made  for 
admission  to  dance  floor  for  eacli  dance,  no  tax  is  payable,  but  if  charge  is  10  cents 
for  each  dance,  or  if  purchase  at  one  time  of  more  than  one  5-cent  ticket  is  required, 
then  tax  is  payable.     (T.  D.  2081;  Mar.  2(5,  1918.) 

"Four  Minute  Men.  " 

"Four  Minute  Men,  "  who  make  short  talks  in  interest  of  the  Government  at 
various  places  where  admissions  are  Tisually  charged,  not  there  for  purpose  of  view- 
ing performance,  are  not  required  to  pay  tax.     (T.  D.  2590;  Nov.  24,  1917.) 

Merry-go-rounds. 

Exemption  of  charges  which  are  in  fact  for  privilege  of  using  equipment  in 
amu.'-ement  parks  is  intended  to  api)ly  to  those  cases  where  use  by  the  patron  is 
direct,  personal,  and  independent,  and  therefore  not  to  merry-go-rounds.  (T.  D. 
2782;  Dec.  24,  1918.) 

— —  Municipal  officers. 

Municipal  officers  on  official  business  when  admitted  free  are  not  taxable  iinder 
section  700  of  the  act  of  October  3,  1917;  municipal  officers  include  policemen  and 
firemen  when  in  attendance  in  the  course  of  their  duty.     (T.  D.  2G81;  Mar.  26,  1918.) 

— —  Newspaper  reporters,  ciitics,  etc. 

Newspaper  critics  and  reporters  occupying  space  in  audience  must  pay  tax;  base- 
ball reporters  occupying  special  space  at  baseball  parks  and  admitted  by  passes 
issued  by  baseball  writers'  association,  and  newsboys  selling  newspapers,  are  ex- 
empt.    (T.  D.  2681;  Mar.  26,  1918.) 

Free  admissions. 

Free  admissions  are  taxable  at  same  rate  as  paid  admissions  entitling  to  similar 
accommodations;  holder  of  pass  for  single  admission  required  to  pay  tax,  at  option 
of  proprietor,  when  pass  is  issued  (it  then  to  be  stamped  "Tax  paid"),  or  when  it  ia 
presented  for  admission,  and  holder  of  season  pass  required  to  pay  tax,  at  option 
of  proprietor,  when  it  is  issued  (it  then  to  be  stamped  "Tax  paid"),  on  all  admis- 
sions to  which  pass  entitles,  or  whenever  it  is  presented,  on  each  single  admission; 
tax  must  be  paid  by  holder  of  pass;  when  pass  is  "Tax  paid,' '  no  refund  of  ta.x  will 
be  allowed  on  account  of  failure  to  use  any  or  all  of  admissions  covered;  admission 
of  lady  on  gentleman's  ticket  Avithout  extra  charge  is  not  taxable,  because  same 
ticket  covers  both,  even  though  iinaccompanied  lady  must  pay  same  admission 
as  gentleman.     (T.  D.  2681;  Mar.  26,  1918.) 

Bona  fide  employees,  municipal  officers  on  municipal  business,  and  children 
under  12  years  of  age  when  admitted  free,  are  not  taxable;  application  of  ruling  to 
baseball  reporters  and  telegraphers,  emploj'ces  of  management  or  of  coucession- 
nires  selling  refreshments,  newsboys  selling  newspapers,  newspaper  critics  and  re- 
porters, and  doctors  and  attorneys  for  theaters.     (T.  D.  2681;  Mar.  26,  1918.) 

Every  person,  corporation,  organization,  or  association,  admitting  any  person 
free  to  any  place  where  admission  is  charged,  must  collect  tax  on  such  admissions 
from  the  persons  admitted,  and  make  monthly  return  and  payment  of  collections 
as  provided  in  section  503.     (T.  D.  2681;  Mar.  26,  1918.) 

Golf  links. 

Whore  an  admission  charge  in  form  is  made,  but  in  fact  is  merely  payment  for 
privilege  of  using  certain  equipment,  such  as  golf  links,  admis.'jion  is  incidental 
to  privilege  of  using  such  equipment,  and  tax  imposed  by  section  700  of  act  of 
October  3,  1917,  does  not  apply.     (T.  D.  2081;  Mar.  26,  1918.) 


22  ADMISSIONS. 

Itinerant  shows. 

Proprietor,  manager,  or  duly  authorized  officer  of  traveling  or  itinerant  shows, 
exhibitions, 'or  amusement  enterprises,  v.hich  have  fixed  or  established  head- 
qiiarterp,  required  to  register  with  collector  of  district,  in  which  headquarters  arc 
Im-ated.  and  required  to  file  at  same  time,  or  as  soon  thereafter  as  possible,  a  sched- 
ule of  the  itinerarv,  and  to  keep  a  dailv  record  and  render  monthly  returns  to  the 
c<.l]ector  of  said  district.     (T.  D.  2G81;"Mar.  26,  1918.) 

The  lei-m  "outdoor  general  amusement  park?,"  as  used  in  section  705  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a 
considerable  variety  of  entertainments,  such  as  mechanical  shows,  musical  at- 
tractions, riding  de\ices,  and  vaudeville  shows,  and  not  to  carnivals  or  enter- 
tainment enteqjrises  with  temporary  inclosures  or  on  vacant  lots.  (T.  D.  2681; 
Mar.  26,  1918.) 

Lady  admitted  on  gentleman's  ticket. 

AdmLssion  of  lady  on  gentleman's  ticket  without  extra  charge  is  not  taxable 
because  same  ticket  covers  both,  even  though  unaccompanied  ladv  must  pay  same 
admission  as  gentleman.     (T.  D.  2681;  Mar.  26,  1918.) 

Leases — Boxes  and  seats. 

Tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  must  be  paid  in  respect 
t9  performance  for  which  boxes  or  seats  are  sold  or  reserved,  whether  or  not  they 
ai'e  used;  if  there  are  no  boxes  of  similar  size,  tax  is  to  be  computed  by  dividing 
tax  payable  on  smaller  box  by  number  of  seats  in  it  and  multiplying  tax  of  seat 
l)y  number  of  seats  in  lai-ger  box,  and  if  there  are  no  boxes  occupjTJig  similar  posi- 
tion, tax  is  to  be  based  on  price  of  single  seats  in  same  part  of  house;  in  case  of 
seats  or  boxes  leased  or  reserved  for  period  before  and  after  November  1,  1917, 
tax  is  payable  on  admissions  after  October  31,  1917,  and  should  be  collected,  for 
all  such  admissions  upon  first  use  of  box  or  seat  after  that  date;  where  lease  only 
entitles  lessee  to  right  of  occupancy  upon  payment  of  regular  price  charged  for 
admission,  tax  of  10  percent  is  to  be  collected  also  on  additional  chgu^e  when  paid. 
(T.  D,  2681;  Mar.  28,  1918.) 

Theaters. 

When  a  person  or  organization  leases  a  theater,  hall,  park,  or  place,  lessee  must 
collect  tax  on  admissions  to  entertainments  or  amusements  conducted  at  such 
])Iace,  but  lessor  is  permitted  to  assume  responsibility  for  collection  of  tax;  if  this  is 
done,  lessee  will  sell  tickets  from  reels  or  supplies  of  proprietor,  an-d  record  will 
be  kept  in  daily  records  of  lessor  in  same  manner  as  if  entertainment  had  been 
conducted  by  proprietor,  but  in  addition,  name  of  lessee  must  appear  in  a  space 
provided  in  such  record,  and  lessee  shall  certify  to  correctness  of  record;  exchange 
of  general  admission  tickets  for  regular  box-office  tickets;  notice  of  lease  to  collector; 
en  bloc  sale  of  tickets;  effect  of  failure  to  adopt  procedm-e  authorized.  (T.  D. 
2681;  Mar.  26,  1918.) 

Live-stock  shows. 

The  term  '  'agiicultural  faii-s,  "  as  used  in  section  700  of  the  act  of  October  3,  1917, 
includes  live  stock  and  similar  shows  for  promotion  of  agricultural  intrtests,  but 
not  bench  shows  or  other  indoor  exhibitions.     (T.  D.  2681;  Mar.  26,  1918. ;> 

Motion  picture  theaters. 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con^ 
siderable  variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
nding  devices,  and  vaude\ille  shows,  and  not  to  carnivals  or  entertainment  entfi- 
jn-ises  with  temporary  inclosures  or  on  vacant  lots;  outdoor  amusement  parks  in- 
clude similar  enterprises  conducted  on  piers,  but  not  motion  picture  or  other  thea- 
ters known  as  "airdromes."    (T.  D.  2681;  Mar.  26,  1918.) 

Municipal  officers. 

■\'-"'''''1p.!^^"['1'^®''^  on  official  business  when  admitted  free  are  not  taxable  under 
section  ,on  of  the  act  ot  October  3,  1917;  municipal  officers  include  policemen  and 
tiremen  when  m  attendance  m  the  course  of  their  duty.     (T.  D.  2081;  Alar  26  1918) 


ADMISSIONS.  23 

Nature  of  admissions  taxed. 

The  context  of  section  700  ol  the  act  o£  October  3,  1917,  mdicates  that  in  general 
only  admissions  to  places  of  amusement  and  entertainment  wtiic  intended  to  be 
taxable;  where  an  atlmission  charge  in  form  is  made,  but  in  fact  is  merely  a  payment 
for  the  priA-ilege  of  using  certain  equipment,  the  admission  is  incidental  to  the 
privilege  of  vising  such  equipment,  and  tax  does  not  apply,  but  where  charge  is 
made  both  to  persons  using  equipment  and  to  mere  spectators,  tax  applies.  (T.  I). 
26S1;  Mar.  26,  1918.) 

Newspaper  reporters,  critics,  and  newsboys. 

Newspaper  critics  and  reporters  occiipying  space  in  audience  must  pay  tax 
imposed  by  section  700  of  act  of  October  3,  1917;  admissions  of  baseball  reporters 
occupying  special  space  at  baseball  parks,  and  admitted  by  passes  issued  by  base- 
ball writers'  association,  and  newsboys  selling  newspapers,  are  exempt.  (T.  I). 
2681;  Mar.  26,  1918.) 

Outdoor  general  amusement  parks. 

Admissions  to  shows,  rides,  and  other  amusements  chai'ging  no  higher  admission 
than  10  cents,  within  outdoor  general  amusement  parks,  and  admissions  to  outdoor 
general  amusement  parks,  are  not  taxable.     (T.  D.  2t381;  Mar.  26,  1918.) 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con- 
siderable variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  inclosures  or  on  vacant  lots;  outdoor  amusement  parks  in- 
clude similar  enterprises  conducted  on  piers,  but  not  motion  picture  or  other  thea- 
ters known  as  "airdromes."     (T.  D.  2681;  Mar.  26,  1918.) 

,  Passes. 

Free  admissions  are  taxalde  at  same  rate  as  paid  admissions  entitling  to  similar 
accommodations;  holder  of  pass  for  single  admission  re(iuired  to  pay  tax,  at  option 
of  proprietor,  when  pass  is  issued  (it  then  to  be  stamped  "Tax  paid,")  or  when 
it  is  presented  for  admission,  and  holder  of  season  pass  reciuired  to  pay  tax,  at  optioa 
of  proprietor,  when  it  is  issued  (it  then  to  be  stamped  "Tax  paid,")  on  all  admis- 
sions to  which  pass  entitles,  or  whenever  it  is  presented,  on  each  single  admission; 
tax  must  be  paid  by  holder  of  pass;  where  pass  is  "Tax  paid,"  no  refund  of  ta>: 
will  be  allowed  on  account  of  failure  to  use  any  or  all  of  admissions  covered;  admi.^- 
sion  of  lady  on  gentlemen's  ticket  without  extra  charge  is  not  taxable,  because 
same  ticket  covers  both,  even  though  unaccompanied  ladv  must  pav  siuue  admis- 
sion as  gentleman.     (T.  D.  2681;  Mar.  26,  1918.) 

Bona  fide  employees,  municipal  officers  on  municipal  business,  and  children 
under  12  years  of  age  v,-hen  admitted  free,  are  not  taxable;  application  of  ruling 
to  baseball  reporters  and  telegraphers,  employees  of  management  or  of  concession- 
aires selling  refresliraents,  newsboys  selling  newspapers,  newspaper  critics  and 
reporters,  and  doctors  and  attorneys  for  theaters.     (T.  D.  2681;  Mar.  26,  1918.) 

The  tax  collected  at  the  time  of  issue  of  a  season  ticket  or  pass  must  be  accounted 
for  in  full  in  the  next  monthly  return,  irresnective  of  any  use  of  the  ticket  or  pass. 
(T.  D.  2681;  Mar.  26,  1918.) 

X'nless  at  time  either  ticket  is  sold  or  pass  is  issued  the  words  "Tax  paid"  shall 
be  indelibly  and  conspicuously  stamped  or  printed  thereon,  it  shall  not  be  gooil 
for  admission,  except  upon  payment  of  tax  at  time  of  admission;  no  ticket  or  pass 
expressed  to  be  "Tax  paid"  shall  be  issued  without  colI<>ction  of  the  tax.  (T.  D. 
2681;  Mar.  26,  1918.) 

Payment  of  tax. 

Tax  must  be  paid  by  person  paying  for  admission;  proprietor  may  not  pay  tax  for 
his  patrons,  and  no  place  where  taxable  admissions  are  charged  will  be  permitted  t^,) 
display  any  sign,  notice,  or  placoi'd  to  the  effect  that  the  war  tax  is  not  charged;  by 
appropriate  signs  and  by  notices  printed  in  programs  for  reasonable  period,  public 
should  be  informed  that  tax  is  reqmred  to  be  paid  bv  person  paving  for  the  admis- 
sion.    (T.  D.  2681;  Mar.  26,  1918.) 

The  holder  of  a  pass  for  a  single  admission  required  to  pay  tax,  at  option  of  pro- 
prietor of  place  of  entertainment,  when  pass  is  issued  (it  then  to  be  stamped  "Tax 
I>aid' ')  or  when  it  is  presented  for  admission;  holder  of  season  pass  required  to  pay 


24  ADMISSIONS, 

Payment  of  tax -CoJitinuod. 
tax,  af  opfion  of  proprietor,  when  it  is  issued  (it  then  to  be  stamped  "Tax  paid") 
on  ii!l  admissions  to  which  the  pass  entitles,  or  whenever  it  is  presented,  on  each 
sini;le  admission;  tax  is  to  be  paid  by  holder  of  pass.     (T.  D.  2681;  Mar.  26,  1918.) 

I'lilc'^s  at  time  every  ticket  is  sold  or  pass  is  issued  the  words  "Tax  paid"  shall  be 
indelibly  printed  or  stamped  thereon,  it  shall  not  be  good  for  admission  except  on 
jiayment  of  tax  at  time  of  admi.s.«ion.     (T.  D.  2681;  Mar.  26,  1918.) 

I  n  the  case  of  cabarets,  tax  of  1  cent  on  each  10  cents  or  fraction  thereof  of  20  per 
(  cnt  of  the  total  charge  to  each  patron  must  be  paid  by  person  pa>dng  for  refresh- 
ments, service,  merchandise,  etc.;  it  can  not  be  reckoned  or  paid  by  the  proprietor 
iijion  monthly  gross  receipts.     (T.  D.  2681;  Mar.  26,  1918.) 

Penalties. 

In  addition  to  penalties  provided  by  section  1004  of  the  act  of  October  3,  1917,  for 
failure  to  make  the  return,  other  punishment  for  failure  to  comply  with  law  and 
regulations  is  prescribed  by  section  3176,  Revised  Statutes,  as  amended,  and  by 
other  s(!ctions  of  internal-revenue  laws;  doorkeepers  and  other  employees  of  amuse- 
ment enterprises,  equally  \\"ith  proprietors  and  with  persons  admitted,  will  b^c 
prosecuted  for  any  violation  of  the  law.     (T.  D.  2681;  Mar.  26,  1918.) 

Piers,  shows  on. 

The  term  '  'outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act  of 
October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  considier- 
able  variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions,  rid- 
ing devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  inclosures  or  on  vacant  lots;  outdoor  amusement  parks 
include  similar  enterprises  conducted  on  piers,  but  not  motion  picture  or  other 
theaters  known  as  "airdromes."     (T.  D.  2681;  Mar.  26,  1918.)  ;  • 

"Place." 

The  word  "place,"  as  used  in  section  700  of  the  act  of  October  3,  1917,  is  not 
defined  in  the  section,  but  the  context  indicates  that  in  general  oidy  admissions  to 
places  of  amusement  and  entertainment  Avere  intended  to  be  taxable.  (T.  D.  2681; 
Mar.  26,  1918.) 

Pool  tables. 

AVhere  an  admission  charge  in  form  is  made,  but  in  fact  is  merely  payment  for 
privilege  of  using  certain  equipment,  such  as  pool  tables,  admission  is  incidental  to 
privilege  of  using  such  equipment,  and  tax  imposed  by  section  700  of  act  of  October 
3,  1917,  does  not  apply.     (T.  D.  2681;  Mar.  26,  1918.) 

Proceeds. 

The  term  "all  the  proceeds,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
means  the  net  proceeds  after  pavment  of  actual  reasonable  expenses.  (T.  D.  2681; 
Mar.  26,  1918.)  i  v  . 

Records. 

See  "Registration  of  proprietor,"  post. 

Unless  institution,  society,  or  organization  claiming  exemption  from  collecting 
tax  files  with  collector,  prior  to  conducting  anv  entertainment  or  amusement  or 
permitting  either  to  be  conducted  for  its  benefit,  sufficiently  before  date  of  enter- 
tainment ^permit  of  full  advance  investigation  of  circumstances  and  decision 
thereon  affidavit  upon  specified  form,  managers  of  entertainment  required  to  keep 
and  exhibit  to  internal-revenue  officers  complete  record  of  admissions  to  each  per- 
formance.    (T.  I).  2681;  Mar.  26,  1918.) 

Daily  records  shall  be  kept  by  proprietors  or  their  agents  in  charge  showing  sepa- 
rately paid  admis.mons,childrens"  admissions,  taxable  free  admissions,  if  admission  is 
not  taxable,  and  total  admission  tax  collected  -      -        - 


ffiV'  ^^w        ■-■M""^-  I"  Mt^  ijuiue  111  (lupucaie  on  i^orm  729 and  to  be  transmitted 

n.Z      collector  on  or  before  last  day  of  month  following  that  for  which  return  is 

?rfnrip    r^'*"  performance  is  given  by  person  other  than  proprietor,  both  he  and  the 

&  rk.f' Wti'/""^"!'"  ''^^'S^'  °^^^t  sign  daily  records;  records  of  proprietors 

Xcerf  b  J  nl»f  '  T^  '^"P''''  ^^  T^^^'y  ^'^turns,  required  to  be  kept  or  filed  in 

JerenuroEr  'TV^.'^SCX^^oS^^m.T  ''  ''  "''"^'  "^''^^  ^^'"^""^^- 


ADMISSIONS.  •  25 

Records — Continuocl. 

Where  a  person  or  organization  leases  a  f  healer  or  place  and  lessor  assumes  respon- 
Hibility  for  collection  of  tax.  lessee  will  sell  tickets  from  reels  or  supplies  of  proprietor 
and  record  will  be  kept  in  daily  records  of  lessor  in  same  manner  as  if  entertainment 
had  been  conducted  by  proprietor,  but,  in  addition,  name  of  lessee  must  appear  in 
Koace  provided  in  daily  record,  and  lessee  shall  certify  to  corredness  of  such  record; 
ii  procedure  authorized  is  not  adopted,  lessee  must  comply  in  every  respect  with 
Rej^ulations  No.  43  regarding  registration,  records,  and  other  matters  therein  con- 
tained.    (T.  D.  2681;  Mar.  2(J,  1918.) 

Redemption  of  tickets. 

Where  a  ticket  is  re<leemed  before  a  performance,  the  tax  imposed  by  section  709 
the  act  of  October  3,  1917,  as  well  as  the  price  of  the  ticket,  should  be  refunded. 
(T.  D..  2081;  Mar.  26,  1918.) 

Where  rain  checks  attached  to  tickets  sold  for  canceled  baseball  game  are  redeem- 
able in  cash  with  refund  of  the  tax,  or  by  issue  of  ticket  for  another  game,  the  box- 
office  statement  for  the  canceled  game  may  be  marked  "Canceled,"  but  in  its  next 
return  the  tax  must  be  accounted  for  by  the  club  on  any  tickets  not  redeemed  as 
shown  by  comparison  of  box-office  statement  for  canceled  game  with  statements  for 
subsequent  games.     (T.  D.  2681;  Mar.  26,  1918.) 

Refund  of  tax. 

Where  a  ticket  is  redeemed  before  a  performance,  the  tax  imposed  by  section  700 
of  the  act  of  October  3,  1917,  as  well  as  the  price  of  the  ticket,  should  be  refunded; 
where  a  pass  is  "tax  paid,"  no  refund  of  tax  will  be  allowed  on  account  of  failure  to 
use  any  or  all  of  admi^isions  covered  by  it.     (T.  D.  2681;  Mar.  26,  1918.) 

Registration  of  proprietor. 

P^very  person,  corporation,  etc.,  required  to  collect  lax  on  admissions,  shall,  on. 
the  1st  day  of  April,  1918  (and  if  not  on  that  date  engaged  in  business,  then  mthin 
10  days  after  engaging  in  business),  and  annually  thereafter  on  the  1st  day  of  July, 
file  in  the  office  of  the  collector  of  internal  revenue  of  the  district  in  which  his 
place  of  business  is  located,  an  application  for  registry,  setting  forth  certain  stated 
information;  traveling  or  itinerant  shows;  collector,  if  satisfied  that  all  statements 
given  in  application  are  correct,  will  issue  certificate  of  registration  on  certain  form, 
which  ijroprietor  shall  keep  conspicuously  posted  in  his  place  of  business,  or  carry 
on  his  person  if  he  has  no  fixed  place  of  business.     (T.  D.  2681;  Mar.  26,  1918.) 

Where  a  theater,  hall,  park,  or  place,  is  leased,  and  the  procedure  authorized  by 
Article  XXVII  of  Regulations  43  is  not  adopted,  the  lessee,  precisely  like  the  pro- 
prietor, must  comply  in  every  respect  with  the  regulations  regarding  registration. 
(T.  D.  2681;  Mar.  26,  1918.) 

Religious  institutions,  entertainments  for. 

Every  institution,  society,  or  organization,  claiming  exemption  from  collecting 
tax  on  admissions  by  reason  of  being  religious,  required  to  file  with  collector  of  dis- 
trict affidavit  upon  stated  form,  prior  to  conducting  any  entertainment  or  amuse- 
ment or  permitting  either  to  be  conducted  for  its  benefit;  unless  affidavit  -shall  be 
filed  sufficiently  before  date  of  entertainment  to  permit  of  full  advance  investigation 
of  circumstances  and  a  decision  thereon,  managers  of  entertainment  shall  keep  and 
exhibit  to  internal  revenue  officers  complete  record  of  admissions  to  each  perform- 
ance, and  will  be  held  responsible  for  collection  of  tax  in  case  claim  for  exemption 
is  not  allowed.     (T.  D.  2681;  Mar.  26,  1918.) 

Where  proceeds  of  admissions  inure  exclusively  to  benefit  of  religious  institutions, 
societies,  or  organizations,  admissions  are  not  taxable;  character  of  organization  for 
which  benefit  is  given,  and  not  purpose  of  particular  benefit,  is  controlling;  admis- 
sions to  any  entertainment  given  for  charity  are  taxable  if  funds  are  administered 
by  any  persons  or  organization  other  than  religious,  educational,  or  charitable  insti- 
tutions, societies,  or  organizations.     (T.  D.  2681;  Mar.  26,  1918.) 

Resale  of  tickets. 

\\liere  all  the  admissions  to  an  entertainment  are  sold  en  bloc  to  a  purchaser  for 
a  specific  sum  and  no  charge  is  made  for  individual  tickets,  the  tax  is  on  the  price 
paid  for  the  entertainment,  and  the  purchaser  must  account  lor  the  tax  on  any 
excess  over  the  purchase  for  which  he  may  resell  the  tickets;  where  broker  pur- 
chases tickets  for  resale,  with  right  to  return  those  not  sold,  proprietor  of  entertain- 
ment held  responsible  for  collecting  tax  on  full  price  paid  for  actual  use  of  tickets; 
independent  brokers  and  dealers  must  collect  and  account  for  tax  on  their  sales, 


26  AD-Missiojsrs. 

Resale  of  tickets— Continued. 

less  luuount  of  tax  on  eack  ticket  colleeted  and  aceounted  loir  by  amusemeut  enter- 
prise; if  ticket  is  sold  for  use  and  not  for  resale,  at  lesa  than  face  value,  tax  is  on 
price' paid,  but  KcUer  must  collect  tax  on  face  value  unless  lie  can  furnish  satisfac- 
tory evideiice  that  presumptive  purchaser  was  not  agent  of,  or  acting  in  collusion 
with,  the  seUor.     (T.  D.  2681;  Mar.  26,  1918.) 

Where  all  admissionG  are  sold  to  an  organization  or  society  for  a  sijecific  sum.  the 
tickets  sold  by  .such  organization  or  society  shall  be  exchanged  for  regular  box-ofhce 
tickets,  for  which  proprietor  must  account.     (T.  D.  2681;  Mar.  26,  1918.) 

Hetiuns — Baseball  tickets. 

Where  rain  checks  attached  to  tickets  sold  for  canceled  baseball  game  are  re- 
deemable in  cash  with  refund  of  the  tax,  or  by  issue  of  ticket  for  another  game,,  the 
box-office  statement  for  the  canceled  game  may  be  marked  ''Canceled,' '  but  in  its 
next  return  the  tax  must  be  accounted  for  by  the  club  on  any  tickets  not  redeemed 
as  shown  by  comparison  of  box-office  statement  for  canceled  game  with  statementa 
for  subsequent  games.     (T.  D.  2681;.  Mar.  26,  1918.) 

Cabaret  proprietors. 

Cabaret  proprietor.^  must  furnish  each  guest,  upon  paying  his  check,  a  coujion 
receipt  to  be  detached  therefrom,  containing  separately  in  indellible  figures  the 
total  of  the  amount  paid  for  refreshments,  etc.,  and  the  war  tax  paid  thereon;  the 
checks  and  coupons  must  be  serially  nimibered'.     (T.  D.  2681;  Mar.  26,  1918.) 

Lease  of  place. 

When  a  person  or  oi^auization  leases  a  theater  or  place,  and  lessor  assume®  respian- 
cibility  for  collection  of  tax,  record  of  entertainment  or  amusement  will  be  kept  in 
daily  records  of  lessor  in  same  manner  as  if  entertainment  had  been  conducted  by 
proprietor,  but  in  addition,  name  of  lessee  must  appear  in  space  provided  in  daily 
record,  and  lessee  shall  certify  to  correctness  of  such  record;  eSect  of  failure  to  adopt 
procedure  authorized.     (T.  D.  2681;  Mar.  26,  1918.) 

Penalties  for  failure  to  make. 

In  addition  to  penalties  provided  by  section  1004  of  the  act  of  October  3,  1917, 
for  failure  to  make  the  return,  other  punishment  for  failure  to  comply  with  law  and 
regulations  is  prescribed  by  section  3176.  Revised  Statutes,  as  amended,  and  by 
other  sections  of  internal  revenue  laws;  doorkeepers  and  other  employees  of  amuse- 
ment entei-prises.  equally  with  proprietors  and  with  persons  admitted,  will  l^e  prose- 
cuted for  any  violation  of  the  law.     (T.  D.  2681;  Mar.  26,  1918.) 

Persons,  corporations,  etc.,  required  to  make. 

Every  person,  corporation,  partnership,  or  association,  receiving  any  payments  for 
admis.sion,  including  admission  to  cabarets  and  other  similar  entertainments,  or 
admitting  any  person  free  to.  any  place  whore  admission  is  charged,  must  collect 
the  tax  imposed  by  section  701  of  the  act  of  October  3.  1917,  on  such  admissions, 
from  the  persons  admitted  or  making  such  payments,  and  make  monthly  return 
and  payment  of  collections  as  provided  iu  section  503.     (T.  I>.  2681;  Mar.  2a,  1918.) 

Reasonable  cause  for  delinqueney. 

Where  delinquency  in  filing  admissions  tax  return,  under  act  of  October  3,  1917 
IS  due  to  fact  that  head  bookkeeper  on  theater  tickets,  reports,  etc.,  had  enlisted 
-..  United  States  Navy  and  it  was  impossible  for  taxpaver  to  make  a  return  on 
time  with  substitute  help,  there  was  reasonable  cause"  for  delinquencv  within 
meaning  of  section  3176:,  Revised  Statutes.     (T.  D.  2795;  Feb.  26,  1919. ~) 

Season  tickets  or  passes. 

The  tax  pollected  at  the  time  of  issue  of  a  season  ticket  or  pass  must  be  accounted 
V^  ^^  ^  "^ ,  ®  ^®^*  monthly  return  irrespective  of  any  use  of  the  ticket  or  i^ass. 
(T.  D.  2681;  Mar.  26,  1918.)  i  j  i 

"Revenue  tickets." 

\\Tiere  theaters  are  not  permitted  to  charge  admission  but  take  .silver  collection 
at  the  door,  there  ts  no  objection  to  selling  what  is  known  as  "revenue  tickets" 
with  each  contribution,  a  10-cent  contributor  paving  11  cents,  etc.     (T.  D.  2500; 


was 
in 


ADMISSIONS.  27 

Scalpers'  tickets. 

Ticket  brokers  required  to  keep  daily  records  showing  tickets  sold  for  cacli  enter- 
tainment; proceeds;  cost  of  tickets  and  tax  returnable;  monthly  return,  which 
shall  be  recapitulation  of  daily  rccordp,  required  to  be  made  in  duplicate  on  Form 
729  and  to  be  transmitted  to  oilice  of  collector,  with  amount  of  tax,  on  or  before  last 
day  of  month  following  that  for  which  return  is  made;  daily  record  of  brokei's,  with 
copies  of  their  monthly  returns,  required  to  be  kept  on  file  for  two  years,  in  such 
manner  as  to  be  readily  accessible  to  internal  revenue  oiilcers.  (T.  D.  2681;  Mar. 
26,  1918.) 

Where  a  broker  purchases  tickets  for  resale,  with  right  to  return  those  not  sold, 
proprietor  of  entertainment  held  responsible  for  collecting  tax  on  full  price  paid 
for  actual  use  of  tickets;  independent  brokers  and  dealers  must  collect  and  account 
for  tax  on  their  sales,  less  amount  of  tax  on  each  ticket  collected  and  accounted 
for  by  amusement  enterprise;  if  ticket  is  sold  for  use  and  not  for  resale,  at  less  than 
face  value,  tax  is  on  price  paid,  but  seller  must  collect  lax  on  face  value  unless  he 
can  furnish  satisfactory  evidence  that  presumptive  purchaser  was  not  agent  of,  or 
acting  in  collusion  with,  the  seller.     (T.  D.  2681;  Mar.  2G,  1918.) 

Ticket  brokers  required  to  collect  tax  on  admissions,  shall,  on  the  1st  day  of 
April,  1918  (and  if  not  on  that  date  engaged  in  business,  (hen  within  10  days  after 
engaging  in  business),  and  annually  thereafter  on  the  1st  day  of  July,  file  in  the 
ofhce  of  the  collector  of  internal  revenue  of  the  district  in  which  his  place  of  busi- 
ness is  located,  an  application  for  registry,  setting  forth  certain  stated  information; 
traveling  or  itinerant  shows;  collector,  if  satisfied  that  all  statements  given  in  appli- 
cation are  correct,  will  issue  certificate  of  registration  on  certain  form,  Avhich  pro- 
prietor shall  keep  conspicuously  posted  in  his  place  of  business,  or  carry  on  his 
person  if  he  has  no  fixed  place  of  business.     (T.  D.  2681;  Mar.  26,  1918.) 

Season  tickets  and  passes. 

Holder  of  season  pass  required  to  pay  tax  imposed  by  section  700  of  act  of  Octo- 
ber 3,  1917,  at  option  of  proprietor,  when  it  is  issued  (it  then  to  be  stamped  "Tax 
■paid''),  on  all  admissions  to  A\'hich  pass  entitles,  or  whenever  it  is  presented,  on 
each  single  admission;  tax  is  to  be  paid  by  holder  of  pass;  where  pass  is  '  'Tax  paid," 
no  refund  of  tax  will  be  allowed  on  account  of  failure  to  use  anv  or  all  of  admissions 
covered  by  it.     (T.  D.  2G81;  Mar.  26,  1918.) 

Tax  imposed  by  section  700  of  act  of  October  3,  1917,  is  to  be  collected  upon  price 
paid  and  at  time  of  pacing  for  season  tickets;  no  refund  of  any  part  of  the  tax  is 
authorized  because  one  or  more  performances  may  be  missed;  in  case  of  tickets 
covering  period  before  and  after  November  1.  1917.  tax  is  payable  on  proportion 
of  price  paid  representing  admissions  on  and  after  November  1,  1917,  and  should 
be  collected  upon  first  presentation  af  the  ticket  after  October  31,  1917.  (T.  D. 
2681;  Mar.  26.  1918.) 

The  tax  collected  at  the  time  of  issue  of  a  season  ticket  or  pass  must  be  accounted 
for  in  full  in  the  next  monthly  return,  irrespective  of  anv  use  of  the  ticket  or 
pass.     (T.  D.  2681:  Mar.  26,  1918.) 

When  a  Chautauqua  bureau  presents  a  Chautauqua  under  the  usual  form  of 
agreement  with  a  local  body  by  which  latter  subscribes  for  season  tickets  and 
receives  them  to  resell  to  the  public,  the  admissions  tax  is  payable  on  (1)  amount 
paid  by  local  body  to  the  bureau,  regardless  of  numl^er  of  tickets  not  resold  or  not 
used,  on  (2)  any  excess  received  by  local  body  from  resale  of  tickets  over  the  amounte 
so  paid  by  it,  and  also  on  (3)  all  admissions  other  than  by  tickets  so  sold  to  the  local 
body.     (t.  D.  2782;  Dec.  24,  1918.) 

Separate  admissions. 

As  the  tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  is  1  cent  for  each 
10  cents  or  fraction  thereof  of  the  amount  paid  for  admission  to  any  place,  tax  can 
not  be  paid  on  the  total  receipts  but  must  be  collected  on  each  separate  admission. 
(T.  D.  2681;  Mar.  26,  1918.) 

Signs — Admission  charged,  tax  due,  and  total  thereof. 

Persons  charging  taxable  admissions  required  to  keep  conspicuously  posted  in 
their  j^laces  of  business  signs  accurately  stating  prices  charged  for  admission,  tax 
due  on  each  admission,  and  total  of  admission  and  tax;  where  entertaiimient  enter- 
prises, finding  it  impracticable  to  liandle  penines  or  for  other  reasons,  have  advanced 
their  prices  5  or  10  cents,  including  tax  in  the  advance,  conspicuous  signs  must 
announce,  "The  charge  tor  a  [denomination]  ticket  includes  the  tax  of  1  cent  for 
each  10  cents  or  fraction  thereof  of  the  amount  paid  for  admission.' '  (T.  D.  2681: 
Mnr.  26,  191S.) 


28  ADMISSIONS. 

Signs—  Conliunoil. 

Persons  liable  for,  and  object  of,  tax. 

By  approjiriate  nij^'iis  and  by  notices  printed  in  programs  for  reasonable  period, 
public  should  be  informed  that  tax  imposed  by  section  700  of  the  act  of  October 
8.  1917.  is  required  to  be  paid  by  person  paying  for  admission,  and  that  amount 
collected  goes  to  United  States  GoA-ernment  for  war  purposes.  (T.  D.  2681;  Mar. 
2(),  1918.) 

Tax  not  charged. 

No  place  wliere  taxable  admissions  are  charged  will  be  permitted  to  display  any 
sign,  notice,  or  placard,  to  the  effect  that  the  war  tax  is  not  charged.  (T.  D.  2681; 
Mar.  26,  1918.) 

Subscriptions. 

Tax  imposed  by  section  700  of  act  of  October  3,  1917,  is  to  be  collected  ;ipon  price 
paid  and  at  time  of  paying  for  subscriptions;  no  refund  of  any  part  of  tax  is  author- 
ized because  one  or  more  performances  may  be  missed;  in  case  of  subsoiptions 
covering  period  before  and  after  November  1,  1917,  tax  is  payable  on  proportion  of 
jtrice  paid  representing  admissions  on  and  after  November  1,  1917,  and  should  be 
collected  upon  first  exercise  of  the  subscription  right  after  October  31,  1917.  (T.  D. 
2681;  Mar.  26,  1918.) 

Sudmrning  pools. 

Where  an  admission  charge  in  form  is  made,  but  in  fact  is  merely  payment  for 
privilege  of  using  certain  equipment,  such  as  swimming  pools,  admission  is  inci- 
dental to  privilege  of  using  such  equipment,  and  tax  imposed  by  section  700  of  act 
of  October  3,  1917,  does  not  apply.     (T.  D.  26S1;  Mar.  26,  1918.) 

Tennis  courts. 

Where  an  admission  cliarge  in  form  is  made,  biit  in  fact  ia  merely  paymeiit  for 
privilege  of  using  certain  equipment,  such  as  tennis  courts,  admission  is  incidental 
to  privilege  of  using  such  equipment,  and  tax  imposed  by  section  700  of  act  of 
October  3,  1917,  does  not  apply.     (T   D.  2681;  Mar.  26,  1918.) 

Tickets — Season  tickets. 

See  "Season  tickets  and  passes,"  fmie. 

• Serial  numbers. 

Proprietors  of  place  where  admission  is  charged  must  sell  serially-numbered 
tickets  or  use  machine  or  de\-ice  giving  similar  information,  except  such  proprietors 
as  use  detached  tickets  valid  only  on  date  printed  thereon,  or  use  permanent  tickets 
for  repeated  j^erformances;  proprietors  making  first  purchase  of  serial  reel  tickets, 
after  Regailations  No.  43  become  effective,  required  to  order  such  tickets  to  start 
with  niunaber  1,  their  tickets  to  thereafter  run  in  serial  order  until  the  number 
•WO, (100  is  reached,  when  they  may  start  again  at  number  1,  if  so  desired.  (T.  D. 
2681;  Mar.  26,  1918.) 

"Tax  paid." 

Unles.s  at  time  either  ticket  is  sold  or  pass  is  issued  the  words  "Tax  paid"  shall 
be  indelil)ly  and  conspicuously  stamped  or  printed  thereon,  it  shall  not  be  good  for 
admjssion  except  upon  payment  of  tax  at  time  of  admission;  no  ticket  or  pass 
expressed  to  be  "Tax  paid"  shall  be  issued  without  collection  of  the  tax.  (T.  D. 
2681;  Mar.  26,  1918.)  ^ 

Uncalled-for  or  unused  tickets. 

See  "Uncalled-for  or  unused  tickets  or  passes,"  post. 
Traveling  shows  or  amusement  enterprises. 

See  "Itinerant  shows,"  ante. 
Turkish  baths. 

Wliere  an  admi.ssion  charge  in  form  is  made,  but  in  fact  is  merely  payment  for 
ZZJfr,  ^\}'T^  T'^""'"  ^q^S^r"!*?"*.  such  as  Turkish  baths,  admission  is  inci- 
nf  nSo  pf  •:{  o^f?  "!  using  such  equipment,  and  tax  imposed  by  section  700  of  act 
ol  October  3,  1917,  does  not  apply.     (T.  D.  2681;  Mar.  26,  1918.) 


ADULTERATED   BUTTER— ADVANCE   PAYMENT.  29 

Uncalled-for  or  unusad  tickets  or  passes. 

Tax  impofied  by  section  700  of  act  of  October  3,  1917,  must  be  paid  on  tickets  sold 
■  and  not  called  for  wliicli  theater  reserves  no  right  to  sell;  in  the  case  of  season 
tickets  and  slibscriptions,  no  refund  of  any  part  of  the  tax  is  author's  h1  because 
one  or  more  performances  may  he  missed;  where  pass  is  "Tax  paid,"  no  refund  of 
tax  will  be  allowed  on  account  of  failure  to  use  any  or  all  of  admissions  covered  by 
it.     (T.  D.  2681;  Mar.  26,  1918.) 

The  tax  collected  at  the  time  of  issue  of  a  season  ticket  or  pass  must  be  accounted 
for  in  fidl  in  the  next  monthly  return,  irrespective  of  any  use  of  tlie  ticket  or  pass. 
(T.  D.  2681;  Mar.  20,  1918.) 

Tax  imposed  by  section  TOO  of  the  act  of  October  3,  1917,  must  be  paid  in  respect 
to  performance  for  which  boxes  or  seats  are  sold  or  reserved,  whether  or  not  they 
are  used.     (T.  D.  2681;  Mar.  26,  IHIS.) 

Vaudeville. 

The  term,  "outdoor  geu?ral  amusement  parks,"  as  used  in  section  700  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con- 
siderable variety  of  eutertainmeufs,  sucli  as  mechanical  shows,  musical  attractions, 
riding  de^'ices,  and  vaudedlle  shows,  and  not  to  carnivals  or  itinerant  amusement 
enterprises  within  temporary  inclosures  or  on  vacant  lots.  (T.  D.  26S1;  Mar.  26, 
1918.) 

"Cabaret  or  other  similar  entertainment,"  as  used  in  section  700  of  the  act  of 
October  3,  1917,  includes  cA-ery  liotel  or  room  therein,  restatirant,  hall,  or  other 
public  place  at  or  in  which,  in  ;'onnection  with  the  service  or  sale  of  food,  or  other 
refreslmients  or  merchandise,  any  vaudeville  or  other  performance  or  diversion  in 
the  way  of  acting,  singing,  declamation,  or  dancing,  is  conducted.  (T.  D.  2681; 
Mar.  26,  1918.) 

Zoological  park. 

Admissions  to  public  zoological  parks  and  other  entertainment  enterprises  con- 
ducted by  or  under  direction  of  Government  or  State,  or  political  subdivision  of 
either,  are  not  ta.xable.     (T.  D.  2681;  Mar.  26,  1918.) 

ADULTERATED  BUTTER. 

Decision  of  Commissioner. 

Under  the  oleomargarine  act  of  August  2,  1886,  section  14,  and  the  adulterated 
butter  act  of  May  9,  1902,  section  4,  where  there  has  been  a  hearing  on  contested 
facts  and  arbitrary  conduct  in  the  legal  sense  is  nut  complained  of,  decision  of 
Commissioner  that  certain  suljstance  or  compound  .constitutes  adulterated  butter 
is  final  and  may  not  be  attacked  in  any  action  at  law  to  recover  back  tax  and  penalty 
paid  under  protest.     (T.  D.  2803;  Mar.  12,  1919.     Ct.  Dec.) 

ADVANCE    PAYMENT. 
Capital  stock  tax. 

(•apital  stock  tax  imposed  by  act  September  8,  1916,  became  effective  January  1, 
1917,  and  is  to  be  paid  annually  in  advance  for  each  year  beginning  July  1,  except 
as  to  first  payment  for  six  months  ending  June  30,  1917;  the  tax  due  July  1,  1918, 
is  an  excise  tax  payable  in  advance  for  privilege  of  doing  business  from  July  1,  1918, 
to  June  30,  1919.     (T.  D.  2750,  art.  1,  Appendixes  A,  B;  Aug.  9,  1918.) 

Estate  tax. 

Section  204,  act  September  8,  1916,  does  not  contemplate  that  immediately 
after  decedent's  death,  or  at  any  time  before  expiration  of  year  executor  may  make 
partial  payment  on  account  of  tax  and  receive  credit  for  discount  because  of  advance 
payment;  if  advance  payment  is  to  be  made  before  due  date,  estate  must  be  in 
position  to  file  final  return  on  Form  706,  shewing  certain  data;  final  return  must 
be  filed  wherever  advance  payment  is  desired,  and  amount  paid  should  be  entered 
upon  collector's  assessment  list  for  month  in  which  paid  as  advance  collection. 
(T.  D.  2750;  Sept.  5,  1918.) 

Income  and  excess  profits  taxes. 

Instructions  with  reference  to  time  for  making  advance  payments  in  installments 
or  in  whole,  of  income  and  excess  profits  taxes  under  section  1009  of  act  of  October 
3,  1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to 
taxpayer;,  re  fund  of  excess  payment;  entries  to  be  made  on  specified  forms;  inter- 
est table.  (T.  D.  2622;  Dec' 26,  1917.  T.  D.  2674;  Mar.  18,  1918.  T.  1).  2695; 
Apr.  11,  1918.) 


30  ADVERTISEMENT — AFFILIATED  CORPORATIONS. 

ADVERTISEMENT. 
Me  iiciaal  preparations. 
See  •Excise   Taxes." 

AFFIDAVITS. 
See  si>ecific  heads. 

AFFILIATED    CORFORxlTIOKS. 
Definition. 

Two  or  more  corporations  are  not  '-'affiliated"  merely  because  all  or  substantially 
all  of  the  stock  therein  is  owned  by  the  same  corporation,  indiAddual,  or  partnership; 
they  must  also  be  engaged  in  the  same  or  a  closely  related  business.  (T.  D.  2662; 
Mar.  6,  J918.) 

Excess  pro-its  tax— Returns. 

Owner  shall  include  si>ecific  statement  of  number  or  proportion  of  shares  in  affili- 
ated corporations  held  by  parent  corporation  during  taxable  year  and  a  schedule 
showing  proportionate  amount  of  total  tax  which  it  is  agreed  among  them  is  to  bo 
assessed  upon  each  aliiliated  corporation;  affiliated  corporation  to  fde  return  showing 
that  corporation  is  affiliated  with  jjarent  corporation,  that  its  return  is  included 
in  consolidated  return  of  such  parent  corporation,  and  district  in  which  consoli- 
dated return  is  filed.     (T.  D.  2662;  Mar.  6,  1918.) 

Consolidated  return  will  be  required  in  case  of  affiliated  corporations  among 
which  there  exist  contracts  or  trade  or  financial  practices  which  arbitrarily  or  bene- 
ficially influence  or  determine  the  amount  of  the  iuA^ested  capital  or  net  income  of 
one  or  more  of  the  corporations  so  affiliated  and  where  9-5  per  cent  or  more  of  the 
stock  of  the  subsidiary  affiliated  corporations  is  owned  by  a  parent  or  controlling 
corporation  or  by  an  individual  or  partnership.     (T.  D.  2662;  Mar.  6,  1918.) 

Returns  shall  be  filed  by  parent  or  principal  corporation  in  office  of  collector  of 
district  in  which  it  has  its  p-incipal  office;  each  of  other  affiliated  corporations  shall 
file  return  in  office  of  collector  of  its  respective  district;  contents  of  return  stated. 
(T.  D.  2662;  Mar.  6,  1918.) 

Railroads,  gas,  electric,  water,  or  other  public  service  cori)oratioiis  when  operated 
independently  and  not  physically  connected  or  merged — particularly  when  situ- 
ated in  different  jurisdictions  and  subject  to  regulation  by  public  ser\'ice  com- 
missions— will  not  be  rer[uired  or  permitted  without  special  permission  obtained 
in  advance,  to  make  a  consolidated  return;  when  piiblic  utUitj-  is  owned  by  in- 
dustrial corporation  and  is  operated  as  a  plant  facility,  or  as  an  integral  part  of  a 
group  orgaiiization  of  affiliated  corporations  and  such  coriwrations  arc  required  to 
file  consolidated  return,  return  of  such  public  utilitv  shall  be  included  therein. 
(T.  D.  2662;  Mar.  6,  1918.) 

If  Commissioner  of  Internal  Revenue,  ujwn  examination  of  any  consolidated 
return,  finds  that  tax  can  not,  in  his  judgment,  be  properly  assessed  upon  basis  of 
such  retm-n,  affiliated  corporations  covered  by  such  consolidated  return,  shall, 
upon  notice  from  the  Commissioner,  file  separate  returns.  (T.  D.  2662;  Mar.  G, 
1918.) 

Coi-porations  must  describe  in  returns  all  intercorporate  relationships  with  other 
corporations  with  which  affiliated,  and  must  furnish  such  information  in  relation 
thereto  as  will  enable  Commissioner  of  Internal  Revenue  to  compute  amount  of  tax 
properly  due  from  each  corporation  on  basis  of  equitable  and  lawful  accounting; 
circumstances  under  which  two  or  more  corporations  will  be  deemed  to  be  affiliated, 
stated.     (T.  D.  2694;  art.  77.) 

Whenever  ueces-sary  to  more  equitably  determine  the  invested  capital  or  taxable 
mcome,  Commissioner  of  Internal  Revenue  mav  require  afiiliated  corporations  to 
funnsh  consolidated  return  of  net  income  and  invested  cauital;  such  return  may  be 
made  by  any  one  or  more  of  such  corporations  or  by  all  acting  jointly;  in  case  of 
neglect  or  refusal  to  furnish  return,  Commissioner  mav  cause  examination  of  books 
of  ail  such  corporations  to  be  made,  and  consolidated  statement  to  be  m.ade  fi'om  such 
examination;  where  returns  are  accepted  total  tax  will  be  computed  in  iii-jt  instance 
as  umt  on  basis  of  consolidated  return  and  will  be  assessed  upon  respecti\e  affiliated 
corporations  in  such  proportions  as  may  be  agreed  among  them,  but  if  no  such  agree- 
ment IS  made  tax  will  be  assessed  upon  each  corporation  in  acc-ordauce  with  net  in- 
come and  invested  capital  properly  assignable  to  it.     (T.  D.  2694;  art.  78.) 


AFFIRMATION — AGRICULT  L^RE.  31 

Excess  profit  tax— Returns — ('outinued. 

When  all,  or  substantially  all,  of  stock  of  subsidiary  corporalioii  was  acquirei  for 
cash,  cash  so  paid  shall  be  l>asis  to  be  used  in  determining  value  of  property  acquired; 
where  stock  of  subsidiary  company  was  acquired  with  stock  ot  parent  company, 
amount  to  be  included  in  consolidated  invested  capital  in  respect  of  company 
acquired  shall  be  computed  in  same  manner  as  if  net  tangible  assets  and  intan<;rble 
assets  had  been  acquired  instead  oi  the  stock;  if  in  accordance  with  such  acquisition 
a  paid-in  surplus  is  claimed,  such  claim  shall  be  subject  to  provisions  of  article3  55 
and  63  of  Regulations  41.     (T.  D.  290T;  July  29,  lf)19.) 

Where  affiliated  corporation  ha-^  made  its  income  tax  return  on  basis  of  taxable 
year  different  from  that  on  basis  of  which  consolidatetl  excess  jirofits  tax  return  in 
which  it  is  included  has  been  made  under  pro\isions  of  articles  77  and  78  of  Regula- 
tions No.  '11  and  of  T.  D.  2682,  amended  income  tax  return  may  )>e  made  on  l>asi3 
of  same  taxable  year  as  consolidated  return,  even  though  notice  was  not  given 
within  time  prescribed  in  articles  211  and  215,  inclusive,  of  Regulations  No.  33, 
revised;  in  such  case  amended  income  tax  return  shall  also  be  made  for  any  un- 
accounted-for portion  of  the  corporation's  taxal)le  year.     (T.  D.  2305;  Mar.  14, 1910.) 

AFFIBMATION. 

Verifications  of  returns,  etc. 
See  specific  heads. 

AGENTS. 
See  ''Principal  and  Agent." 

AGRICULTITRE. 

Ag:ricultural  fairs — Definition. 

The  term  "'agricultural  fairs,"  as  used  in  .section  700  of  the  act  of  October  3,  1?17. 
includes  live  stock  and  similar  shows  for  promotion  of  agricultural  interests,  but  not 
'  bench  shows  or  other  indoor  exhibitions.     (T.  D.  2881;   Mar.  26,  1918.) 

Agricultural  organizations — Capital  stock  tax. 

Agricultural  organizations  are  specifically  exempt  from  tax  imposed  by  section  407 
of  the  act  of  Septembers,  1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  I).  2750,  art.  12; 
Aug.  9,  1918.) 

Pro^ision  of  article  2  of  Regulations  38,  exempting  agricultural  organizations^  only 
applies  to  those  organizations  that  are  engaged  in  that  business  merely  for  the  general 
welfare  and  benefit  of  the  public,  such  as  agricultural  fairs  or  exhibitions;  a  corpora- 
tion engaged  in  general  farming,  raising  cattle,  or  the  agi-icultural  l>usine.ss  for  profit 
is  liable  to  the  tax.     (T.  D.  2417;   Dec.  16,  1916.     T.  D.  2750.  art.  12;  Aug. !),  1918.) 

Income  taxes — Exemptions. 

Agricultural  organizations  are  exempt  from  tax  without  condition ;  collector,  l>eing 
satisfied  that  organization  comes  within  exempted  class,  is  authorized  to  eliminate 
it  from  his  list  and  relieve  it  from  necessity  of  making  returns.     (T.  D.  2690:  art.  68.) 

Agiicultui-al  organizations  do  not  include  corporations  engaged  in  growing  agri- 
cultural products  or  raising  live  stock  or  similar  products  for  prolit,  but  include  only 
those  organizations  which,  having  no  net  income  inuring  to  benefit  of  members,  are 
-  eduratioual  or  instructive  in  character,  and  which  have  for  their  purpose  the  better- 
ment of  conditions  of  those  engaged  in  these  pui-suits,  improvement  of  gro\^'ing  of 
their  products,  and  encouragement  and  promotion  of  industries  to  higher  degret'  of 
efficiency;  included  in  this  class  as  exempt  are  county  fairs  and  like  associations  of  a 
quasi-public  character;  societies  or  associations  holding  race  meets  from  which 
profits  inure  or  mav  inure  to  members  or  stockholders  are  not  exempt.  (T.  D.  2690; 
art.  73.) 

Corporation  engaged  in  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other 
products  of  this  character,  as  means  of  livelihood  and  for  purpose  of  gain,  is  an  agri- 
cultural or  horticultural  society  only  in  the  sense  that  its  name  indicates  the  kind 
of  business  in  which  it  is  engaged,  and,  as  such,  is  not  exempt  from  taxation.  (T.  I). 
■    2690;  art.  74.) 

Gross  income. 

(Corporations  engaged  in  operating  plantations,,  ranches,  stock  farms,  poultry  farms, 
and  lands  used  for  raising  fruit,  truck,  etc.,  including  orchards  of  all  kinds,  shall 
make  their  retui-ns  on  the  basis  of  the  products  actually  marketed  and  sold  during 
tke  jear,  whether  such  product,s  were  produced  or  purchased  and  resold.  (T.  D. 
2690;  art.  123.) 


3'2 


AT.ASKA — ALCOHOL.. 


Agricultural  organizations  -Continued. 

■ Income  taxes— Continued. 

Net  incomes -Continued. 

Ml  deduflions  by  rorporcitions  engaged  in  operating  plantations,  randies,  etc., 
■<liad  be  based  upon  legitimate  expense  incident  to  current  year  whether  for  pro- 


ne<l  upon  crop 

In  determining  cost  of  stock  for  purpose  of  ascertaining  deductible  loss  there  shall 
be  <aken  into  ac("ount  only  the  purchase  price  and  not  the  cost  of  any  feed,  pasturage 
or  care  which  has  been  deducted  as  an  expense  of  operations.    (T.  D.  2G90;  art.  123.) 

Excise  taxes— Tractors. 

Tractors  for  pulling  agricultural  implements  are  not  automobiles  or  automobile 
trucks.     (T.  D.  2719;  Art.  IX.) 

Income  tax  returns  by  farmers. 
See  "Farmers." 

ALASKA. 
Alcoholic  liquors. 

F..\lracts  from  act  of  February  14,  1917,  prohibiting  manufacture  and  sale  of 
alcoholic  liquors  in  Alaska,  published  for  information  of  internal-revenue  ofBcers 
and  others  concerned.     (T.  D.  24G6;  Mar.  27,  1917.) 

Excise  taxes. 

Taxes  imposed  bv  sections  313,  315,  and  600  of  act  of  October  3,  1917,  apply  to 
articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory  or  else- 
where in  the  United  States  than  in  a  State,  and  to  articles  sold  in  commerce  between 
United  States  and  any  of  its  island  or  other  posseseione  except  the  West  Indian 
Islands  ac(iuired  from' Denmark.     (T.  J).  2739;  June  24,  1918.) 

Public  utilities. 

See  "Transportation  Tax." 

Stamp  taxes. 

The  stamp  tax  imposed  by  subdivision  (b)  of  Schedule  A  of  the  act  of  October  3, 
1917,  attaches  to  time  drafts  covering  articles  shipped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone,  and, 
altliough  time  drafts  covering  shipments  to  the  Virgin  Islands,  the  Philippine 
Islands,  and  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles 
shipped  to  the  United  States  from  the  \'irgin  Islands  or  Philippine  Islands  or  Porto 
Rico  must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified. 
(T.  D.  2782;  Dec.  24,  1918.) 

General  rule  tliat  time  drafts  are  subject  to  stamp  tax  imposed  by  act  of  October  3, 
1917,  when  delivered  within  territorial  jurisdiction  of  United  States,  and  not  other- 
wise, is  applicable  to  time  drafts  used  between  the  territorial  jurisdiction  of  the 
United  States  (including  the  States,  the  District  of  Columbia,  the  Territory  of  Hawaii 
and  the  Territory  of  Alaska)  and  the  Canal  Zone,  Philippine  Islands,  the  Virgin 
Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.  (T.  D.  2795;  Feb.  2G, 
1919.) 

ALCOHOL. 

Alaska — Manufactirre  and  sale. 

Extracts  from  act  of  February  14,  1917,  prohibiting  mamifacture  and  sale  of 
alcoholic  liqxiors  in  Alaska,  published  lor  information  of  internal-revenue  officers 
and  others  concerned.     (T.  D.  2466;  Mar.  27,  1917.) 

Antiseptic  mixtures. 

l'(jrmulas  for  mixture  of  alcohol  withdrawn  for  use  in  hospitals,  etc.,  with  an 
antiseptic  stated;  application  for  permit  and  bond.     (T.  D.  249G;  May  31,  1917.) 

Apothecaries  will  not  be  charged  with  lial)ility  to  special  tax  on  account  of  sale 
in  (juantities  not  exceeding  1  pint  of  alcohol  for  bathing  or  antiseptic  purposes, 
providing  it  is  compounded  prior  to  sale,  but  not  in  bulk  or  in  advance  of  orders, 
in  such  manner  as  to  make  it  unfit  for  use  as  beverage:  approved  form\ilas  for  pur- 
pose of  rendering  alcohol  unfit  for  beverage  stated;  containers  of  alcohol  treated 
in  such  manner  must  bear  "poison"  labels.  (T.  D.  276Q;  Oct.  9.  1918.  T.  D. 
2788:  Feb.  6,  1919.) 


ALCOHOL.  33 

Denatured  alcohol — Acetone  content. 

Specifications  for  acetone  content  in  denaturing  gra<]e  of  woo<l  alcoliol  clianged 
fio  as  to  contain  not  more  than  10  grams  nor  lef;,s  than  3  grams  per  100  c.  c.  of  acetone 
and  otlier  snlistances  estimated  as  acetone.  (T.  D.  2587;  Nov.  21,  1917.  See 
T.  D.  2208;  Dec.  4,  1915.) 

T.  D.  2587  revoked,  and  Article  V  of  Regulations  No.  30,  providing  that  wood 
alcohol  used  in  denaturing  shall  contain  not  more  than  20  grams  nor  less  than  10 
grams  of  acetone,  or  other  substances  estimated  as  acetone,  per  100  c.c,  when  tested 
by  the  Messinger  method,  again  made  effective;  wood  alcohol  complying  with  T. 
I).  2587,  on  hand  or  in  transit,  permitted  to  be  used  for  denaturing  purposes  until 
and  on  January  31,  1919.     (T.  L».  2779;  Dec.  17,  1918.) 

Bond  of  manufacturer. 

If  the  penal  sum  of  a  "Manufacturer's  bond  for  special  denatured  alcohol' '  (Form 
583  or  P"'orm  582A)  is  in  excess  of  liability  to  tax  at  rate  of  $3.20  per  gallon,  imposed 
by  act  of  October  3,  1917,  new  bond  will  not  be  required,  provided  recovery  clause 
in  bond  has  been  stricken  out;  if  such  clause  has  not  been  stricken  out  new  bond 
will  be  required.     (T.   D.  2578;   Oct.   31,   1917.) 

Bulk  quantity  denaturation. 

Persons  permitted  to  denature  alcohol  in  bulk  quantities  are  proprietoi'S  of  dis- 
tilleries having  denatured  bonded  warehouses  on  their  distillery  premises,  proprie- 
tors of  central  denaturing  bonded  warehouses,  and  proprietors  of  industrial  dis- 
tilleries established  xinder  the  act  of  October  3,  1913;  a  pharmacist  is  in  no  sense  a 
denaturer  of  alcohol,  nor  are  described  agents  regarded  as  satisfactory  for  denatura- 
tion of  alcohol  in  bulk  quantities.  (T.  D.  2576;  Nov.  10,  1917.  T.'D.  2788;  Feb. 
(i,  1919.) 

■ Containers. 

.Steel  drums  and  packages,  without  wooden  heads  or  lead  plates,  may  be  used  aa 
containers  for  denatured  alcohol,  provided  that  in  case  of  specially  denatured 
alcohol  one  end  of  each  such  package  is  painted  yellow,  upon  which  painted  end 
required  marks  and  brands  shall  be  stenciled  and  stamps  affixed ;  stamps  required 
to  be  protected  with  coating  of  shellac  or  varnish  impervious  to  water;  packages  in- 
tended to  contain  completely  denatured  alcohol  are  to  be  painted  light  green  color; 
articles  36  and  37  of  Regulations  No.  30  modified.     (T.  D.  2824;  Apr.  22,  1919.) 

Denaturing  materials. 

Where  chemically  or  commercially  pure  or  a  U.  S.  P.  salt  or  solid  is  used  as  a 
denaturing  material,  same  need  not  be  submitted  for  tost,  provided  material  ia 
delivered  to  storekeeper-ganger  in  charge  in  a  sealed  package,  bearing  seal  and 
label  descriptive  of  its  contents  placed  thereon  by  reputable  manufacturer  of 
chemicals.     (T.  D.  2434;  Jan.  18,  1917.) 

Distilleries. 

Distillers  producing  alcohol  from  foods,  fruits,  food  materials,  or  feed  for  de- 
naturation only,  under  act  of  October  3,  1013,  required  to  comply  with  regulations 
of  Commissioner  of  Internal  Revenue,  relating  to  such  distillation  and  denatura- 
tion.    (T.  D.  2523;  Sept.  11,  1917.) 

Alcohol  produced  at  industrial  distilleries  must  be  denatured  on  the  distillery 
premises  where  produced,  and  vacuum  stills  may  be  used  in  lieu  of  more  ordinary 
tvpes,  if  desired;  manner  of  construction  of  industrial  distilleries  stated.  (T.  D. 
2564;  Oct.  26,  1917.) 

Industrial  distilleries  and  central  distilling  and  denaturing  i)lants  are  exempted 
from  the  provisions  of  section  3264,  Revised  Statutes,  requiring  that  surveys  of 
distilleries  be  made  to  determine  true  spirit-producing  capacities  thereof  for  a  day 
of  24  hours.     (T.  D.  2728;  June  8,  1918.) 

Fermented  malt  liquors, 

Suj)ervision  over  removal  of  taxable  fermented  liquor  from  brewery  to  distillery 
and  oA^er  operation  of  distillery  and  denaturation  of  product  will  be  exercised  by 
pipe-line  deputy  where  one  is  on  duty,  or  in  cases  where  there  is  no  such  deputy 
or  he  is  unable  to  perform  required  duties,  a  storekeeper-gaugor  will  be  assigned 

70420°— 21— 3 


34  ALCOHOL. 

Denatured  alcohol— Coutinuod. 

Fei-mented  malt  liquors— Continued . 

in  the  usual  nianiisr  to  tlie  distillery,  with  compensation  not  loss  than  $3  nor  more 
than  ?4  per  day.     (T.  D.  2564;  Oct.  2G,  1917.) 

1-Vrmontcd  malt  liquor  may  be  couA'eyed  by  pipe  line  without  tax  payment 
from  brewery  premises  where  produced  to  contiguous  industrial  distillery  of  either 
class  established  under  act  of  October  3,  1913,  there  to  be  used  as  distilling  mate- 
rial, where  the  brewery  premises  and  the  industrial  distillery  premises  are  separate 
and  distinct,  and  for  "which  requisite  notices  and  bonds  shall  have  been  given; 
must  be  complete  separation  by  substantial  unbroken  partitions  between  brewery 
and  distillery  from  cellar  to  roof  where  they  ai-e  in  same  building  or  separate  build- 
ings immediately  adjoining.     (T.  D.  2564;  Oct.  26,  1917.) 

Formulas. 

Formula,  <leBignated  as  No.  23,  for  special  denaturation  of  alcohol  to  be  used_  in 
manufacture  of  liniment,  stated;  formula  not  to  be  used  in  central  denaturing 
bonded  warehouses  or  distillery  denaturing  bonded  warehouses,  but  use  authorized 
for  denaturation  of  alcohol  in  central  distilling  and  denaturing  plants;  permission 
required  to  use  special  denaturant  in  any  central  distilling  and  denaturing  plant, 
a,s  provided  in  articles  2  and  19,  of  supplement  No.  2  to  Regulations  30.  (T.  D. 
2379;  Oct.  6,  1916.) 

Formula  for  special  denatau'ation  of  alcohol  to  he  used  in  manufacture  of  phenace- 
tin,  stated;  it  is  understood  that  no  part  of  aleohcl  remains  in  finish-ed  product  which 
must  meet  specifications  of  United  States  Pharmacopoeia,  and  that  formula  is  to 
be  used  in  completed  process  for  manufacture  of  phenacetin  and  not  merely  for 
anv  one  stage,  and  that  process  is  to  be  closed  and  continuous.  (T.  D.  2381;  Oct. 
16"  1916.) 

Formula,  designated  as  No.  25,  approved  for  special  denaturation  of  alcohol  to 
be  used  exclusively  in  manufacture  of  tincture  of  iodine;  formula  not  to  be  used 
in  central  denaturing  bonded  warehouses  or  distillery  denaturing  bonded  ware- 
houses, but  use  authorized  for  denaturation  of  alcohol  in  central  4ietilling  and 
denaturing  plants.     (T.  D.  2413;  Dec.  11,  1916.) 

Formula,  designated  as  No.  26,  for  special  denaturation  of  alcohol  to  be  used 
exclusively  in  the  manufaetiire  of  ethylaniline  and  diethylaniline  stated;  officers 
instructed  to  exercise  great  caution  in  recommending  granting  of  permits  for  use 
-of  such  denaturant;  application  must  be  accompanied  by  blue  print  or  dra^\dng  of 
p^remises,  same  to  l3e  dulv  sworn  to,  and  detailed  description  of  process.  (T.  D. 
2439;  Jan.  2,  1917.) 

Alcohol  denatured  according  to  stated  formula  may  be  used  in  the  manufacture 
f.f  soap  liniment  (U.  S.  P.),  chlorofonn  liniment  (U.S.  P.),  liniment  of  .soft  soap, 
and  green  soap  when  manufactured  in  accordance  with  standards  of  United  States 
Pharmacopceia  with  exception  that  products  will  contain  camphor  and  rosemary; 
denaturant  may  be  used  only  in  central  denaturing  and  distilling  plant  of  indus- 
trial character  as  established  under  subsection  2,  of  paragraph  N,  of  section  4,  of 
the  act  of  October  3,  1913,  and  supplement  No.  2  to  Regulations  No.  30;  samples 
of  liniment  of  soft  soap  and  green  soap  required  to  be  submitted  together  mth 
formula,  before  bond  is  approved;  permission  for  use  of  special  denaturants  must 
be  obtained.     (T.  D.  2465;  Mar.  24,  1917.) 

Use  of  formula  G-b,  containing  pyridine  as  a  denaturant,  extended  temporarily 
for  those  purpo.-^es  for  which  special  formula  No.  17  has  heretofore  been  authorized, 
and  restriction  in  respect  to  operating  in  connection  with  distillery  or  central  de- 
naturmg  bonded  warehouse  temporarily  removed.     (T.  D.  2484:  Apr.  21,  1917.) 

Formula  3  for  the  complete  denaturation  of  alcohol  made  of  refuse  material  for 
use  as  a  motor  spirit  or  gasoline  substitute  in  Hawaii  authorized  for  use  by  anv  quali- 
lied  <ienatuFer.     (T.  D.  2528;  Oct.  3,  1917.) 

Forrmila  No.  ^1,  for  special  denaturation  of  alcohol  to  bo  used  in  the  manufacture 
ot  tooth  paste,  stated;  samples  of  finished  product,  together  with  formula  of  in- 
gredients, labels,  advertising  matter,  etc.,  required  to  be  furnished;  this  data 
snould  be  accompanied  by  full  description  of  process  of  manufacture  and  a  blue 
print  or  pencil  dra^vlng  showing  location  of  room  or  rooms  in  which  denatured 
alcohol  IS  to  be  used.     (T.  D.  2819;  Apr,  10,  1919.) 

Formula  3 A,  for  special  denaturation  of  alcoliol  tor  lisc  in  the  manufacture  of 
transparent  soap,  modified.     (T.  D.  2820;  Apr.  10,  1919.) 

a.T.'^^^f^  ^^{  ^'  ^"OT  denaturation  of  alcohol  for  use  in  manufacture  of  "Ethvlene," 
wS'l°u°^^  w"'i^"i^'  ^'^  ^T^  "^  P™^es3  which  is  closed  and  continuous  and 
which  will  completely  destroy  the  alcohol  as  such.     (T.  D.  2863-  June  14  1919.) 


ALGOJHOL.  35 

Denatured  alcohol — Continued. 
— —  Formulas — Continued. 

Formula  No.  4,  for  complete  denaturation  of  alcohol,  stated;  benzol  eubmitted 
required  to  conform  to  specifications  set  out.     (T.  D.  2853;  June  3.  1919.) 

P'ormula  31A,  for  the  denaturation  of  alcohol  foi"  use  in  the  manufacture  of  tooth 
paste,  stated.     (T.  D.  2855;  June  7,  1919. ) 

Formula  No.  30,  for  special  denaturation  of  alcohol  to  be  used  exclusively  as 
reagent  for  analytical  and  testing  purposes  by  chemical  and  physical  laboratories, 
stated;  alcoliol  so  denatured  shall  not  be  redistilled  or  purified  to  use,  and  is  not  to 
be  recor\-ered  for  reuse;  use  of  this  formula  will  not  be  permitted  until  intended 
use  and  method  of  its  use  is  satisfactorily  set  forth  in  application  filed;  laboratories 
required  to  qualify,  keep  records,  and  comply  with  regulations,  as  in  case  of  manu- 
facturers using  specially  denatured  alcohol.     (T.  D.  2793;  Feb.  20,  1919.) 

Formula  No.  29,  for  denaturation  of  alcohol  for  use  in  manufacture  of  glacial  acetic 
acid,  stated;  sketches  of  routurg  of  alcohol  and  the  closed  and  continuous  process,  as 
well  .as  detailed  description,  must  accompany  application  for  use  of  such  formula. 
(T.  D.  2758;  Sept.  20,  1918.) 

Labels. 

Laljol^  on  denatured  alcohol  packages  required  to  have  printed  thereon  in  large 
letter?  the  word  "Poison"  and  the  following  statement:  ''Completely  denatured 
alcohol  is  a  violent  poison.  It  can  not  be  applied  externally  to  human  or  animal 
tissue  without  seriously  injurious  results.  It  can  not  be  taken  internally  without 
inducing  blindness  and  general  physical  decay,  ultimately  resulting  in  death." 
(T.  D.  2914;  Aug.  30,  1919.) 

■ Losses. 

Tanks  and  tank  cars  used  in  shipment  of  alcohol  to  denaturing  bonded  warehouses 
required  to  be  secured  with  certain  seal  locks,  and  vents  or  remoA'able  portions  of 
car  not  so  locked  must  be  wired  aud  sealed  with  '"  Tyden  "  seals,  consecutively  num- 
bered, etc.;  certificates  and  monthly  reports  of  gaugers;  necessary  that  locks  and 
seals  be  intact  in  order  to  secure  allowance  for  losses  in  transit.  (T.  D.  274G;  Julv 
10,  1918.) 

Motor  fuel. 

Formula  3  for  the  complete  denaturation  of  alcohol  made  of  refuse  material  for 
use  as  a  motor  spirit  or  gasoline  substitute  in  Hawaii -autliorized  -for  use  by  any 
qualified  denaturer.     (T.  B.  2528;  Oct.  3,  1917.) 

Formula  No.  28,  for  special  denaturation  of  alcohol  for  use  in  manufacture  of 
motor  fuel,  stated;  formula  authorized  to  be  used  exclusively  in  manufacture  of 
motor  fuel  by  a  closed  and  continuous  process,  in  connection  with  a  central  denatur- 
ating  bonded  warehouse;  analytical  requii'oments;  process  after  denaturation; 
samples  of  finished  product  to  be  furnished;  application  for  use  of  denaturant  to  be 
accompanied  by  blue  jirints  and  full  description  of  process  and  pi'emises.  (T.  D. 
2769;  Nov.  4,  1918.) 

• Plates  attached  to  drums. 

U.'^e  of  lead  plates  attached  to  drums  containing  denatured  alcoliol  of  not  less  than 
one-fourth  of  an  inch  in  thickness,  instead  of  three-eighths  of  an  inch,  as  proA-ided 
in  T.  D.  1310,  authorized.     (T.  D.  2751;  Aug.  14,  1918.) 

■ Poi"to  Kico  imports. 

Where  alcohol  of  not  less  than  180°  proof  is  brought  from  Porto  Rico  for  denatura- 
tion, same  may  be  transferred  to  any  central  denaturing  bonded  warehouse  iree 
of  tax,  upon  filing  stated  bond,  which  is  to  be  given  in  duplicate  by  warcliouse  ipro- 
prietor,  with  sureties  satisfactory  to  collector  and  in  penal  sum  of  not  less  than 
triple  the  amount  of  tax,  and  in  no  case  less  than  $5,000,  one  copy  of  bond  to  be 
retained  by  collector,  and  one  copy  v,-ith  his  approval  indorsed  thereon  to  be  for- 
warded to  Commissioner  of  Internal  Revenue;  instructions  as  to  application  for 
transfer  of  alcohol;  alcohol  transferred  will,  uj^on  arri\-al,  be  carefully  inspected 
and  reported,  on  monthly  statement  (Form  575);  such  alcohol  will  bo  denatured  and 
accoiuited  for  in  same  manner  as  other  alcohol  received  for  like  purposes.  (T.  D. 
2575;  Nov.  5,  1917.)  This  decision  applies  to  alcohol  produced  in  Porto  Rico  on 
or  after  October  i,  1917,  only;  decision  further  modified  so  as  to  permit  giving  of 
bond  in  penal  sum  of  not  less  than  actual  amount  of  tax  at  rate  of^  $2.20  per  proof 
gallon,  and  in  no  case  less  than  §5,000,  except  that  in  case  of  alcohol  withdrawn  by 
scientific  or  educational  institution  luider  section  3297,  Revised.  Statutes,  bond 
shall  be  for  penal  sum  of  not  less  than  double  amount  of  tax  at  rate  of  $2.20  per 
gallon.     (T  D:  2641;  Jan.  28,  1918.) 


30 


ALCOHOL. 


Spirits  recovered  from  empty  packages. 

.Spirits  recovered  from  empty  spirit  packages  by  steaming,  hot  water,  or  other 
processes  at  central  <listilling  and  denaturing  plants  established  under  act  of  Octo- 
ber 3  lois,  to  be  denatured  on  the  distillery  premises,  as  pro\'ided  m  regulations 
No.  30,  and  supplement  No.  2  made  in  pursuance  thereof.  (T.  D.  2565;  Oct.  27, 
1917.)  ' 

Sulphuric  acid. 

Storekeepers  at  denaturing  bonded  warehouses  directed  to  accept,  for  denaturing 
purposes,  sulphuric  acid  of  a  specific  gravity  of  1.83.     (T.  D.  2658;  Feb.  28,  1918.) 

Tinctvu'e  of  iodine. 

Formula,  designated  aa  No.  25,  approved  for  special  denaturation  of  alcohol 
to  be  used  exclusivelv  in  manufacture  of  tincture  of  iodine;  formula  not  to  be  used 
in  central  denaturing  bonded  warehouses  or  distillery  denaturing  bonded  ware- 
houses but  use  authorized  for  denaturation  of  alcohol  in  central  distilling  and 
denaturing  plants.     (T.  D.  2413;  Dec.  11,  1916.) 

Use  of  alcohol  denatured  in  conformity  with  formula  25  in  the  manufacture  of  a 
3.1  per  cent  tincture  of  iodine  without  the  addition  of  potassium  iodide  assented  to. 
(f .  D.  2.527;  Sept.  28,  1917.) 

Withdrawal  of  alcohol. 

Regiilations  of  October  26,  1917,  relative  to  sale  and  use  of  distilled  spirits  for 
other  than  beverage  purposes  under  the  acts  of  August  10,  1917,  and  October  3, 
1917,  do  not  apply  to  alcohol  withdrawn  for  denaturation.  (T.  D.  2559;  Oct.  26, 
1917.    T.  D.  2788;  Feb.  6,  1919.) 

Instructions  mth  reference  to  withdrawal  of  alcohol  for  use  in  central  dena- 
turing warehouses  from  different  distilleries  under  one  bond;  rec)uisites  of  bond; 
permit;  application  for  regauge  and  withdrawal;  order;  storekeeper's  duties;  cer- 
tificate of  gauger.    (T.  D.  2630;  Jan.  17,  1918.) 

Distilled  spirits. 

Distillers  producing  alcohol  exclusively  for  other  than  beverage  purposes  may 
operate  on  Sundays,  and  collectors  may  require  storekeeper-gangers  and  store- 
keeper-gangers in  capacity  of  gangers  to  remain  on  duty;  notation  to  be  made  on 
vouchers  for  monthly  compensation  to  effect  that  distilleries  were  in  operation 
imder  provisions  of  section  302  of  act  of  October  3,  1917;  distillers  manufacturing 
ethyl  alcohol  for  nonbeverage  purposes  exclusively  may  be  granted  permission  to 
fill  fermenting  tubs  in  sweetmash  distillery  not  oftener  than  every  48  hours;  upon 
receipt  of  notice  on  Form  27A  from  such  a  distiller,  collector  to  make  survey  of 
distillery.     (T.  D.  2636;  Jan.  24,  1918.) 

Exports — Drawback. 

Where  alcohol  is  exported  in  its  natural  condition,  drawback  thereon  allowed 
only  when  alcohol  is  exported  in  the  distillers'  original  casks  or  packages,  and 
allowance  is  limited  by  section  3329,  Revised  Statutes,  to  90  cents  per  proof  gallon; 
where  the  alcohol  is  used  in  manufacture  of  flavoring  extracts,  medicinal  or  toilet 
preparations  for  export,  the  drawback  should  include  both  tax  of  .$1.10  per  proof 
gallon,  and  additional  tax  paid  thereon,  under  act  of  October  3,  1917.  (T.  D.  2572: 
Oct.  24,  1917.) 


ALCGHOL.  '37 

Exports — Continued. 
Tanks  or  tank  cars. 

When  alcohol  or  other  distilled  spirits  are  to  be  wilhdrawn  from  dislillory  bonded 
warehouse  free  of  tax  for  export  in  tanks  or  tank  ears,  metal  storage  tanks  must 
be  provided  in  Bueh  warehouse  to  be  constructed  and  arranged  with  proper  pii^e 
connections  and  suitable  weighinj^  tanks,  as  prescribed  in  Regulations  No.  30; 
wh(m  withdrawals  are  to  be  made;  direct  from  recei'.ang cisterns  into  tanks  or  tank  cars, 
storage  tanks  need  not  be  provided  in  such  warehouse,  in  which  case  the  weighing 
tanks  will  be  located  in  the  distillery  cistern  room.     (T.  D.  2368;  Sept.  11,  1916.) 

Applications  for  withdrawal  of  alcohol  or  other  di.stilled  spirits  for  exportation 
in  tanks  or  tank  cars,  and  bonds  covering  tax  on  spirits  to  be  withdrawn,  will  be 
same  as  for  spirits  contained  in  original  packages,  except  that  in  distributing  the 
spirits  the  serial  number  of  the  storage  tank  will  be  given,  or  if  withdrawal  is  to  be 
made  direct  from  receiving  cistern,  application  and  bond  will  bo  state.  (T.  D. 
2368;  Sept.  11,  1916.) 

Each  tank  or  tank  car  will  be  regarded  as  an  original  package,  and  an  export 
stamp,  to  be  procured  by  the  shipper,  Avill  be  affixed  to  each  such  tank  or  tank  car. 
(T.  D.  2368;  Sept.  11,  1916.) 

Bonded  carriers  to  which  shipments  of  spirits  in  tanks  or  tank  cars  are  delivered 
for  transportation  for  export  required  to  procure  certain  seals  for  securing  cars  for 
use  until  such  time  as  Commissioner  of  Internal  Revenue  may  adopt  a  suitable 
seal;  ordering,  numbering,  and  affixing  of  seals;  duty  of  collector  of  customs  where 
seals  are  found  to  be  intact  at  frontier  point;  duties  of  customs  inspector  where  seals 
are  found  to  be  broken  or  tampered  with.     (T.  D.  2368;  Sept.  11,  1916.) 

Exportation  of  alcohol  or  other  distilled  spirits  in  tanks  or  tank  cars  restricted 
to  shipments  by  railroad  destined  for  points  in  contiguous  foreign  territory.  (T.  D. 
2368;  Sept.  11,  1916.) 

Alcohol  or  other  distilled  spirits  of  not  less  than  180°  proof  may  be  drawn  from 
receiving  cisterns  at  any  distillery  or  from  storage  tanks  in  distillery  warehouse 
into  tanks  or  tank  cars  for  export  from  United  States.     (T.  D.  2368;  Sept.  11,  1916.) 

Monthly  report  of  spirits  withdrawn  from  receiving  cisterns  required  to  be  made 
on  supplemental  Form  94A;  contents.     (T.  D.  2368;  Sept.  11,  1916.) 

Extracts. 

See  "Extracts." 

Any  domestic  wines  may  be  used  in  manufacture  of  liqTieurs.  cordials,  and  similar 
compounds,  provided  no  distilled  spirits  are  added;  prohibition  against  mixing 
of  distilled  spirits  with  wines  does  not  apply  to  limited  use  of  alcohnl  in  making  of 
fluid  extracts  from  herbs  which  may  be  used  in  manufacture  of  cordials;  quantity 
or  percentage  of  alcohol  permitted  in  preparation  of  such  extracts  for  manufacture 
of  cordials  must  in  all  cases  conform  to  United  States  Pharmacopoeia.  (T.  D.  2387; 
Oct.  30,  1916.) 

Alcohol  tax  paid  at  rate  of  $2.20  per  gallon,  whether  produced  from  materials 
fermented  before  or  after  September  9,  1917,  may  be  used  in  manufacture  of  bona 
tide  flavoring  extracts,  which  themselves  are  not  fit  for  beverage  ptuposes;  such 
flavoring  extracts  may  be  subsequently  used  for  flavoring  beverages  whether  alco- 
holic or  not.     (T.  D.2567;  Oct.  30,  19*17.) 

Alcohol  which  can  not  legally  be  used  for  beverage  purposes  may  be  used  in 
manufacture  of  flavoring  extracts.     (T.  D.  2598;  Nov.  24,  1917.) 

Manufacturers  of  alcoholic  preparations  which  it  is  possible  to  use  internally, 
Buch  as  flavoring  extracts,  must,  wherever  standard  process  of  manufacture  is  pre- 
scribed by  Secretary  of  Agrictilture,  use  such  process.  (T.  D.  2699;  Apr.  16,  1918. 
T.  D.  2788;  Feb.  6,  1919.) 

Manufacturers  of  flavoring  extracts  who  do  not  pay  special  tax  must  comply 
with  standards  prescribed  by  Secretary  of  Agriculture;  if  no  standard  has  beeu 
prescribed,  liability  to  special  tax  will  be  regarded  as  incurred  on  account  of  manu- 
facture of  flavoring  extracts,  as  well  as  of  essences,  soft  drinks,  sirups,  etc.,  if 
finished  product  contains  more  alcohol  than  is  necessary  to  cut  the  oils  or  extract 
the  desired  active  principles  and  hold  them  in  solution.     (T.  D.  2760;  Oct.  9,  1918.) 

Where  any  preparation  containing  more  than  one-half  of  1  per  cent  of  alcohol 
by  volume,  whether  sold  as  medicine  or  flavoring  extract  or  in  any  other  manner, 
does  not  conform  to  required  standard,  liability  will  be  asserted  to  tax  at  beverage 
rate  on  alcohol  used;  similar  action  will  be  taken  in  case  of  preparation  made  ia 
conformity  with  such  standard  if  sold  by  a  manufacturer  for  beverage  purposes. 
(T.  D.  2760;  Oct.  9,  1918.) 


3g  ALCOSQL. 

Extracts— Contiaued . 

Use  of  alcohol  by  manufacturing  chemists  or  flavoring  extract  manufacturers 
recovered  from  dregs  or  marc  of  percolation  or  extraction  in  any  other  manner 
than  that  prescribed  by  section  :5246,  Revised  Statutes,  as  amended  by  act  March 
3  1915  without  payment  of  special  tax,  will  not  be  permitted.  (T.  D.  2760; 
Oct.  9,'l918.) 

Fennented  malt  liquors. 

'Vlcoholic  content  of  fermented  malt  liquor  produced  in  United  States  (except 
ale  and  porter)  must  in  no  case  exceed  2,1  per  cent  of  alcohol  by  weight.  (T.  D. 
2618;  Dec.  21,   1917.) 

All  so-called  malt  tonics  a,nd  malt  extracts  containing  in  excess  of  2  per  cent  of 
alcohol  by  volume  and  not  containing  at  least  12  per  cent  of  solids  due  to  malt  are 
properly  classed  as  fermented  malt  liquors,  and  all  existing  provisions  of  internal- 
revenue  law  and  regulations  relating  to  fermented  malt  liquors,  including  sections 
of  law  iinr)osing  special  tax  on  account  of  sale  thereof,  are  applicable  to  such  prepara- 
tions,    (t.  D.  2717;  May  28,  1918.) 

Executive  order,  dated  September  IG,  1918,  and  regulations  promiilgated  by  the 
President  under  date  of  September  30,  1918,  covering  production  of  malt  liquors 
and  the  alcliolic  content  thereof,  published  for  information  of  revenue  officers  and 
others  concerned.     (T.  D.  2768;  Nov.  2,  1918.) 

Ploor  tax. 

Alcohol  lield  on  October  3,  1917,  hy  manuiactui-ers  of  proprietary  medicines  for 
useinmanufactui'eof  medicines  is  subject  to  floor  tax,  unless  on  day  act  of  October 
3,  1917,  took  effect  it  was  in  process  of  manufacture  and  had  been  rendered  unfit 
for  beverage  purposes.     (T.  D.  2547;  Oct.  22,  1917.) 

Fortification  of  wine. 

Dry  wines,  when  SiVeetened,  may  be  fortified  only  by  the  producer  and  on  the 
premises  where  actually  made;  tax-paid  grain  or  otlier  ethyl  alcohol  may  be  used 
in  fortifying  any  sweet  wines.     (T.  D.  2387;  Oct.  30,  191G.) 

Nonalcoholic  beverages. 

See  "Beveragee." 

Nonbeverag^  alcohol. 

AU  persons  purchasing  nonbeverage  alcohol  for  use  in  manufacturing  processes 
mv;st  obtain  permit,  give  required  bond,  and  otherwise  comply  with  regulations 
pertaining  to  sale  and  use  of  such  alcohol,  regardless  of  quantities  purchased.  (T.  D, 
2576;  Nov.  10,  1917.) 

So-called  nonbeverage  alcohol  taxable  at  rate  of  $2.20  per  proof  gallon  must  not 
be  dispensed  under  physician's  prescription,  unless  in  compounding  thereof  same 
is  30  medicated  as  to  render  it  absohitely  unfit  for  use  as  a  beverage;  in  case  of  pre- 
scription compounding  dniggist  vnll  be  held  responsible  as  to  sufficiency  of  medica- 
tion.    (T.  D.  2593;  Nov.  27,1917.) 

Special  tax  must  be  paid  as  retail  or  wholesale  liquor  dealer  by  homeopathic 
pharmacist  covering  sale  of  nonbeverage  alcohol  and  dilutions.  (T.  D.  2699;  Apr. 
16,  1918.     T.  D.  2788;  Feh.  6,  1919.) 

Homeopathic  pharmacists  who  are  Unwilling  to  take  out  permits  and  give  bonda 
required  may  purchase  and  use  nonbeverage  alcohol  produced  from  materials 
fermented  prior  to  11  o'clock  p.  m.,  September  8,  1917,  and  taxable  at  tlie  rate  of 
$3.20  per  proof  gallon.     (T.  D.  2699;  Apr^  16,  1918.) 

_  Ever3^  physician  or  otlier  person  desiring  to  purchase  or  use  homeopatliic  attenua- 
tions,potencies,  or  dilutions,  or  nonbeverage  alcohol  for  making  same,  must  qualify 
by  filing  bond  and  obtaining  permit,  except  that  homeopathic  physician  or  any 
other  person  may  obtain  from  pharmacist  not  exceeding  2  draclims  of  any  attenua- 
tjon,  etc.,  at  one  time  without  filing  bond  and  obtaining  permit;  physiciajQ  may 
dispense  such  attenuations,  etc.,  in  quantities  ordinaiily  prescribed  to  patients, 
and  such  patients  need  not  file  bonds  or  hold  permits.  (T.  D.  2699;  Apr.  16,  1918.) 
Manufactiu-ers  of  Jamaica  gijager  Mill  not  be  issued  permits  covering  use  of  iion- 
be'«-erage  alcohol  in  manufactui-e  thereof  unless  same  is  made  in  accordance  Avith 
process  prescribed  in  United  States  Pharmacopoeia.  (T.  D.  2699;  Apr.  16,  1918. 
T.  D.  2788;  Feb.  6,  1919.)  '     y         > 


ALCOHOL.  39 

Nonbeverage  alcohol — Continued. 

Where  processes  other  than  tliose  prescribed  in  the  United  States  Pharmacopa'ia 
and  hy  the  Secretary  of  Agriculture  are  followed  and  right  to  use  nonbeverage  alcohol 
is  claimed,  manufacturer  will  furnish  in  dujilicate  data  called  for  in  T.^D.  2570, 
as  in  case  of  alcoholic  medicinal  compounds  tor  internal  Tise  which  do  not  conform 
to  the  United  States  Pharmacopoeia  or  National  Formulary;  samples  of  product 
will  be  required  when  doubt  exists  as  to  nonbeverage  character  of  same,  such  samples 
to  be  forwarded  by  express,  charges  prepaid  by  manufacturer,  to  DiA-ision  of  Chem- 
istry, ofnce  of  Commissioner  of  ^Internal  Revenue.  (T.  D.  2699;  Apr.  16,  1918. 
T.  b.  2788;  Feb.  G,  1919.) 

Such  United  States  Pharmacopoeia  or  National  Formulary  preparations  as  aro- 
matic elixii's,  tincture  of  aromatica,  and  similar  preparations,  which  are  used  hy 
physicians  and  pharmacists  principally  as  vehicles,  and  which  are  potable,  may  bo 
made  with  nonbeverage  alcohol  and  sold  in  good  faith  for  legitimate  u.ses;  container 
to  bear  stated  label.  (T.  D.  2699;  Apr.  16,  1918.  T.  D.  2760;  Oct.  9,  1918.  T.  D. 
2783;  Feb.  6,  1919.) 

Where  blanket  permits  for  sale  and  use  of  nonbeverage  alcohol  have  been  issued, 
collectors  will  liave  complete  reexamination  made  of  permits  and  vrliere  found  to 
cover  alcoholic  compounds  or  preparations  which  it  is  possible  to  use  internally,  such 
as  flavoring  extracts,  they  will  have  thorough  investigation  made  and  obtain  data 
required  in  T.  D.  2576  and  T.  D.  2699;  defective  permits  must  be  corrected  and, 
where  essential,  copy  of  permit  in  collector's  office,  as  well  as  copy  in  possession  of 
holder,  should  be  corrected  to  show  exact  use  to  which  alcohol  is  to  be  put.  (T.  D. 
2699;  Apr.  16,  1918.) 

Homeopathic  pharmacists  in  order  to  obtain  and  use  nonbeverage  alcohol  in 
manufacture  of  potencies,  attenuations,  or  dilutions,  or  sell  the  same,  reciuired  to 
make  application  and  obtain  permit  and  give  bond  in  same  manner  as  any  other 
user  or  dealer  in  nonbeverage  alcohol  (see  T.  D.  2559  and  T.  D.  2576);  such  pharma- 
cists in  order  to  obtain  and  use  nonbe\-ei-age  alcohol  must  under  any  circum- 
stances q'lialiiv  bv  JBling  bond  and  obtaining  permit  regardless  of  mamifactiire  and 
sale  of  the  dilutions.     (T.  D.  2699;  Apr.  16,  1918.) 

Persons  who  use  nonbeverage  alcohol  must  first  comply  with  preliminary  require- 
ments of  laws  pertaining  to  same  and  regulations  issued  in  pursuance  thereof;  use 
of  nonbeverage  alcohol  for  manufacture  of  medicinal  preparations,  flavoring  extracts, 
etc.,  is  permitted  only  under  same  conditions  and  subject  to  same  restrictions  as 
govern  manufacture  and  sale  of  same  pre p-arat ions  without  pavment  of  special  tax, 
(T.  D.  2760;  Oct.  9,  1918.) 

Apothec-aries  will  not  lie  charged  with  lial)ilit\-  to  special  tax  on  account  of  sale 
in  quantities  not  exceeding  1  pint  of  alcohol  for  bathing  or  antiseptic  purposes, 
providing  it  is  compounded  prior  to  sale,  but  not  in  bulk  or  in  advance  of  orders, 
in  such  manner  as  to  make  it  unfit  for  use  as  beverage ;  approved  formulas  for  purpose 
of  rendering  alcohol  unfit  for  beverage  stated;  containers  of  alcohol  ti-eated  in  such 
manner  must  l)ear  '-poison"'  labels.     (T.  D.  2760:  Oct.  9,  1918.) 

When  it  is  desired  to  use  nonbeverage  alcohol  in  making  f^a^•oring  extract  for 
■\\hich  no  specific  standard  or  process  has  been  prescribed  by  Secretary  of  Agricul- 
ture, manufactiu-er  must  furnish,  in  duplicate,  data  required  by  T.  D.  2576  -nitli 
respect  to  alcoholic  medicinal  compounds  not  conforming  to  U.  S.  P.  or  X.  F.; 
samples  of  product  will  be  required  when  doubt  exists  as  to  nonbeverage  character 
of  same,  which  samples  will  l^e  forwarded  by  express,  charges  prepaid,  to  Division 
of  Chemistrv,  Office  of  the  Commissioner  of" Internal  Revenue.  (T.  D.  2700:  Oct. 
9,  1918.) 

Shipments  into  "dry"  territoiy. 

Instruction  to  revenue  officers  as  to  duties  in  connection  with  shipments  in  \-iola- 
tion  of  section  240  of  the  Criminal  Code;  description;  baggage;  interstate  shipments; 
seizures;  reports.     (T.  D.  2437;  Jan.  19,  1917.) 

Wines. 

Wines  containing  more  than  24  per  cent  of  absolute  alcohol,  being  classed  as 
distilled  spii-its  by  paragraph  (a),  section  402,  act  September  8,  1916,  production  of 
same  for  beverage  purposes  is  prohibited  by  act  August  10,  1917,  section  15.  (T.  D. 
2748;  July  17,  191S.) 

Withdrawal — Central  denaturing  w^arehouses. 

Instructions  with  reference  to  withdrawal  of  alcohol  for  use  in  central  denaturing 
wareliouses  from  different  distilleries  under  one  bond;  requisites  of  bond;  permit; 
application  for  regauge  and  withdrawal;  order;  stoi'ckee^jr 's  duties:  certificate  of 
ganger.     (T.  D.  2630;  Jan.  17,  191S.) 


40  ALCOHOL. 

Withdrawal     rdiitimicd. 

—      Hospital  purposes. 

Alcohol  may  Vie  withdrawn  frco  of  tax  uiuler  art  of  May  3,  1878,  as  amende d  by 
a<t  of  July  8.'  191tj,  for  use  in  surgical  operations  and  treatment  of  patients,  and 
alcohol  so  withdrawn  by  hospitals  and  sanitariums  may  be  used,  even  though  they 
maintain  no  educational  facilities;  provided,  how^ever,  that  alcohol  so  withdrawn 
shall  not  be  used  as  a  beverage  nor  in  any  way  for  the  raanufactiire  or  compounding 
of  a  beverage  for  use  in  any  such  institution  or  elsewhere;  privilege  of  withdrawal 
will  not  be  extended  to  any  institution  conducted  directly  or  indirectly  for  profit 
VT  from  operations  of  which  "any  profit,  other  than  fair  and  reasonable  compensation 
for  .services  performed,  is  derived  by  any  stockholder,  ofhcer,  or  other  person; 
withdrawals  must  be  according  to  method  and  subject  to  restrictions  imposed  by 
T.  D.  2496.     (T.  D.  2745;  July  5,  1918.) 

Scientific  purposes — Application. 

In  order  to  withdraw  alcohol  for  scientific  purposes,  applicant  must  present  to 
collector  of  internal  revenue  application  to  Secretary  of  Treasury  for  permit  to 
withdraw  the  same;  form  and  contents  of  application;  e\"idence  as  to  nature  of 
institution;  quantity  of  alcohol  applied  for.     (T.  D.  2496;  May  31,  1917.) 

Bond. 

Applicant  for  permit  to  withdraw  alcohol  must  execute  bond  in  duplicate,  sigiied 
by  himself,  with  two  or  more  sureties:  form;  who  required  to  sign  bond;  attestation 
and  seal.     (T.  D.  2496;  May  31,  1917.) 

"Chemicallaboratory"  defined. 

The  terra  "chemical  laboratory,"  as  used  in  section  3297,  ReAised  Statutes,  in- 
cludes any  allied  laboratory,  such  as  physical  or  electrical  laboratory,  belonging 
to  such  institution  or  college  in  which  the  alcohol  withdrawn  from  bond  is  used 
purely  for  scientific  purposes.     (T.  D.  1971;  Apr.  20, 1914.     T.  D.  2496;  May  31,  1917.) ' 

Credit  on  bond  account. 

Storekeeper  at  bonded  warehouse  required  to  transmit  duplicate  permit  to  col- 
le<,'tor  who  will  take  credit  for  all  spirits  withdrawn,  on  the  proper  line  of  his  bonded 
account  (Form  94a)  for  month  during  which  such  withdrawal  is  made,  and  he  will 
make  proper  entry  on  inside  page  of  such  account  as  to  quantity  covered  by  each 
permit,  and  will  forward  each  of  the  duplicate  permits  with  his  bonded  account 
as  vouchers  for  such  entry;  alcohol  withdrawn  is  subject  to  regauge,  but  request 
for  regauge  on  modified  Form  179  must  be  filed.     (T.  I).  2496;  May  31,  1917.) 

Distilled  spirits  regulations. 

Regulations  of  October  26,  1917,  relative  to  sale  and  use  of  distilled  spirits  for 
( ther  than  beverage  purposes  under  acts  of  August  10,  1917,  and  October  3,  1917, 
do  not  apply  to  alcohol  withdrawn  for  scientific  purposes  under  section  3297, 
Revised  Statutes.     (T.  D.  2559;  Oct.  26,  1917.     T.  D.  2788;  Feb.  6,  1919.) 

Institutions  privileged. 

Privilege  of  withdrawing  alcohol  in  bond  for  scientific  purposes  applies  to  all 
institutions  of  learning  created  and  constituted  as  such  under  any  State  or  Terri- 
torial law,  and  to  hospitals  similarly  created,  and  having  connected  therewith  a 
training  school  for  nurses,  or  where  clinical  lectures  are  delivered.  (T.  D.  2496; 
May  31,  1917.) 

Permit. 

I'pon  receipt  by  the  Commissioner  of  Internal  Revenue  of  application  to  with- 
draw alcohol  ari  original  and  duplicate  permit  will  be  issued,  original  to  be  forwarded 
to  collector  of  internal  revenue,  and  duplicate  to  be  transmitted  to  applicant,  who 
must  sign  receipt  which  should  then  be  sent  to  the  distiller,  who  will  hand  it  to 
the  storekeeper  of  the  warehouse;  collector  will  notify  storekeeper  of  granting  of 
permit;  duty  of  storekeeper.     (T.  D.  2496;  May  31,  1917.)  i'  &  => 

" Proof  as  to  use. 

rornL^to';*^"^ '""  of  bond,  or  foi-  the  purpose  of  obtaining  credit  on  such  bond, 
S  t  uinn  ?.  ?I.'''^^  «^i^?ta°;.ia"y  111  stated  form,  will  be  required  of  officer  o 
Spd  V  ?wniwt  ""'^  direction  alcohol  has  been  used,  sucll  certificate  to  be 
filed  \vnh  collector  named  m  the  bond  and  by  him  forwai'ded  to  the  Commissioner 


ALCOHULKJ   COMPOUNDS.  41 

Withdrawal — Contimicd. 

Scientific  purposes — Cdiitimicd. 

Proof  as  to  use — Continued. 

of  Internal  Re^enue,  with  his  approval  indorsed  thereon:  where  principal  to 
bond  is  unable,  from  good  cause,  to  furnish  re(|uired  proof  within  time  specilied  in 
hisbond,anexteu8iounot  exceeding  J2  months  may  be  obtained  upon  application 
to  Commissioner  of  Internal  Revenue,  accompanied  by  consent  of  sureties.  (T.  D. 
2496;  May  31,  1917.) 

Purposes  of  use. 

Alcohol  may  not  be  used  outside  of  the  chemical  laboratory,  and  its  use  in  the 
laboratory  must  be  such  as  either  to  sec;ire  its  actual  destruction  or  destroy  its 
identity,  and  must  not  be  sold  to  any  person  whatever;  in  order  that  alcohol  may 
be  used  for  bathing  patients  or  in  siu'gical  operations,  it  miist  be  first  mixed  with 
an  antiseptic  and  in  such  proportions  as  to  change  its  identity;  formula  for  anti- 
septic purposes  in  general.     (T.  D.  249ti;  May  31,  1917.) 

Tanks  or  tank  cars. 

Regulations  concerning  removal  of  tax-paid  alcohol  in  tanks  or  tank  cars  from 
registered  dif^tilleries  to  premises  of  rectifiers  of  spirits;  transfer  to  storage  tanks; 
reports;  labels;  bonds.     (T.  D.  2790;  Feb.  15,  1919.) 

ALCOHOLIC    COMPOTJNDS. 
Beverages. 

Only  alcohol  tax-paid  at  rate  of  $3.20  per  gallon  may  be  used  in  compoTinding 
Cauffman's  ginger  brandy  and  the  alcoholic  compounds  li.stcd  in  T.  D.  2222  or 
passed  upon  sxibsequent  to  its  publication  (see  T.  D.  2544),  for  which  special  tax 
is  required  and  which  fail  to  measure  up  to  standard  set  forth  in  T.  D.  1843  as  to 
so-called  medicinal  compound;  no  distilled  spirits  fermented  after  11  o'clock  p.  m. 
of  September  8,  1917,  may  be  used  in  their  manufacture;  a  tax  of  15  per  cent  per 
proof  gallon  will  be  required  on  all  compoTinds  in  possession  of  rectifier  on  October 
4,  1917,  or  thereafter  produced,  and  additional  floor  tax  on  product  must  be  paid 
after  inventory  and  return  in  same  manner  as  floor  tax  on  distilled  spirits.  (T.  D. 
2536;  Oct.  13,  1917.) 

Alcoholic  medicinal  preparations  held  to  be  insixfficiently  medicated  to  render 
them  unfit  for  use  as  a  beverage  listed.     (T.  D.  2544;  Oct.  19,  1917.) 

Special  tax  required  for  sale  of  preparations  insufficiently  medicated  to  render 
them  unfit  for  use  as  a  beverage,  even  though  such  sales  are  for  medicinal  use. 
(T.  D.  2544;  Oct.  19,  1917.) 

Where  alcoholic  compound  is  listed  in  T.  D.  2222,  or  stibsequent  decisions  of 
similar  purport  (see  T.  D.  2544),  as  one  requiring  special  tax  for  its  manufacture 
and  sale,  permit  to  use  or  sell  or  to  use  and  sell  distilled  spirits  for  other  than  bever- 
age purposes  shall  not  be  issued.  (T.  D.  2559;  Oct.  26,  1917.  T.  D.  2788;  Feb. 
6,  1919.) 

Instructions  with  reference  to  permit  to  make  United  States  Pharmacopoeia  or 
National  Formulary  prodxicts;  also,  with  reference  to  alcoholic  medicinal  com- 
pounds not  in  conformity  to  United  States  Pharmacopoeia  or  National  Formulary; 
statement  required  of  manufacturers;  demand  for  formula  and  process  by  which 
article  is  maniifactTired ;  reference  of  matter  of  whether  compound  is  beverage  to 
(Commissioner  of  Internal  Revenue.  (T.  D.  2576;  Nov.  10,  1917.  T.  D.  2788; 
Feb.  6,  1919.) 

Nonbeverage  alcohol  used. 

Where  processes  other  than  those  prescribed  in  the  United  States  Pharmaco- 
yifeia  and  by  the  Secretary  of  Agriculture  are  followed  and  right  to  use  nonbeverage 
alcohol  is  claimed,  manufacturer  will  furnish  in  duplicate  data  called  for  in  T.  D. 
2576,  as  in  case  of  alcoholic  medicinal  compounds  for  internal  use  which  do  not 
conform  to  the  United  States  Pharmacopoeia  or  National  Formulary;  samples  of 
product  will  be  required  when  doubt  exists  as  to  nonbeverage  character  of  same, 
such  samples  to  be  forwarded  by  express,  charges  prepaid  by  manufacturer,  to 
Division  of  Chemistry,  Office  of  Commissioner  of  internal  Revenue.  (T.  D.  2099; 
Apr.  16,  1918.     T.  D.  2788;  Feb.  6,  1919.) 

Such  United  States  Pharmacopoeia  or  National  Formulary  preparations  as  aro- 
matic elixirs,  tincture  of  aromatica,  and  similar  preparations,  which  arc  used  by 
physicians  and  pharmacists  princijsally  as  vehicles,  and  which  are  potable,  may- 
be made  with  nonbeverage  alcohol  ancl  sold  in  good  faith  for  legitimate  uses;  con- 
tainer to  bear  stated  label.     (T.  D,  2G99;  Apr.  16,  1918.    T,  D.  2788;  Feb.  6,  1919.'> 


42  ALE ALIEISTS. 

Nonbeverage  alcohol  used— Continued. 

Where  blanket  permits  for  sale  and  tise  of  nonbeverage  alcohol  have  been  issued, 
collectors  will  have  complete  reexamination  made  of  permits,  and  where  found  to 
cover  alcoholic  compounds  or  preparations  which  it  is  possible  to  use  internally, 
such  as  flavoring  extracts,  they  will  have  thorough  investigation  made  and  obtain 
data  required  in  T.  D.  2576  and  T.  D.  2699;  defective  permits  must  be  corrected, 
and  where  essential,  copy  of  permitin  collector's  office  as  well  as  copy  in  possession 
of  holder,  should  be  corrected  to  sho-w  exact  use  to  which  alcohol  is  to  be  pur. 
(T.  D.  2609;  Apr.  16,  1918.    T.  D.  2788;  Feb.  6,  1919.) 

Manufacturers  of  alcoholic  preparations  which  it  is  possible  to  use  internally,  sucli 
as  flavoring  extracts,  must,  vdierever  standard  process  of  manufacture  is  prescribe:! 
by  Secretary  of  Agriculture,  use  such  proce.'s.  (T.  D.  2699;  Apr.  16,  1918.  T.  D. 
278.S;  Feb.  6,  1919.) 

Manufacturers  of  Jamaica  ginger  will  not  be  issued  permits  covering  use  of  non- 
beverage alcohol  in  manufacture  thereof  unless  same  is  made  in  accordance  with 
process  prescribed  in  United  States  Phannacopceia.  (T.  D.  2699;  Apr.  16,  1918. 
T.  D.  2788;  Feb.  6,  1919.) 

Tax -paid  still  wines,  domestic  and  foreign,  and  tax-paid  distilled  spirits  may  be 
used  by  rectifiers  in  the  manufacture  of  vermuths,  liqueurs,  cordials,  and  similar 
compounds  of  fluid  extracts,  under  stated  conditions;  bond  given  by  rectifier; 
m.arking  of  containers;  notice  and  records;  gauging  of  products  after  rectifica- 
tion; marking,  branding,  and  stamping  compounds.     (T.  D.  2403;  Nov.  29, 1916.) 

For  manufacturer  of  and  dealers  in  alcoholic  medicinal  compounds  to  be  exempt 
from  special  tax  under  section  3246,  Revised  Statutes,  preparation  must  contain 
no  more  alcohol  than  is  necessary  for  legitimate  purposes  of  extraction,  solution  or 
pre.servation,  and  as  a  minimum  dosage  each  liquid  ounce  of  completed  prepara- 
tion must  caiTy  in  it  approximately  an  average  dose  for  adult  of  some  drug  or  drugs 
of  i-ecognized  therapeutic  value,  either  singlv  or  in  compatible  combination. 
(1\  D.  2760;  Oct.  9,  1918.     T.  D.  2767;  Nov.  2,*1918.) 

Manufacturer  can  not  escape  liability  to  special  tax  by  showing  tliat  given  quan- 
tity of  drugs  was  used;  burden  is  on  liim  to  see  that  finished  product  does,  in  fact, 
conform  to  prescribed  standard,  and  statements  that  ingredients  of  low  quality 
were  inadvertently  usetl  or  that  full  strength  was  through  some  defect  in  process 
of  manufactm-e  not  extracted,  will  not  be  accepted  as  sufficient  to  relieve  manu- 
facturer froni  lixbilitv  in  case  preparation  is  insuffi.cientily  medicated.  (T.  D. 
2760;  Oct.  9,  1918.) 

Alcoholic  solutions  of  Jamaica  ginger  must  always  be  made  in  accordance  v.dth 
tlic  process  and  comply  v.'ith  standards  of  the  U.  S.  P.     (T.  D.  27G0;  Oct.  9,  1918.) 

Persons  who  manufacture  or  deal  in  alcoholic  medicinal  preparations,  flavoring 
extracts,  etc.,  even  though  made  in  accordance  with  standards  presciibed,  are 
only  relieved  from  special  tax  liability  so  long  as  they  make  sales  for  legitimate 
purposes  only;  if  preparaticfii  containing  more  tlian  one-half  of  1  per  cent  of 
alcohol  by  volume  is  sold  for  beverage  purix)se3  or  under  circumstances  wai-ranting 
reasonable  belief  that  it  is  to  be  used  as  a  beverage,  liability  to  tax  ^vill  be  asserted 
regardless  of  what  other  ingredients  preparation  may  contain.  (T.  r>.  2760;  Oct. 
9,1918.) 

llanufactui-ers  of  preparations  in  which  sole  medication  is  salt  of  iron  will  not, 
with  certain  stated  exceptions,  be  considered  entitled  to  use  alcohol  without  paying 
special  tax;  use  of  alcohol  in  conformity  with  prescribed  standard  is  permitted  in 
compounding  preparations  containing  peptonate  of  ii'on  ruicl  in  manufactm-e  of 
preparations  corresponding  in  strength  of  iron  to  vinum  ferri  N.  F.;  inclusion  of 
lermentable  but  nonmedicinal  material  in  preparation  not  otherwise  requiring 
alcohol  will  not  be  regarded  as  sufficient  reason  for  using  it.  (T.  D.  2760;  Oct. 
9,  1918.)  o  \  , 

Preparations  such  as  aromatic  elixirs,  tincture  of  aroma tica,  and  similar  prepara- 
tions used  by  phj'sicians  and  pharmacists  principally  as  vehicles,  even  though 
potable,  may  bo  sold  in  good  faith  for  legitimate  uses  \ritliout  payment  of  special 

J^^'  V.'^^^.^.   *'^^y  ^^  ™^^6  i^  conformity  with  U.  S.  P.  or  N.  F.     (T.  D.  2760; 
Oct.  9,  1918.)  ^ 


See  "Fermented  Liquors." 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 


ALE. 

ALIENS. 


ALIEN  PROPERTY  CUSTODIAN ANCILLARY  ADMINISTRATION.        43 

Excise  tax  on  boats. 

Boats  used  in  United  States  or  navigating  United  States  waters  are  subject  to 
tax  imposed  by  section  603  of  act  October  3,  1917,  although  owned  by  nonresident 
aliens.     (T.  D.  2753;  Aug.  23,  1918.) 

Income  taxes. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals).", 

ALIEN  PROPEBTY  CUSTODIAN. 

Stamp  taxes  on  conveyances,  etc.,  by  and  to. 

See  "Stamp  Taxes." 

ALIMONY. 
Income  taxes. 

Alimony  or  allowance  based  on  separation  agreement  is  not  income  to  recipient 
thereof,  nor  is  it  an  allowable  deduction  for  the  person  paving  same.  (T.  D.  2G90; 
art.  4.) 

ALL  THE  PHOCEEDS. 
Definition. 

The  term  "all  the  proceeds,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
means  the  net  nroceeds  after  payment  of  actual  reasonable  expenses.  (T.  D.  2G81; 
Mar.  26,  1918.)^ 

AMENDMENT. 
Returns — Income  taxes. 

Where  further  tax  is  found  to  be  due  as  result  of  audit  of  return  or  agent's  report, 
amended  return  or  waiver  will  not  be  reqiiired,  except  where  discovery  of  tax  is 
made  subsequent  to  expiration  of  three-year  period  of  limitation.  (T.  D.  2690; 
art.  38.) 

Where  corporation  discovers  expenses  or  liabilities  which  were  due  and 
payable  during  preceding  year,  it  may  make  amended  return  for  year  to  which 
such  expense  or  liability  applies,  include  such  expense  in  deductions  of  that  year, 
and  file  claim  for  refund  for  any  taxes  overpaid  by  reason  of  failure  to  deduct  such 
expense  or  liability  in  original  return  of  that  year.     (T.  D.  2690;  art.  128.) 

Though  Government  may  recover  unpaid  taxes  by  suit,  it  is  desirable  that  col- 
lection he  made  as  result  of  formal  assessment,  and  in  order  that  this  may  be  done, 
corporations  omng  additional  taxes  for  any  period  antedating  the  three-year  limi- 
tation should  file  amended  returns,  together  with  statement  formally  waiving  such 
limitation  and  consenting  to  assessment;  in  executing  such  amended  returns  or 
waivers,  corporations  forfeit  none  of  their  rights  under  the  law,  and  no  penalty  is 
incurred  which  might  not  otherwise  be  enforced  by  suit.     (T.  D.  2690;  art.  233.) 

If  corporation  against  which  additional  tax  liability  is  discovered  formally  accepts 
findings  &i  examining  officer  and  agrees  to  voluntarily  pay  additional  tax  and  does 
so  pay  additional  tax,  amended  returns  or  waivers  \\'ill  not  be  required.  (T.  D. 
2690;  art.  234.) 

AMUSEMENTS. 
See  "Admissions." 

ANCILLARY  ADMINISTRATION. 
E.state  tax. 

Banking  institutions  holding  money  of  nonresident  decedents,  brokers  holding 
as  collateral  securities  belonging  to  such  decedents,  debtors  of  such  decedents, 
safe-deposit  companies,  warehouses  and  similar  custodians  in  this  country  of  prop- 
erty of  nonresident  decedents,  and  transfer  agents  of  stocks  or  bonds  may  not  release 
to  foreign  administrator  or  executor  or  foreign  beneficiary  any  property  within  this 
country  at  time  of  decedent's  death  until  either  estate  tax  due  has  been  paid  or 
ancillarv  letters  have  been  taken  out  or  otherwise  provision  has  been  made  to 
satisfy  tax  lien.     (T.  D.  2454;  Feb.  28,  1917.) 

Income  taxes — Returns. 

Ancillary  administrator  is  merely  an  agent  of  the  domiciliary  administrator  and 
should  transmit  to  him  all  information  as  to  income  of  estate  received  by  ancillary 
administrator,  so  that  original  administrator  may  make  return  covering  entire 
income  of  estate.     (T.  D.  2690;  art.  26.) 


44  ANIMALS — ARMY   AND   NAVY. 

ANIMALS. 
See  "Live  Stock." 

Medicinal  preparations— Excise  taxes. 

Spray  to  be  applied  to  rows,  horses,  and  other  animalf-'  to  keep  off  flies,  vermin, 
ote  ip'not  a  medicinal  preparation  within  the  meaning  of  section  600  (h)  of  the  act 
of  October  3,  1917.     (T.  D.  2584;  Nov.  29,  ]917.) 

Medicinal  pr(>paration8  for  beasts,  when  same  would  be  taxable  if  used  by  man, 
are  taxable  under  act  of  October  3,  1917;  stock  foods,  not  recommended  or  helcl 
out  as  remedies  or  specitics  for  iliseases,  but  as  feed  only,  arc  not  taxable.     (T.  D. 

2591;  Nov.  24,  1917.) 

ANNUITIES. 

Income  tax — Information  at  source. 

Annuities  representing  return  of  corjjus  or  capital  need  not  be  reported.  (T.  D. 
2670;  Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  paying  annuities  of  -fSOO  or  more  in  any  taxable 
year,  or,  in  case  of  such  payment  made  by  the  United  States,  the  officers  or  em- 
ployees of  the  United  States  having  information  as  to  such  payments,  authorized 
and  required  to  render  due  and  accurate  return,  setting  forth  ihe  amount  of  such 
annuities  and  the  name  and  address  of  the  recipients  thereof.     (T.  D.  2690;  art.  34.) 

Net  income. 

There  shoidd  be  reported  as  payments  on  policies  by  insurance  companies,  other 
than  mutuals,  but  including  mutual  life  and  mutual  marine,  all  death,  disability, 
(.r  other  policy  claims  (other  than  dividends)  paid  Avithin  year,  including  fire, 
accident  and  liability  losses,  matured  endowments,  and  annuities,  payments  on 
installment  policies,  surrender  values,  and  all  claims  actually  paid  under  the  terms 
of  policy  contracts.     (T.  D.  2690;  art.  240.) 

Insurance  tax. 

An  annuity  contract  is  not  taxable  as  a  policy  of  life  insuraLce,  since  it  does  not 
insure  a  life.     (T.  D.  2785;  Jan.  23,  1919.) 


ANTISEPTICS. 

APOTHECARIES. 
APPENDAGES. 


Alcohol  for  use  in. 

See  "Alcohol." 

See  "Pharmacists." 

Definition. 

T'lie  word  "appendages,"  as  used  in  paragraph  (d)  of  article  2  of  Regulations  No. 
39,  includes  those  adjuncts  or  accessories  which  may  be  attached  to  and  become 
in  effect  parts  of  firearms.     (T.  D.  2714;  May  14,  1918.) 

ARMY  AND   NAVY. 
See  "War." 

Estate  tax— Rates. 

Increase  in  rates  of  taxation  upon  estates  of  decedents  dying  on  or  after  October 
4,  1917,  does  not  apply  to  estates  of  decedents  dying  while  serving  in  military  or 
naval  forces,  etc.;  net  estates  of  such  decedents  are  taxal)le  at  rates  imposed  in  act 
(f  March  3,  1917.     (T.  D.  2535;   Oct.  9,  1917.) 

Excess  profits  tax — Extending  time  for  payment. 

\\  here,  by  reason  of  absence  from  their  homes  or  places  of  business,  in  the  military 
service  of  the  country,  it  is  impossible  for  individuals  to  receive  notice  and  demand, 
on  I'orm  17,  and  pay  taxes  assessed  so  that  taxes  can  be  received  by  collector  within 
10-day  period  following  service  of  notice,  collector  is  reouested  to  enter  on  P'orui  17 
as  date  on  which  tax  becomes  due  and  pavable,  as  near  as  possible,  date  10  daya 
subsequent  to  lime  that  payments  should  be  received  in  ordinarv  course  of  mails, 
and  where  it  appears  that  full  amount  of  tax  was  placed  in  ma'ils  within  10-day 
])erind,  or  in  case  notice  is  not  delivered  in  due  time  bv  reason  of  delav  in  mail,  and 
Hatisfactory  evidence  of  that  fact  is  furnished,  penalty  and  interest  will  not  be  col- 
lected.    (T.  D.  2679;   Mar.  23,  1918.) 


ARMY   AND   NAVY.  4-5 

Excess  profits  tax — Continued. 

Returns— Extending  time  for  filing. 

Time  for  filinp;  war  excess-profits  tax  returns  by  nonreHident  alien  individuals  and 
t'Orporations  and  American  citizens  residing  or  traveling  abroad,  including  persons 
in  military  or  naval  establishments  stationed  or  on  duty  beyond  limits  of  the  States 
and  Territories  of  Hawaii  and  Alaska,  extended  for  such  period  as  may  be  necessary  to 
and  including  90  days  after  proclamation  of  President  of  United  States  announcing 
dose  of  war  with  Germany;  any  such  person  tiling  return  after  April  1,  1918,  but  on 
or  before  October  1,  1918,  embodying  therein  or  attaching  thereto  written  statement 
showing  that  he  comes  within  classes  designated  by  T.  D.  2o8l,  need  not  iile  Bup- 
porting  affidavit  stating  cause  of  delay.     (T.  D.  2tj72;   Mar.  16,  1918.) 

Excise  taxes — Automobiles  for  use  of  Army. 

Automobiles  sold  to  United  States  for  use  of  the  Army  are  subject  to  tax  imposed 
by  section  tiOO  (aj  of  the  act  of  October  3,  1917.     (T.  D.  2584;  Nov.  20,  1917.) 

Boats. 

All  boats  of  specified  classjs  (other  than  boats  used  exclusively  for  national 
defense  or  built  according  to  plans  and  specifications  approved  by  the  Navy 
Department)  are  taxed  under  section  (503  of  act  October  3,  1917,  unless  they  are  used 
exidusively  for  trade.     (T.  D.  2753;  Aug.  23,  1918.) 

Insignia. 

Military  and  naval  insignia  required  to  be  worn  is  not  taxable  as  jewelry  under 
section  600  (e)  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XVI.) 

Machine  guns. 

Motor-dri\en  machine  guns  are  not  automobiles  or  automobile  trucks.  (T.  D. 
2719;  Art.  IX.) 

Income  tax^Extending  time  for  payment. 

Where,  by  reason  of  absence  from  their  homes  or  places  of  business,  in  the  military 
service  of  the  country,  it  is  impossible  for  individuals  to  receive  notice  and  demand, 
on  Form  17,  and  pay  taxes  assessed  so  that  taxes  can  be  received  by  collector  \\'ithin 
10-day  period  following  service  of  notice,  collector  is  requested  to  enter  on  Form  17 
as  date  on  which  tax  becomes  due  and  payable,  as  near  as  possible,  date  10  days  sub- 
sequent to  time  that  payments  should  be  received  in  ordinary  course  of  mails,  and 
where  it  appears  that  full  amount  of  tax  was  placed  in  mails  within  10-day  period, 
or  in  case  notice  is  not  delivered  in  due  time  by  reason  of  delay  in  mail,  and  satis- 
factory evidence  of  that  fact  is  furnished,  penalty  and  interest  will  not  be  collected. 
(T.  D.  2679;  Mar.  23,  1918.) 

— —  Information  at  source. 

Returns  of  information  will  not  be  required  from  disbursing  officers  of  payments 
made  to  sailors  or  soldiers  of  the  United  States.     (T.  D.  2670;  Mar.  11,  1918.) 

Net  income. 

Amounts  expended  by  corporations,  partnerships,  or  individuals  engaged  in  busi- 
ness, in  paying  all  or  portions  of  regular  compensation  of  officers  or  employees,  who 
have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces  of  the 
United  States,  or  have  undertaken  services  for  the  Government  at  reduced  or  nominal 
compensation,  constitute,  during  the  continuance  of  the  war,  ordinary  and  necessary 
expenses  of  doing  business  and  are  allowable  as  deductions  in  computing  net  income. 
(T.  D.  2660;  Mar.  1,  1918.) 

Pay  and  allowance  of  Army  officers  are  based  on  obligation  of  officer  to  provide 
equipment  and  mounts  as  personal  expense;  cost  of  mounts  and  equipment  is  not 
therefore  a  deductible  expense.     (T.  L).  2690;  art.  8.) 

Pensions. 

Pensions  paid  by  United  States,  private  institutions,  or  indi\iduals,  are  to  be 
accounted  for  in  all  cases  where  income  of  pensioner  is  liable  for  income  tax.  (T.  D. 
2690;  art.  4.) 

Retired  pay. 

Retired  pay  of  army  and  naval  officers  is  subject  to  income  tax.     (T.  D.  2690;  art.  4.) 


46  AKOMATIC   ELIXIRS ARTS   AND   SCIENCES. 

Income  tax— Continuod. 

Retiu-ns. 

Peraons  in  naval  or  military  aer\'ice  of  United  States  may  verify  their  returns 
before  any  official  of  those  services  authorized  to  administer  oaths  for  purposes  of 
those  services;  returns  may  be  filed  with  collector  of  district  in  which  they  have  a 
legal  residence,  or  with  collector  at  Baltimore,  Md.     (T.  D.  2690;  art.  .26.) 

Time  for  filing  income  tax  returns  by  persons  in  military  or  naval  establishments 
stationed  or  on  duty  beyond  limits  of  the  States  and  Territories  of  Hawaii  and 
Alaska  extended  for  such  period  as  may  be  necessary  to  and  including  90  days  after 
proclamation  of  President  announcing  close  of  war  with  Germany,  iis  pro\lded  by 
T.  D.  2581;  anysuchpersjn  filing  return  after  Aprill,  1918,  but  on  or  before  October 
1,  1918,  embodying  therein  or  attacliing  thereto  written  statement  showing  that  ho 
comes  within  classes  designated  bv  T.  D.  2581,  need  not  file  supporting  affidavit 
required  by  that  decision.  '(T.  D.*2672;  Mar.  16,  1918.) 

Any  officer  in  the  naval  or  military  service  of  th-3  United  States,  within  or  v/ithout 
the  United  States,  who  is  authorized  to  administer  oaths,  under  proAdsions  of  section 
4  of  the  act  of  July  27,  1892,  or  under  provisions  of  act  of  March  4,  1917,  empowered 
and  aiithorized  to  take  aclcnowledgmcnt  of  persons  in  the  naval  and  military  ssi'vico 
of  the  United  States  making  returns  of  income;  certifjdng  officer  required  to  place 
■under  his  name  official  designation  under  which  he  acts.  (T.  D.  2534;  Sept.  29, 
1917.) 

Passenger  ti'ansportation. 

Transportation  charges  paid  by  soldiers  traveling  on  furloughs  at  their  own  ex- 
pense are  not  exempt  from  tax  under  section  502  of  act  of  October  3, 1917.  (T.  D. 
267G;  Mar.  18,  1918.) 

Post  exchanges — ^Floor  ta:s:es  on  tobacco,  etc. 

Stocks  of  cigars,  tobacco,  and  cigarettes  held  for  sale  at  close  of  business,  October  3, 
1917,  at  post  exchanges  at  Armv  camps  are  not  subject  to  floor-stock  taxes  imposed 
by  section  403  of  act  of  October  3,  1917.     (T.  D.  2584;  Nov.  20,  1917.) 

Occupatioaal  tax. 

Where  post  exdianges  are  under  complete  control  of  the  Secretary  oi  the  Navy 
as  governmental  agencies  they  ai'e  xrot  liable  to  special  tax  on  account  of  billiard  or 
pool  tahles  or  bowling  alleys  operated  by  them.     (T.  D.  2439;  Jan.  27,  1917.) 

Soldiers' kits — ^Tobacco,  etc. 

lustnictions  with  reference  to  the  shipment  from  tobacco  and  cigarette  factories  of 
so-called  soldiers'  kits  or  cartons  containing  packages  of  tobacco  and  cigarettes  to 
Nev.'  York,  there  to  be  repacked  under  suijervision  of  customs  officer  for  exportation 
to  the  United  States  soldiers  in  Europe.     (T.  D.  2517;  Aug.  17,  1917.) 

War  riftkinsuraiice. 

Tax  imposed  by  section  504  of  the  act  of  October  3.  1917,  does  not  applv  to 
soldiers'  and  sailors'  insurance  written  bv  the  War  Pdsk  Insurance  Bureau;  the  "act 
clearly  contemplates  tliat  the  tax  shall  be  paid  by  the  insurer  and  not  by  the  in- 
sured; not  only  is  it  impossible  in  absence  of  express  provision  to  contrary  to  infer 
that  the^United  States  intended  to  tax  itself,  but  section  505  of  the  act  obviously 
limits  tbf3  application  of  the  tax  to  persons,  corporations,  partnerships,  and  associ- 
ations, m  none  of  which  classes  is  the  United  States  included.     (T.  D.  2563; 

Nonbeverage  alcohol. 

See  "Al'joho!." 

ABTS   AND  SCIENCES. 
Alcohol  for  s3Len.tiao  piu-poses. 

See  "Alcohol." 
Distilled  spirits. 

See  '-Distilled  Spirits.'! 


AP.OMATIC   ELIXmS. 


AKTIFICIAL   MINERAL  WATERS — ASSOCIATIONS.  47 

ARTIFICIAL  MINERAL  WATERS. 
Excise  taxes. 

See  "Excise  Taxes.'! 

ARTIFICIAL   WINES. 

See  "Wines.". 

ASSESSMENT. 
Dues  and  fees. 

See  "Duee." 
Particular  taxes. 
See  specific  heads. 

ASSIGNMENTS. 

Income  taxes — Return  by  assignees. 

Under  section  13,  parasraph  (c),  act  September  8, 1916,  receivers,  trustees  in  bank- 
ruptcy, or  assignees  in  charge  of  and  oi)erating  property  and  business  of  corporations, 
must  make  returns  of  annual  net  income  and  pay  tax  regardless  of  what  disposition, 
subject  to  orders  of  court,  may  be  made  of  sudi  income;  eucli  receiver,  etc..  stands 
in  place  of  corporate  officers  and  must  perform  all  duties  and  assume  all  liabilities 
which  would  devolve  upon  such  officers  were  they  in  control;  income  which  he  re- 
ceives is  income  of  corporation  and  is  subject  to  tax  imposed  in  so  fai'  as  it  exceeds 
deductions  or  allowance  authorized  by  law,  and  such  receiver,  etc.,  must  make  true 
return  of  annual  net  income  covering  each  year  or  part  of  each  year,  during  which  lie 
is  in  custody  and  control  of  business  or  properties,  and  will  be  liable  to  all  penalties 
for  failure  to  meet  any  of  its  requirements.     (T.  D.  2690;  art.  209.) 

Insurance  policies — Stamp  tax. 

No  stamp  tax  is  imposed  upon  power  of  attorney  in  transfer  by  assignment,  abso- 
lute or  as  collateral  security,  of  interest  in  contract  of  insurance,  if  power  of  attorney 
grants  authority  to  do  or  perform  only  such  acts  for  or  in  behalf  of  assignor  as  aro 
otherwise  vested  ia  assignee.     (T.  D.  2599;  Dec.  3,  1917.) 

ASSOCIATIONS. 

Employees'  protective  associations. 

Associations  composed  of  employed  or  others  who  band  themselves  together  ior 
mutual  protection  in  issuing  life  and  casualty  insurance,  are  subject  to  tax  under 
paragraph  (c)  of  section  504  of  act  of  October  3,  1917,  unless  exempted  under  para- 
graph (d)  of  such  section.     (T.  D.  258S;  Nov.  21,  1917.) 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 
Income  taxes. 

See  "Income  Taxes  (Corporations)." 
Massackusetts  trusts — Capital  stock  tax. 

So-called  Massachusetts  trusts  are  subje(;t  to  tax  imposed  bv  act  Ser)teml)er  S. 
191C.     (T.D.  2750,  art.  2,  Appendix  A;  Aug.  9,  191S.) 

Income  taxes. 

Organization  under  constitution  of  which  individuals  wlio  are  benelLcially  in- 
terested in  various  proportions  in  same  projierty  and  hold  assignable  certificates 
representing  their  different  interests  therein,  but  who  can  claim  no  part  of  income 
of  property  as  their  income  as  distinguished  from  income  of  organization,  commit 
control  and  management  of  such  property,  for  profit,  to  trustees,  free  from  their  own 
immediate  control  or  interference,  excejrt  that  they  may  act  by  majority  in  amount 
and  interest  for  purpose  of  allowing  exlra  compensation  to  trustees,  filling  \acancie3 
in  office  of  trustees  or  n.iodifying  terms  of  declaration  oi  trust,  is  an  "association'' 
and  taxable  as  such  under  Section  II,  O  (a),  of  act  October  3,  1913.  (T.  D.  2720; 
June  4,  1918.    Ct.  Dec.) 


^g  ATHLETIC   CLUBS. 

Massachusetts  trusts— rontinucd. 

Stamp  tax  on  certificates  of  shares. 

Tax  imposed  by  art  October  3.  1917,  on  issue  or  transfer  of  capital  stock  applies 

to  isf  lie  or  transfer  of  oertifi(;ates  of  shares  in  so-called  Massachusetts  trusts  and  other 

unincorporated  associations.     (T.  D.  2752;  Aug.  14,  11)18.) 

National  farm-loan  associations. 

I^ational  farm-loan  associations,  as  provided  in  section  26,  of  act  July  17,  1916,  are 
exempt  from  capital  stock  tax  imposed  by  section  407  of  act  September  8,  1916. 
(T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

"Person"  includes,  when. 

The  word  "person"  within  Regulations  No.  40,  part  I,  relating  to  stamp  taxes 
on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  the  plural  as 
well  as  the  singular  and  shall  be  taken  to  refer  to  individuals,  partnerships,  asso- 
ciations and  corporations,  except  where  it  is  plain  from  the  context  that  diffHrent 
meaning  is  intended.     (T.  D.  2608;  Nov.  30,  1917.) 

Sales  associations. 

Farmers',  fruit  growers',  or  like  associations,  organized  and  operated  as  sales 
agents  for  purpose  of  marketing  products  of  members  and  turning  back  to  them 
])roceeds  of  sales  less  necessary  selling  expenses  on  basis  of  cjuantity  of  produce 
furnished  bv  them,  are  exempt  from  capital  stock  tax  im-posed  by  section  407  of 
act  September  8, 1916.     (T.  D.  2383;  Oct.  19, 1916.     T.  D.  2750,  art.  12;  Aug.  9, 1918.) 

Shippers — Befund  of  transportation  tax. 

Where  shipper,  claiming  refund  of  transportation  tax  collected  on  property  in 
process  of  exportation,  is  member  of  association  of  similar  shippers,  such  associa- 
tion mav,  as  agent  for  first  shippers,  make  blanket  claim  on  Form  46  in  behalf  of 
individual  members;  formal  demand  of  each  shipper  must  be  attached  to  and 
forwarded  with  Form  46  for  refund  of  amount  to  shipper,  such  demand  showing 
total  amount  of  charges  and  total  amount  of  tax  paid  by  each  shipper,  and  such 
demands  must  be  aggregated  by  association  and  securely  attached  to  claim  before 
oame  is  filed  with  commissioner.     (T.  I).  2727;  June  5,  1918.) 

Stamp  tax  on  stock  sales. 

Transfer  of  shares  or  certificates  of  stock  in  any  association  made  by  the  person 
loaning  stock  to  another  borrowing  such  stock  to  effect  a  sale,  and  also  transfer  of 
.  chares  or  certificates  of  stock  from  a  borrower  returning  them  to  lender  in  fulfillment 
of  borrower's  obligation  to  buy  in  and  return  stock,  are  both  subject  to  tax  imposed 
by  sections  800  and  807  of  the  act  of  October  3,  1917;  in  so-called  short-sale  transac- 
tion, tliere  are  four  taxable  sales  or  transfers:  (1)  Sale  of  stock  by  person  making 
Bhort  sale,  (2)  transfer  from  lender  of  stock  to  person  making  short  safe,  (3)  purchase 
bv  borrower  of  stock  to  return  to  lender,  (4)  transfer  by  borrower  to  lender  of  shares 
to  replace  those  borrowed.     (T.  D.  2685;  Mar.  30,  1918.) 

ATHLETIC  CLUBS. 
Dues — Basis  of  tax. 

Tax  imposed  by  section  701  of  act  of  October  3.  1917,  is  10  per  cent  of  any  amount 
paid  as  dues  or  membership  fees  (including  initiation  fees  and  any  payments  re- 
quired for  becoming  or  remaining  a  member  as  well  as  extraordinary  dues  or  assess- 
ments) to  any  athletic  or  sporting  club  or  organization  Avhere  such  dues  or  fees  are 
in  excess  of  $12  per  year;  where  all  dues  or  fees  payable  in  any  one  year  aggregate 
more  than  $12,  tax  attaches  to  each  payment;  if  dues  exclusive  of  initiation  fee" arc 
not  in  excess  of  $12  a  year,  no  tax  is  payable  except  from  members  paving  such  fee. 
(T.  D.  2681;  Mar.  26,  1918.)  i    ■      = 

— —  Clubs  included. 

Athletic  and  sporting  clubs  include  boating,  tennis,  golf,  boxing,  canoe,  fishing, 
and  hunting  clubs,  and  any  organizations  for  practice  or  promotion  of  athletics 
or  sports;  Commissioner  of  Internal  Revenue  shall  determine  whether  a  club  or 
organization  is  an  athletic  or  sporting  club  within  meaning  of  section  701  of  act  of 
October  3, 1917,  upon  being  furnished  charter  or  constitution  and  bv-laws  of  organiza- 
tion, statement  as  to  its  actual  activities  and  practices,  and  such  other  informatiuu 
as  be  may  deem  pertinent.    (T.  D.  2681;  Mar.  26,  1918  ) 


ATHLETIC   CONTESTS — AUTOMOBILES.  49 

ATHLETIC  CONTESTS. 


Admissiono. 

Adniiist^ions  to  school  or  oolloce  athletic  conte,«ts  and  other  colleoie  entertainments 
are  not  taxable  if  procee<l8  s;o  to  the  school  or  the  college,  but  they  are  if  proceeds 
are  used  for  support  of  athletic's  or  other  separate  purposes.  (T.  D.  2(i8l;  Mar.  2(i, 
1918.) 

Where  rain  checks  attached  to  tickets  sold  for  canceled  bas<d)all  game  are  redeem- 
able in  cash  with  refund  of  the  tax  or  by  issue  of  ticket  for  another  game  the  box- 
office  statement  for  the  canceled  game  may  be  marked  "Canceled,"  but  in  its  next 
return  the  tax  must  be  accounted  for  by  the  club  on  any  tickets  not  redeemed  as 
sdowii  bv  comparison  of  box-ofhce  statement  for  canceled  game  with  statements  of 
subsequent  games.     (T.  D.  2681;  Mar.  2tj,   1918.) 

Admissions  of  baseball  reporters  and  telegraphers  occupying  special  space  at  l>ase- 
l.all  parks  and  a<lmitted  by  passes  issued  by  baseball  writers'  association  are  ex<nnpt 
from  tax  under  section  700  of  the  act  of  October  3,  1917.     (T.  D.  2081;  Mar.  20,  1918.) 

ATTORNEYS  AT  L.AV7. 

Income  tax — Information  at  soiu'co. 

Fees  paid  to  lawyers  ai^'regating  less  than  $800  for  the  vear  need  not  be  reported. 
(T.  D.  2070;  Mar.  "u,  1918.) 

Net  income. 

In  case  of  professional  man  who  rents  property  for  residential  purposes  but  re- 
ceives there  clients  or  callers  in  connection  with  his  professional  work  (place  of 
business  being  elsewhere),  no  part  of  rent  is  deductible  as  business  expense.  (T.  D. 
2090;  art.  8.) 

Theaters — Admission  tax. 

Attorneys  for  theaters  are  exempt  from  tax  imposed  by  section  700  <,if  act  of  Octo- 
1  er  3,  1917,  when  entering  theater  in  course  of  their  employment,  but  must  pay  it 
when  attending  as  mere  spectators  and  occupying  seats  in  the  audience.  (T.  D. 
■-'(.81;  Mar.  20,  1918.) 

ATTORNEY,  POWER  OF. 

Assignnient  of  insurance  policies — Stamp  tax. 

No  stamp  tax  is  imposed  upon  power  of  attorney  in  transfer  by  assignment, 
absolute  or  as  collateral  security,  of  interest  in  contract  of  insurance,  if  power  of 
attorney  grants  authority  to  do  or  perform  only  such  acts  for  or  in  behalf  of  assignor 
as  are  otherwise  vested  in  assignee.     (T.  1).  2599;  Dec.  3,  1917.) 

Income  taxes — Returns. 

1' iduciary  relationship  for  purposes  of  income  tax  can  not  be  created  by  power 
(if  attorney;  agent  with  authority  to  effect  leases  Avith  tenants  entirely  on  his  own 
responsibility,  paying  all  charges  in  connection  with  property  out  of  rent  funds, 
merely  turning  over  net  profits  to  principal  by  virtue  of  authority  conferred  by 
}iOwer  of  attorney,  is  not  a  fiduciary  within  the  income-tax  law;  in  all  ca.ses  where 
no  legal  trust  has  been  created  in  the  estate  controlled  by  the  agent  and  attorney 
liability  under  the  law  rests  with  the  principal.     (T.  D.  2090;  art.  29.) 

<'opies  of  returns  on  file  in  Commissioner's  office  may  not  be  sent  to  any  per.«on, 
except  corporation  itself  or  to  its  duly  authorized  attorney;  duly  authorized  attorney 
for  this  purpose  is  one  j)o.ssessing  properly  executed  power  of  attorney  in  writing 
b}'  corporation,  which  designation  shall  be  signed  by  two  officers  of  corporation 
aud  bear  impress  of  the  seal'.     (T.  D.  2090;  art.  220.) 

AUTOMOBILES. 
Definition. 

An  automobile  is  a  self-propelling  vehicle  usually  designed  to  run  on  a  road, 
containing  the  means  of  propulsion  within  itself.     (T.  1).  2719;  Art.  V'lll.) 

An  automobile  truck  or  wagon  is  an  automobile  used  primarily  for  transporting 
articles.     (T.  D.  2719;  Art.  Vlll.) 

70420°— 21 4 


50  AUTOMOBILES. 

Excise  taxes— Assembled  car. 

A  ussable,  substantially  completed  automobile  produced  by  assembling  now 
parts  of  trucks  and  cars  is  subject  to  tax  imposed  by  section  600  (a)  of  the  act  of 
October  3,  1917.     (T.  D.  2719;  Art.  IX.) 

Bodies. 

Automobile  bodies  and  other  attachments  and  accessories  to  automobiles  and 
motorcycles  are  not  taxable  when  sold  separately,  but  they  are  when  sold  as  part 
of  an  automobile  or  motorcvcle  or  of  its  equipment,  whether  standard  or  not.  (T.  1) . 
2719;  Art.  X.) 

Dealer  who  contracts  to  sell  to  customer  a  truck  comj^osed  of  a  tax-paid  chassis 
and  a  body  to  be  added  by  Ijody  builder  and  who  performs  his  contract  is  liable  to 
tax  as  manufacturer  of  completed  truck,  tliough  order  to  body  liuilder  purports  to 
be  that  of  customer  through  the  dealer  as  his  agent.     (T.  D.  2795;  Feb.  26,  1919.) 

Chassis. 

A  chassis  is  an  automobile  within  the  meamng  of  section  600  (a)  of  the  act  of 
Octol3er3, 1917,  and  is  tax  payable  bj^raanufacturerthereof;  where  person  other  than 
maniifacturer  of 'chassis  completes  and  sells  automobile,  tax  must  be  paid  on  com- 
plete car  less  any  tax  already  paid  on  the  sale  of  the  chassis.     (T.  D.  2719;  Art.  IX . ) 

Combination  of  vehicles. 

Single  sale  by  dealer  of  tractor  and  trailer  bought  by  him  together  tax  paid,  and 
an  extra  trailer,  is  not  taxable  unless  comljination  of  the  three  vehicles  (otherwise 
than  merely  by  coupling)  forms  a  functioning  vehicle.     (T.  D.  2795;  Feb.  26,  1919.) 

Demountable  top  added. 

If  a  dealer  adds  a  demountable  top  to  a  tax-paid  automobile  or  a  driver's  cab  to 
a  tax-paid  truck,  the  sale  of  the  improved  vehicle  is  not  subject  to  excise  tax. 
(T.  D.  2795;  Feb.  26,  1919.) 

— —  Fire  engines. 

A  self-propelled  fire  engine,  at  least  if  designed  to  carry  only  such  persons  as  are 

necessary  to  drive  it,  is  not  spoken  of  and  is  not  to  be  regarded  as  an  automobile; 
if,  however,  it  is  specially  designed  to  carry  firemen  not  employed  in  or  about  the 
driving  of  the  machine,  it  must  be  regarded  as  falling  within  the  scope  of  section  600 
(a)  of  the  act  of  October  3,  1917;  on  other  hand  automobiles  and  automobile  trucks 
equipped  as  hook  and  ladders,  hose  carts,  etc.,  for  the  use  of  firemen,  are  taxable. 
(T.  D.  2719;  Art.  IX.) 

Machine  guns. 

Motor-driven  machine  guns  are  not  automobiles  or  automobile  tnicks.  (T.  U. 
2719;  Art.  IX.) 

Motorcycles. 

A  motorcycle  is  a  motor-driven  bicycle.     (T.  D.  2719;  Art.  VIII.) 

Motor-driven  machines. 

Motor-driven  machines  for  pulling  veliicles  around  factories  and  railwav  stations 
are  not  automobiles  or  automobile  trucks.     (T.  D.  2719;  Art.  IX.) 

Motor  units. 

A  motor  unit,  designed  to  be  attached  to  a  bicycle  so  as  to  make  it  self-propelliu- 
like  a  motorcycle,  is  not  taxable  v,rhen  sold  separately,  but  when  sold  attached  to  ii 
bicycle  or  to  a  children's  buckboard,  the  complete  vehit'le  is  subject  to  the  tax 
as  a  motorcycle  or  automobile.     (T.  D.  2719;  Art.  X.) 

Rate  of  tax. 

Tax  imposed  by  section  600  (a)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  tlie 
prif-e  lor  which  automobiles,  automobile  trucks,  automobile  wagons,  and  motor- 
cycles are  sold  by  the  manufacturer.     (T.  D.  2719;  Art.  VIII.)  ■ 

Scope  of  tax. 

1  '^°.  ^T2  ^"^l"»  <!ie  scope  of  the  tax  imposed  by  section  600  (a)  of  the  act  of  Octo- 
ber .i,  i»jt/,  a  machine  must  be  a  vehicle  or  conveyance,  that  is,  designed  primarilv 
lor  tne  transportation  in  or  upon  it  of  persons  or  propertv.    (T,  D   2719-   -Vrt  IX') 


AUTOMOBILES.  51 

Excise  taxes — Continued. 

Speedometers. 

Speedometers  and  other  attachments  and  accessories  to  automobiles  and  motor- 
cycles are  not  taxable  when  sold  separat^^ly,  but  they  are  when  sold  as  part  of  an 
automobile  or  motorcycle  or  of  its  equipment,  whether  standard  or  not.  (T.  D. 
2719;  Art.  X.) 

: Track  use. 

Vn  aiit'jmobile  adapted  for  us?  on  a  track  is  subject  to  the  tax  imposed  by  section 
GOU  (li)  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  VIII.) 

Tractors. 

Tractors  for  pulling  agricultural  implements  are  not  automobiles  or  automobile 
trucks.     (T.  D.  2719;  Art.  IX.) 

A  tractor  which  has  no  body  or  provision  for  carrying  the  load,  but  is  intended  to 
haul  trailers,  is  not  taxable;  if  it  has  a  body,  no  matter  how  small  the  carrying  capa- 
city, oris  designed  for  attachment,  permanent  or  temporary,  to  a  two-wheel  trailer, 
in  sucli  a  way  as  t.o  carry  part  of  the  load,  it  is  subject  to  tax  as  an  automobile  truck 
or  wagon;  if  sold  in  combination  with  such  trailer,  the  tax  is  on  the  total  price; 
a  foui'^wheel  trailer  complete  in  itself,  having  no  connection  with  an  automobile 
except  the  necessary  coupling  when  drawn  by  it,  is  not  subject  to  tax.  (T.  D. 
2719;  Art.  X.) 
• Truck  units. 

So-called  truck  luiils,  intended  to  be  attached  to  pleasiu-e  car  chassis  so  as  to 
convert  them  into  trucks,  are  not  taxable  when  sold  separately;  if  sold  in  com- 
bination with  a  new  chassis,  however,  tax  is  imposed  upon  price  of  complete  truck. 
(T.  D.  2719;  Art.  X.) 

Used  or  second-hand  automobiles. 

Used  or  second-hand  automobiles  are  not  subject  to  tax  im]X)sed  by  section 
600  (a)  of  the  act  of  October  3,  1917.     (T.  I).  2719;  Art.  X.) 

Forfeiture. 

Nonparticipation  of  owner  of  automobile  in  its  uso  iu  transporting  distilled 

'  .'spirits  upon  which  the  tax  had  not  been  paid  is  no  bar  to  proceeding  in  rem  for  its  for- 
feiture.    (T.  D.  2776;  Dec.  11,  1918.) 

Under  section  3450,  Revised  Statutes,  automobile  used  in  transporting  spirituous 
liquors  on  which  tax  has  not  been  paid,  borrowed  from  purchaser  thereof,  who  had 
given  his  note  secured  by  deed  of  trust  thereon  for  uni:)aid  purchase  price,  is  subject 
to  forfeiture  as  against  seller,  though  under  terms  of  deed  and  the  State  law  the 
seller  could  require  the  trustee  to  seize  such  automobile  and  sell  it  in  satisfaction  of 
his  deed,  and  though  he  had  no  knowledge  of  anv  intention  to  use  such  automobile 
for  an  illegal  purpose.     (T.  D.  2789;  Feb.  10,  1919.    Ct.  Dec.) 

Motor  fuel. 

Formula  3  for  the  complete  denaturation  of  alcohol  made  of  refuse  material  for 
use  as  a  motor  spirit  or  easoline  substitute  in  Hawaii  authorized  for  use  by  any 
qualified  denaturer.     (T.^D.  2528;  Oct.  3,  1917.) 

Formula  No.  28  for  special  denaturation  of  alcohol  for  use  in  manufacture  of 
motor  fuel  stated;  formula  authorized  to  be  used  exclusively  in  manufacture  of 
motor  fuel  by  a  closed  and  continuous  process  in  connection  with  a  central  denatur- 
ating  bonded  warehouse;  analytical  requirements;  process  after  denaturation; 
samples  of  finished  product  to  be  furnished;  application  for  use  of  denaturant  to 
be  accompanied  bv  blue  prints  and  full  description  of  process  and  premises.  (T.  D. 
276y;  Nov.  4,  1918'.) 

Seizure — Release  under  bond. 

In  case  of  seizui-es  of  automobiles,  horses,  and  other  similar  propertj',  collectors 
instructed  to  refuse  to  accept  bond  under  section  3459,  Revised  Statutes,  for  release 
unless  property  was  seized  under  provisions  of  section  3453,  Revised  Statutes,  only; 
where  seiziu'e  was  not  made  under  such  section,  if  property  is  appraised  at  5500  or 
less,  collectors  will  dispose  of  same  prompt  ly  under  provisions  of  section  3460,  unless 
bond  for  costs  is  given,  in  which  event  bond  should  be  forwarded  to  ITnited  States 
attorney  with  reqtiest  to  institute  libel  proceedings;  if  value  exceeds  .'p500,  property 
should  be  turned  over  to  United  States  marshal  and  the  attorney  requested  to 
institute  forfeiture  proceedings,  no  bond  for  costs  being  requinnl;  question  of  re- 
lease of  property  on  bond  is  within  jurisdiction  of  court.     (T.D.2511 ;  July  12, 1917.) 


52  AVOCATION — BANKS   AND   BANKING. 

Transportation  tax. 

"  lU'.ijiilar  ostahlishcd  line,  "  as  used  in  act  of  October  3,  1917,  constniet]  to  mean 
a  revnilaritv  of  operation  of  transportation  facilities  by  motor  power  between  delhiite 
points;  cas'nal  or  intermittent  transportation  of  passengers  by  automobile  between 
two  points  would  not  constitute  a  regular  established  line;  automobile  that  is  meiely 
for  hire  and  which  takes  passenger  to  anv  point  he  directs  does  not  constitute  regular 
established  line.     (T.  D.  27f)5;"Feb.  20,"  1919.) 

AVOCATION. 

Definition. 

"Avocation"  is  that  which  takes  one  from  his  regular  calling;  a  minor  occii- 
pation.     (T.  D.  2690;  art.  8.) 

BAD  DEBTS. 

Definition. 

Had  debt  or  Avorthless  debt,  as  contemplated  by  income  tax  law  and  which  may 
be  deducted  in  return  of  income,  is  one  which  has  been  actually  ascertained  to  be 
worthless  and  charged  off  within  taxable  year.     (T.  D.  2690;  art.  8.) 

Income  taxes — Deduction, 

See  "Income  Taxes  (Corporations)"';  "Income  Taxes  (Individuals).". 

BANKS  AND  BANKING. 

Admission  taxes    Deposits  of  payments. 

Collector  of  internal  revenue  may,  in  his  discretion,  require  the  person  receiving 
pavments  for  taxes  to  make  daily  deposit  of  sums  so  received  in  special  account 
in  such  bank  as  collector  shall  designate.     (T.  D.  2681;  Mar.  26,  1918.) 

Capit  al  stock  tax — Computation. 

Tlie  individual  fair  value  of  stocks  of  two  banks  tl:at  have  a  definite  combined 
market  vahie  but  no  separate  market  value,  may  be  ascertained  by  apportionment 
of  the  market  value  on  the  basis  of  the  capital  stock,  surplus,  and  undivided 
profits  of  each  corporation  for  the  fiscal  year.     (T.  D.  2426;  Dec.  29,  1916.) 

Exemptions. 

Cooperative  banks  withotit  capital  stocK  organized  and  operated  for  mutual 
purposes  and  without  profit  are  exempt  from  tax  imposed  by  section  407  of  the  act 
of  September  8,  1916.     (T.  1).  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Mutual  savings  bank  not  having  capital  stock  represented  by  shares  is  specifically 
exempt  from  tax  tinder  section  407  of  the  act  of  September  8,  1916.  (1.  D.  2383; 
Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1938.) 

Federal  land  banks,  as  provided  in  section  26  of  act  of  Jtily  17,  1915,  are  exempt 
from  tax  imposed  by  section  407  of  act  of  September  8,  1916.  (T.  D.  2.383;  Oct.  19, 
1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Tax  does  not  apply  to  joint-stock  land  banks  as  to  income  derived  from  bonds 
or  debentures  of  other  joint-stock  land  banks  or  Federal  land  bank  belonging  to 
such  joint-stock  land  bank.     (T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Circulation  of  bank  notes. 

The  10  per  cent  tax  on  the  circul«ion  of  notes  other  than  those  issued  by  national 
banks  applies  to  Canadian  bank  notes;  the  tax  applies  to  all  persons,  firms,  associa- 
tions, and  ^corporations  circulating  notes  other  than  national-bank  notes,  whether 
or  not  such  persons,  firms,  associations,  and  corporations  issue  notes  of  their  own. 
(T.  D.  2782;  Dec.  24,  1918.) 

Estate  tax — Nonresident  decedents. 

Hanking  institutions  holding  monev  of  nonresident  decedents  on  deposit  or  for 
any  specific  purpose,  so  long  as  title  rests  in  nonresident  decedent,  his  estate  or  hia 
heirs,  may  not  release  to  foreign  administrator  or  executor  or  foreign  beneficiary 
eu.h  money  until  either  tax  due  has  been  paid  or  ancillarv  letters  have  been  taken 

•"rn^'^"   oJr'!'^"*?^^xPT*''*^"  ^^^  ''^^"  ^'^de  by  estate -for  satisfactory  of  tax  lien. 
(T.  D.  2454;  l<eb.  28,  1917.) 


BANKS   AND   BANKING.  53 

Income  taxes —Exemptions. 

Fedoral  land  banks  are  exempted  from  tax  without  condition;  collector,  being 
satislied  that  organization  comes  within  exempted  class,  is  authorized  to  eliminate 
it  from  his  list  and  relieve  it  from  necessity  of  making  returns.     (T.  D.  2(i!K);  art.  6S.) 

Joint-stock  land  banks  are  exempt  from  tax  without  condition  as  to  income 
specified  in  the  law;  collector,  being  satisfied  that  organization  comes  within  ex- 
empted class,  is  authorized  to  eliminate  it  from  his  list  and  relieve  it  from  necessity 
of  making  returns.     (T.  D.  2(590;  art.  68.) 

Mutiial  savings  banks  not  having  capital  stock  re|)rcsented  by  shares  are  exempt 
from  tax  without  condition:  collector,  being  satisfied  that  organization  comes  within 
exempted  class, is  authori'^ed  to  eliminate  it  from  his  list  and  relieve  it  from  necessity 
of  making  returns.     (T.  D.  2690;  art.  (J8.) 

Banking  corporations  which  are  required  to  maintain  a  "Depositors'  guaranty 
fund"  may  deduct  amount  set  apart  earh  year  to  this  finid,  provided  that  sii<h 
fund,  when  set  aside  and  carried  to  credit  of  State  officer,  ceases  to  be  asset  of  bank 
but  may  be  withtlrawn  upon  demand,  by  s\ich  board  or  State  officer  to  meet  needs 
of  these  officers,  as  required  by  State  laws,  in  reimbursing  depositors  in  insolvent 
banks,  and  provided  further  that  no  portion  of  amount  is  returnable  to  assets  of 
banking  corporation:  if  amount  is  .simply  set  up  on  books  of  bank  as  reserve  to  meet 
contijigent  liability  and  remains  asset  of  bank,  it  will  not  be  deductible  except  as 
it  is  actuallv  paid  out  as  required  by  law  and  upon  demand  of  prooer  State  officers. 
(T.  D.  2690";  art.  14(i.) 

Gross  income. 

Gross  income  of  banks  and  other  financial  institutions  consists  of  the  total  reve- 
nue received  within  the  year  for  which  return  is  made  from  operation  of  business, 
including  income,  gains,  or  profits,  from  sale  of  capital  assets  and  from  all  other 
sources;  in  cases  M^here  securities  or  other  assets,  real,  personal,  or  mixed,  acquired 
j)rior  to  March  1,  1913,  are  disposed  of  during  year,  gain  or  loss  thereon  will  be  based 
upon  dill'erence  between  price  at  which  disposed  of  and  fair  market  price  or  value 
fif  such  assets  as  of  March  J,  1913,  or  difference  between  price  at  which  disposed  of 
and  the  cost,  if  acquired  subsequent  to  that  date.     (T.  D.  2690;  art.  90.) 

In  case  of  banking  institutions,  business  of  which  is  to  receive  and  loan  money, 
using  capital,  surplus,  and  deposits  for  this  purpose,  undistributed  income  actually 
represented  by  loans  is  invested  and  employed  in  the  business  so  as  to  be  exem])t 
from  10  per  cent  tax  imposed  bv  section  10  (b)  of  the  act  of  September  8,  1916,  aa 
amended.     (T.  D.  2736;  June  IS,  1918.) 

In  case  of  banking  institutions,  business  of  which  is  to  receive  and  loan  money, 
using  capital,  8urj>lus,  and  deposits  for  this  purpose,  such  reasonable  amounts  of 
undistributed  income  as  are  retained  for  future  loans  are  not  subject  to  tax  of  10 
per  cent  imposed  bv  section  10  (bi  of  the  act  of  September  8,  1916,  as  amended. 
(T.  D.  2736;  June  18,  1918.) 

Information  at  source. 

Interest  accrued  on  bank  deposits  before  it  has  been  passed  to  the  credit  of  the 
individual  depositor  need  not  be  reported.     (T.  D.  2670;  Mar.  11,  1918.) 

Banks  and  collecting  agents,  debtor  corporations,  and  withholding  agents,  au- 
thorized to  accept,  until  June  1,  1918,  certificates  of  ownership  on  old  forms  when 
properly  executed.     (T.  D.  2702;  Apr.  18,  1918.) 

Wherever  a  foreign  country  or  foreign  corporation  issuing  bonds  has  appointed  a 
paying  agent  in  this  country,  charged  with  duty  of  paying  interest  upon  such  bonds, 
such  agent  shall  be  source  of  information ;  if  such  country  or  corporation  has  no  such 
agent,  then  last  bank  or  collecting  agent  in  this  country  shall  be  source  of  informa- 
tion'; in  cas  3  of  dividends  on  stock  of  foreign  corporation,  first  bank  or  collecting 
agent  accepting  such  item  for  collection  shall  be  source  of  information.  (T.  D.  2759; 
Oct.  2,  1918.) 

Hanks  or  agents  collecting  foreign  items  required  to  obtain  license  from  Commis- 
sioner of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such  regu- 
lations for  furnishing  of  information  as  the  Commissioner,  with  approval  of  Secretary 
of  the  Treasurv,  shall  prescribe,  and  to  penalties  prescribed  by  failure  to  obtain  such 
license.     (T.  D.  2759;  Oct.  2,  1918.) 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed  or  accompanied  by  proper  ownership  certificates,  giv- 
ing all  information  called  for  by  such  certificate;   where  first  licensed  bank  or  col- 


54  BANKS   AND  BANKING. 

Income  taxes— Continued. 

- — Information  at  source — Continued, 
lectin"-  ao-ent  is  source  of  information,  licensee  shall  attacli  ownersliip  certificate  and 
indorsee  on  item  the  words  "  Certificate  attached  and  information  furnished, "  adding 
his  name  and  address;  when  foreign  items  have  been  properly  indorsed,  certificates 
shall  be  attached  and  forwai'ded  to  Commissioner  of  Internal  ReA^enue  (Sorting 
Di\-i5ion),  Washington,  D.  C,  on  or  before  20th  day  of  month  following  that  dunng 
which  items  were  accepted,  accompanied  by  letter  of  transmittal,  showing  number 
of  eertificates  and  aggregate  amount  of  foreign  items  disclosed  thereon.  (T.  D.  2750; 
Oct.  2, 1918.) 

Where  interest  coiipon  is  received  for  collection,  ownersliip  cei-tificate  sliall  accom- 
]iany  coupon  to  pajdug  agent  in  this  country,  or  if  there  is  no  such  agent,  then  to  last 
bank  or  collecting  agent  handling  item  in  this  country;  when  more  than  one  coupon 
of  same  maturity  is" received  at  one  time  from  same  owner  and  from  same  issue  of 
bonds,  single  certificate  may  be  usad ;  when  foreign  items  have  l^een  properly  in- 
dorsed, certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal 
Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of  month  fol- 
lowing that  during  which  items  were  accepted,  accompanied  by  letter  of  transmittal, 
f=howinf  number  of  certificates  and  aggregate  amount  of  foreign  items  disclosed 
thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  papng  agent  or  la.st  bank  or  collecting  agent  in  this  country  is  source  of 
information,"  ownership  certificate  shall  accompany  coupon  to  such  agent  or  source 
of  information,  who  shall  forward  ov\-nership  certificate  to  Commissioner  of  Internal 
Revenue,  in  manner  pro^'ided  where  duty  is  placed  upon  licensee,  provided  tliat  in 
case  ownership  certificate,  Form  1000,  is  used,  payinir  agent  shall  make  return  on 
Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

■ Net  income. 

Taxes  on  bank  stock  pai<l  under  legal  requirement  by  bank  for  its  stockholders 
are  deductible  by  stockholders  and  not  by  bank;  where  bank  stock  is  sold  and 
transferred  between  date  of  assessment  and  payment  of  tax,  in  absence  of  statute 
governing,  stockholder  liable  for  tax  (if  tax  was  actually  paid  i  will  have  benefit  of 
tax  deduction;  this  is  question  of  fact  and  to  be  determined  as  such.  (T.  D.  2690; 
art.  8.) 

Payments  under  legal  requirements  by  bank  for  its  stockholders  of  taxes  on  bank 
t-tock  are  regarded  as  in  the  nature  of  aclditional  di\idends  and  should  be  included 
by  .stockholder  in  his  dividends  received.     (T.  D.  2690;  art.  8.) 

Exemption  provided  for  in  Federal  reserve  statute,  section  3,  of  the  act  of  October 
22,  1914,  attaches  to  and  follows  income  derived  from  dividends  on  stock  of  Federal 
reserve  banks  into  hands  of  stockholders,  that  is  to  say,  dividends  receive<;l  on  stock 
of  such  banks  are  exempt  from  taxes  imposed  by  acts  of  September  8,  1916,  as 
amended,  and  cf  October  3,  1917;  this  ruling  does  not  contemplate  that  dividends 
paid  by  member  banks  are  exempt  from  the  2  per  cent  tax,  but  such  di\-idends,  in 
so  far  as  they  may  be  received  by  other  corporations,  may  be  treated  as  a  credit 
against  net  income  in  computing  the  war  income  tax  imposed  bv  Title  I  of  the  act 
of  October  3,  1917.     (T.  D.  2690;  art.  86.) 

^^l^ere  banks  or  other  corporations  loan  money  by  discounting  Ijills  or  notes,  one 
of  two  methods  shall  be  used  in  determining  amount  of  discount  to  be  reported  as 
income,  namely,  (1)  if  bank  or  corporation  makes  practice  of  crediting  discount 
directly  to  "discount  account"  or  to  profit  and  loss,  total  amount  thus  credited 
during  year  shall  be  considered  income,  regardless  of  fact  that  portion  mav  repre- 
sent discount  paid  in  advance;  (2)  if  bank  or  corporation  follows  practice  of  cred- 
iting discount  to  "unearned  discount  account"  and  later,  as  discount  becomes 
earned,  debits  imearned  account  and  credits  "earned  discount  account"  with 
amount  so  earned,  total  amount  credited  to  "earned  discount  account"  duriiig 
year  shall  be  considered  income.     (T.  D.  2690;  art.  114.) 

Tn  case  of  banks  and  banking  associations,  loan  or  trust  companies,  interest  paid 
y.'ithm  year  on  deposits  or  on  moneys  received  for  investment  and  secured  by 
interest-beanng  certificates  of  indebtedness  issued  bv  such  bank,  banking  associa- 
tion, loan  or  trust  company,  may  be  allowably  deducted  from  gross  income  of  such 
corporation.     (T.  D.  2690;  art.  190.) 

Banks  paying  taxes  assessed  against  stockholdei-s  on  account  of  ownership  of 
shares  of  stock  issued  by  such  bank  can  not  deduct  amount  of  taxes  so  paid  unless 
and  to  extent  that  laws  of  State  in  which  they  do  business  by  specific  te'rms  make 
tax  direct  liability  of  such  banks;  fact  that  State  laws  make  it  duty  of  banks  to  pav 
tax  does  not  necessarily  make  tax  a  liabiiitj-  of  the  banks,  and  such  payments  arc 
not  deductible  from  gross  income  of  such  banks;  rule  applies  only  to  taxes  levied 


BANKS   AND   BANKING.  55 

Income  tax — Continued. 
Net  income — Continued. 

upon  value  of  capital  stock,  and  ia  not  intended  to  prevent  bank  from  deducting 
any  State  tax  imposed  on  value  of  corporation's  real  estate,  furniture,  and  fixlurcB, 
or  as  an  excise  or  franchise  tax;  rule  applies  in  case  of  corporations  other  than  banks, 
upon  value  of  whose  stock  taxes  are  asse.sscd  to  the  stockholders.  (T.  D.  2690;  art. 
192.) 

— — -  Withholding. 

Interest  received  from  deposits  in  banks  located  within  the  United  States  paid 
to  nonresident  alien  individuals  and  corporations  constitutes  income  received  from 
sources  'N^-ithin  the  United  States  and  is  subject  to  withholding  provisions  of  act 
of  October  3,  1917.     (T.  D.  2623;  Dec.  28,  1017.     T.  D.  2(352;  Feb.  6,  1918.) 

Collecting  agents,  responsible  banks  and  bankers  receiving  coupons  for  collec- 
tion with  ovnenship  certificates  attached  may  present  coupons  with  original  cer- 
tificates to  debtor  corporation  or  withholding  agent  for  collection,  or  original  cer- 
tificates may  be  detached  and  forwarded  direct  to  Commissioner  of  Internal  IXevo- 
nue,  providing  such  agent  shall  substitute  for  such  certificate  its  o\^ti  certificate 
and  shall  keep  complete  record  of  each  transaction  showing  specified  data;  identi- 
fication of  substitute  certificate;  substitute  certificates  discontinued  with  respect 
to  ownership  certificates  presented  ■snth  coupons  for  collection  by  nonresident 
alien  individuals,  corporations,  etc.     (T.  D.  2690;  art.  43.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  citizens  or  residents  of  United  States,  individual  or  fiduciary,  or  by 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  insurance 
companies,  or  partnerships,  ownership  certificate  lOOlA  shall  be  executed  by  actual 
owner,  or  by  his  duly  authorised  agent,  when  presenting  item  for  collection,  whether 
item  is  dividend  or  interest  payment,  except  in  case  of  foreign  country  or  foreign 
corporation  having  paying  agent  in  this  country  and  issuing  bonds  containing  "  tax- 
free"  covenant  clause;  in  such  cases  paying  agent  will  ^\•ithhold  normal  tax  upon 
interest  on  such  bonds,  and  ownership  certificate.  Form  1000,  jjroperly  modified 
to  show  that  debtor  has  paying  agent  in  this  country,  should  be  used,  unless 
owner  desires  to  claim  exemption,  when  Form  1001 A  should  bo  used.  (T.  D.  2759; 
Oct.  2,  1918.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  aro 
owned  by  nonresident  alien  individuals,  or  foreign  corporations,  associations,  or 
partnerships,  ownership  certificate.  Form  1071,  revised,  shall  be  used  for  and  on 
behalf  of  such  owners  by  any  responsible  bank  or  ]:)anker,  either  foreign  or  domestic. 
(T.  D.  2759;  Oct.  2,  1918.) 

Special  tax  on  bankers — Accrual. 

P>iirden  is  on  taxpayer  to  establi.-^h  by  [jrcponderance  of  evidence  that  tax  col- 
lected or  some  part  of'it  was  not  due.     "(T.  D.  2160;  Mar.  17,  1917.     Ct.  Dec.) 

Assets. 

Deposits  and  investments  arc  ail  equally  assets  of  the  bank,  and  claims  of  depos- 
itors are  liabilities;  capital,  surplus,  and  undivided  profits  are  what  may  be  left 
after  satisfaction  of  liabilities  to  depositors  and  other  creditors;  creditors  may  be 
paid  o\it  of  any  portion  of  the  assets,  and  the  capital,  surplus,  and  undivided  profits 
represent  the  residue  which,  like  claims  of  creclitors,  may  be  made  good  out  of  auy 
ol  the  securities,  cash,  bills  of  exchange,  promissory  notes,  or  other  resources  of  the 
bank,  including  its  real  estate.     (T.  D.  2460;  Mar.'l7,  1917.     Ct.  Dec.) 

Bookkeeping. 

The  fact  of  employment  or  nonemploymeut  of  permanent  iinestnients  in  bank- 
ing is  not  to  be  determined  by  methods  of  bookkeeping,  btit  by  real  transaction;:.; 
itis  a  cpiestion  of  fact  to  be  determined  at  the  trial.  (T.  D.  2400;  Mar.  17,  1017. 
Ct.  Dec.) 

Brokers. 

A  bank  which  does  not  hold  itself  out  to  the  public  as  engaged  in  negotiating  pur- 
chases or  sales  of  stock,  bonds,  etc.,  but  merely  negotiates  the  purchase  and  sale 
thereof  for  depositors  and  other  pati-ons,  without  remuneration  and  for  their  accommo- 
dation onlv,  does  not  thereby  incur  liability  to  special  tax  as  a  broker.  (T.  I).  2782; 
Dec.  24,  1918.) 


56 


BANKRUPTCY. 


Special  tax  on  bankers-  Con timu'd. 

Capital. 

\  hank  which  in  addition  toitsbankinebusincss,  artsastrustpe.  receiver,  executor, 
or'alminist.ator,  or  enpages  in  imdorAvritino  or  promoting  new  enterprises  or  ron- 
.um.in-  old  enterprises,  or  buys  and  sells  se<-»"!ies  on  its  own  a-rountJor  i)roh  is 
pubiect  to  tax  imposed  bv  first  paragraph  ot  section  3  ottheactot  October  22  1911 
upon  total  amount  of  its'capitai,  including  surplus  and  undivided  protits.  unless  it 
l.e  shown  that  specific  portion  of  its  capital  is  used  in  such  other  business  and  that 
mU  u^^^^^^^^^^^^  constitute  banking.     (T.  D.  2895;  July  21,  1919.    Ct.  Dec.) 

Mere  showin<'  that  specific  portion  of  the  capital,  including  surplus  and  undn  ided 
prolits,  "^is  used  in  such  other  business  is  not  alone  sufficient  to  .show  that  such 
(  apitai  is  not  used  in  banking.     (Id.) 

Constitutionality. 

Tax  imposed  on  bankers  by  the  act  of  October  22,  1014,  is  not  unconstitutional  as 
being  a  direct  tax  and  not  apportioned.     (T.  D.  2460;  Mar.  17,  1917.     Ot.  Dec) 

Trust  companies. 

Tapital,  surplus,  and  undivided  profits  of  trust  company  doing  business'  as 
barker,  invested  in  stocks,  bonds,  and  securities,  are  treated  as  used  and  being  in 
banking,  within  the  meaning  of  section  3  of  the  act  of  October  22,  1914,  and  the  tax 
imposed  is  upon  so  much  thereof  as  are  used  in  the  banking  busuioss.  (T.  D. 
2460;  Mar.  17,  1917.    Ct.  Dec.) 

Stamp  taxes — Bankers'  acceptances. 

The  nde  that  the  stamp  tax  on  drafts  and  checks  imposed  by  schedule  A  of  Title 
Mil  of  the  act  of  October  3.  1917,  attaches  to  drafts  or  checks  at  the  time  of  deliv- 
ery, if  delivered  within  the  territorial  jurisdiction  of  the  United  States  and  expressed 
to"l)e  ])ayable  otherwise  than  at  sight  or  on  demand,  but  not  to  drafts  or  checks  not 
yet  delivered  or  deliA'ered  in  a  foreign  country  or  expressed  to  be  payable  at  siglit 
or  on  demand,  is  applicable  to  bankers"  acceptances  as  defined  by  the  regula- 
tions o-f  the  Federal  Reserve  Board.     (T.  D.  20^2;  Mar.  26, 1918.) 

— ^  Certificates  of  deposit. 

Certificates  of  deposit  are  not  taxed  bv  Schedule  A  of  Title  VIII  of  the  act  of 
October  3,  1917.     (T.  D.  2713;  May  14,  1918.) 

• Loans. 

Neither  security  agreement  signed  liy  prospective  borrower  of  bank,  empowering 
bank  to  apply  any  securities,  money,  or  other  property  of  borrower  in  hands  of  bank, 
to  satisl'v  debt,  nor  form  of  application  for  the  loan  is  subject  to  stamp  tax  imposed 
by  Schedule  A  of  section  807  of  act  of  October  3,  1917.     (T.  D.  2599;  Dec.  3,  mi.) 

BANKRUPTCY. 

Income  taxes — Bad  debts. 

Actual  determination  of  worthlessness  of  debt  in  case  of  bankruptcy  is  possible 
only  when  settlement  in  bankruptcy  shall  have  been  had;  only  difference  between 
amount  received  in  distribution  of  assets  of  bankrupt  and  amount  of  approved 
claim  may  be  considered  for  the  purpose  of  deduction.     (T.  D.  2690;  art.  8.) 

Fiiority  of  Federal  taxes. 

Sw  tion  3466,  Revised  Statutes,  is  in  pari  materia  with  sections  64  (a)  and  64  (h)  of 
Viankruptcy  act,  and  to  extent  that  it  is  in  conflict  therewith  it  is  su])erseded  thereby; 
therefore,  no  ])riority  is  given  to  Federal  taxes  except  over  creditors,  and  such  taxes 
are  not  entitled  to  priority  over  administration  expenses  of  the  bankruptcy  proceed- 
ings.    (T.  D.  3000;  Apr.  10,  1920.    Ct.  Dec.) 

Trustees — Distilled  spirits  in  hands  of. 

Under  section  1003  of  act  October  3,  1917,  tax  on  spirits  in  hands  of  bankruptcy 
court  June  1,  1917,  shall  be  collected  from  purchaser  thereof  by  trustees  in  bank- 
ruptcy or  their  agent,  and  quantity  sold  and  amount  of  tax  collected  during  any 
calendar  month  shall  be  reported  to  collector  of  district  in  which  sales  are  made 
not  later  than  10th  day  of  month  succeeding,  which  report  shall  be  transmitted  to 
Commissioners  office,  Avhereupon  assessment  will  be  made  and  tax  collected  in 
ordinary  course;  person  collecting  tax,,  where  it  is  specifically  charged  as  such 
to  person  to  whom  spirits  are  delivered  or  not,  will  be  held  liable  for  same  (T  D. 
2749;  July  29,  1918.)  \ 


BASEBALL — BEER.  5  7 

Trustees     (\)iiliimi  d. 
- —  Returns. 

Under  section  13,  paragraph  (c),  aft  Septomber  S.  inin,  rocoivors,  tmstees  in 
b.vnkniptry,  or  assignees  in  charge  of  and  operating  proporty  and  buainess  of 
corporarions,  mnst  make  returns  of  annual  net  income  and  pay  tax  regardless  o] 
wliat  disposition,  suV)ject  to  orders  of  conrt,  may  be  made  of  such  income;  such 
receiver,  etc..  stands  in  place  of  corporate  officers  and  must  perform  all  duties  and 
assume  all  lialnlities  wliich  woidd  deAolve  upon  such  officers  were  they  in  control; 
income  Avhidi  he  receives  is  income  of  cor})nration  and  is  subject  to  tax  imposed  in  so 
far  as  it  exceeds  deductions  or  allf)wai)ces  authorized  by  law,  and  sucli  receiver, 
etc.,  must  make  true  return  of  each  year  (hiring  wliidi  he  is  in  custody  and  con- 
trol of  business  or  properties,  and  will  be  liable  to  all  penalties  for  failure  to  meet 
any  of  its  requirements.     (T.  D.  2G!W;  art.  2.)9.) 

Copies. 

Copy  of  income  return  may  V)e  furnished  by  Commissioner  to  person  Avho  made 
return  or  to  his  duly  constituted  attorney,  or  if  entity  is  in  hands  of  trustee  in  bank- 
ruptcy, to  such  trustee  upon  written  api>lication  for  same,  accom])anied  by  satisfac- 
tfrry  evidence  that  applicant  comes  within  this  provision.     (T.  D.  2[)t)2;  Jan.  7,  1920.) 

Stamp  tax  on  bonds. 

Indemnity  or  surety  bonds  given  by  trustees  in  bankruptcy  for  purpose  of  quali- 
fying as  such  are  bonds  rerpiired  in  legal  proceedings,  and  therefore  exempt  from 
taxation  under  Schedule  A,  act  of  October  3,  3917.     (T.  I>."  2(347;  Feb.  2,  1918.) 

BASEBALL. 

Balls  and  bats — Excise  taxes. 

The  tax  imposed  by  section  GOO  ( f)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  the 
)irice  for  wlych  bats  and  balls  are  sold  bv  the  manufacturer.  (T.  I).  2719;  \rt 
XVII.) 

\^'here  baseball  bats  or  other  sporting  goods  taxable  under  section  GOO  (f),  act  of 
0(  tober  3,  1917,  are  prepared  in  final  marketable  form  by  X,  who  marks  or  labels  them 
only  Math  the  name  or  trade-mark  of  B,  who  on  their  Vjeing  delivered  to  him  sells 
them  withoutfurthermanufacturetohisown  customers,  if  transaction  between  A  and 
1^  is  an  a'tual  sale  and  not  merely  employment  of  A  by  B  to  manufacture  the  articles 
as  his  a-rent  at  a  specifiod  profit,  A  is  thie  •'manufacturer  "who  isliahle  for  the  tax; 
article  2  of  Retrulations  Xo.  44  can  not  be  construed  asadoptinL'auy  of  the  provisions 
of  article  21.     (T.  D.  2795;  Feb.  26,  1919.) 

Games — Admissions. 

.\dmissions  of  basebill  reporters  and  telegraphers,  occupying  special  space  at 
b.iseball  parks,  and  admitted  by  passes  issued  by  baseball  writers'  association,  are 
exempt  from  tax  under  section  700  of  the  act  "of  October  3,  1917.  (T.  D.  2G81: 
Mar.  26,  1918.) 

Where  rain  checks  attached  to  tickets  sold  for  canceled  baseball  game  are  redeem- 
able in  cash  with  refund  of  the  tax,  or  by  issue  of  ticket  for  another  game,  the  box- 
oilice  statement  for  the  canceled  game' may  be  marked  '"Canceled,"  but  in  its 
next  return  the  tax  must  be  sccounted  for  by  the  club  on  any  tickets  not  redeemed 
as  shown  by  comparison  of  box-ofhce  statement  for  canceled  game  with  statements 
for  subsequent  games.     (T.  D.  2681;  Mar.  26,  1918.) 

BEEF,  IRON,  AND    WINE. 
Beverages. 

(fee  "Beverages."' 

BEER. 
See  "Fermented  Liquors." 

Root  beer. 

Tax  imposed  by  se<;tion  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  root  beer  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used  in 
carbonating  same;  tax  attaches  when  i)erson  who  manufactures  and  sells  root  beer 
is  ilso  manufacturer,  prodticer,  or  importer  of  carbonic  acid  gas  used  in  its  manu- 
lacture;  such  root  beer  is  not  taxable  when  manufacturer  buys  his. own  carbonic 
acid  gas  and  pays  tax  of  5  cents  per  pound.     (T.  D.  2719;  Art.  XXXII.) 


58  BENEFICIARY  SOCIETIES ^BEVERAGES. 

BENEFICIARY    SOCIETIES. 
Capital  stock  tax. 

I'ratcrnal  beneficiarv  society,  order,  or  associatiou,  operaliiig  under  the  Iodide 
sNsteni  or  for  the  exclusive  benefit  of  the  menibers  of  a  fraternity  itself  operatins; 
under  the  lodge  svstem,  and  pro\-idi.ng  for  payment  of  life,  sick,  accident,  or  otl^er 
benefits  to  members  of  such  society,  order,  or  association,  or  tlieir  depen-leats,  i^ 
exempt  from  tax  imposed  bv  section  407  of  the  act  of  September  8,  1916.  (T.  I>. 
2383;  Oct.  19,  1916.     T.  D.  2750.  art.  12;  Aug.  9,  1918.) 

Income  tax — Exemptions. 

Beneficiary  society,  order,  or  as.sociation  operating  under  lodge  system  or  for  ex- 
clusive benefit  of  members  of  a  fraternity  itself  operating  under  lodge  system  is 
exempt  from  tax,  without  condition;  collector,  being  satisfied  that  organization 
comes  within  exempted  class,  is  authorized  to  eliminate  it  from  his  IL^t  and  relieve 
it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

Society  or  association  "operating  under  tlie  lodge  system,"  which  is  exempted 
under  the  provisions  of  the  income-tax  act,  is  considered  to  be  one  organized  under 
a  charter  with  properly  appointed  or  electcil  officers  with  iin  adopted  ritual  or  cere- 
monial, holding  meetings  at  stated  intervals,  and  supported  by  dues,  fees,  or  assess- 
ments.    (T.  D.  2r)90;  art.  239.) 

In  order  that  fraternal  beneficiary  societies,  mutual  insurance  companies,  etc., 
m.ay  be  exempted,  it  is  not  suflScient  that  they  merely  claim  exemption,  but  it  must 
be  shown  by  affidavit  or  otherwise  to  satisfaction  of  Commissioner  of  Internal  Reve- 
nue that  conditions  set  forth  in  exempting  provisions  have  been  fullv  met.  (T.  IK 
2690;  art.  239.) 

Congress  exempted  certain  cooperative  enterprises  from  all  income  taxation,  biit, 
with  the  exception  of  fraternal  ioeneficiary  societies,  it  imposed  in  express  terms 
such  taxation  upon  "everv  insurance  company."  (T.  D.  3046;  July  19,  1920. 
Ct.  Dec.) 

Insurance — Exemptions  from  tax. 

Fraternal  beneficiary  society,  order,  or  association,  operating  under  lodge  system 
or  for  exclusive  benefit  of  members  of  fraternity  itself,  operating  under  lodge  system, 
and  ]>ro^dding  for  payment  of  life,  sick,  accident,  or  other  benefits  to  the  members  of 
such  sn(ietv  or  order  or  their  dependents,  is  exempt  from  tax  on  insurance.  (T.  D. 
2-588;  Nov.  21,  1917.) 

BEISTEFIT   PERFORMANCES. 
Admissions. 

WTiere  proceeds  of  admissions  inure  exclusively  to  benefit  of  religious,  educa- 
tional, or  chari{al)le  institutions,  societies,  or  organizations,  admissions  are  not  tax- 
able; character  of  organization  for  which  benefit  is  given  and  not  purpose  of  particular 
benefit  is  controlling;  admissions  to  entertainments* for  charity  are  taxable  if  fimds 
are  administered  by  any  persons  or  organizations  other  than  religious,  educational, 
or  charitable  institutions,  societies,  or  organizations;  admissions  to  school  or  college 
athletic  contests  and  other  college  entertainments  are  not  taxable  if  proceeds  go  to 
school  or  college,  but  they  are  if'proceeds  are  used  to  support  athletics  or  other  sep- 
arate purposes.     (T.  D.  2681;  Mar.  26,  1918.) 

BETTERMENTS. 

Sec  "Improvements." 

BEVERAGES. 
Alcohol. 

Alcohol  may  be  withdrawn  free  of  tax  under  act  of  .May  3.  1878.  as  amended  l)y 
act  of  July  8  1916,  for  u.se  in  surgical  operations  and  treatment  of  patients,  and 
alcohol  so  withdrawn  by  hospitals  and  sanitariums  may  be  used,  e\'en  though  they 
maintain  no  educational  facilities;  provided,  however,  that  alcohol  so  withdrawn 
shall  not  be  used  as  a  beverage  nor  in  anv  way  for  the  manufactm'e  or  compoundinii 
ot  a  beverage  for  use  in  any  such  institution  or  elsewhere;  privilege  of  withdrawal 
will  not  be  extended  to  any  institution  conducted  directly  or  indirectly  for  profit 
or  trom  9perations  of  w-hich  any  profit,  other  than  fail-  and  reasonable  compensation 
tor  services  pertormed,  is  derived  by  any  stockholder,  officer,  or  other  person; 

•?  rwfmr     ™V^VJ'o-^,"T^J""  ^"^  method  and  subject  to  restrictions  imposed  by 
i.D.  2190.     (1.  D,  274o;  July  5,  1918.; 


BEVERAGES.  59 

Alcoholic  medicinal  preparations. 

Alcoholic  medicinal  preparations  lieid  to  be  lusufficiciitlv  medicatol  to  reader 
thi'iTi  unfit  for  use  as  a  beverage  listed.     (T.  D.  2544;   Oct.  19,  1917. ) 

C'aufiman'fi  ginger  l)raudy  not  taxed  as  a  proprietary  medicine,  tliouirh  label  .--hows 
medicinal  claims;  being  an  alcoholic  compound  beverage,  only  alcohol  tax  paid  at  the 
rate  o£  $H.25  per  gallon  may  be  used  iu  compounding  it,  and  no  distilled  spirits  fer- 
mented after  11  o'clock  p.  in.  of  .September  8,  1917,  may  l)e  used  in  its  manufactui-e; 
tax  of  15  cents  per  jiroof  gallon  required  on  all  com]ioinKl  in  possession  of  rectifier 
on  October  4,  1917,  or  thereafter  ])roduced;  additional  floor  tax  on  i)roduct  nuist  be 
paid  after  inventorv  and  return  in  same  manner  as  floor  taxes  on  distilled  spirits. 
(T.  D.  253G;  Oct.  1.3,  1917.) 

So-called  nonbeverage  alcohol  taxable  at  rate  of  $2.20  ])er  proof  gallon  muft  not 
be  dispensed  under  physician's  prescription,  unless  in  compounding  thereof  same 
is  so  medicated  as  to  render  it  absolutely  unfit  for  use  as  a  beverage;  in  ca-^e  of  pre- 
scription compounding  drugdst  will  be  held  res[)ont;ible  as  to  sufficiency  of  medica- 
tion.    (T.  D.  2593;  Nov.  27,  1917.) 

Alcohol  held  on  October  3,  1917,  by  riianiifacturers  of  ijrojn-ietary  medicines  for 
use  in  manufacture  of  medicines  is  subject  to  floor  tax,  unless  on  day  act  of  October  ?,, 
1917.  took  effect  it  was  in  ])rocess  of  manufacture  and  had  been  rendered  unfit  (or 
beverage  purposes.  (T.  D.  2547;  Oct.  22,  1917.  Overruled  by  T.  D.  2643;  Jan. 
28,  1918.) 

Instructions  with  reference  to  permit  to  make  United  States  Pharmacopteia  or 
National  Formulary  products ;  also,  with  reference  to  alcoholic  m.ed  icinal  compounds 
not  in  conformity  to  United  States  Pharmacopoeia  or  National  Formulary;  state- 
ment required  of  manufacturers;  demand  for  formula  and  process  by  which  article 
is  manufactured:  i-eference  of  matter  of  whether  compound  is  beverage  to  Commis- 
sioner of  InternalRevenue.     (T.D.2576;  Nov.  10,1917.     T.  D.  2788;  Fob.  6, 1919.) 

Special  tax  required  for  sale  of  preparations  insutficiently  medicated  to  render 
them  \mfit  for  use  as  a  beverage,  even  tlioueh  such  sales  are  for  medicinal  use. 
(T.  D.  2.544;  Oct.  19,  1917.) 

Where  any  preparation  containing  more  than  one-half  of  1  per  cent  of  alcohol 
by  volume,  whether  sold  as  medicine  or  flavoring  extract  or  in  any  other  manner, 
does  not  conform  to  required  standard,  liability  will  be  asserted  to  tax  at  beverage 
rate  on  alcohol  lised;  similar  action  will  be  taken  in  case  of  preparation  made  in 
conformity  with  such  standard  if  sold  bv  a  manufacturer  for  beverage  purposes. 
(T.  D.  2760;  Oct.  9,  1918.) 

Manufacturers  of  flavoring  extracts  who  do  not  paj-  special  tax  must  comply 
with  standards  prescribed  by  Secretary  of  Agriculture;  if  no  standard  has  beeii 
prescribed,  liability  to  special  tax  will  be  regarded  as  incurred  on  account  of 
manufacture  of  flavoring  extracts,  as  well  as  of  essences,  soft  drinks,  sirups,  etc., 
if  finished  product  contains  more  alcohol  than  is  necessary  to  cut  the  oils  or  extract 
the  desired  active  principles  and  hold  them  in  solution.     (T.  D.  2760;  Oct.  9, 1918.) 

Persons  who  manufacture  or  deal  in  alcoholic  medicinal  preparations,  flavoring 
extracts,  etc.,  even  though  made  in  accordance  with  standards  prescribed,  are  only 
relieved  from  special  tax"  liability  so  long  as  they  make  sales  for  legitimate  purposes 
only;  if  preparation  containing  more  than  one-half  of  1  per  cent  of  alcohol  by 
volume  is  sold  for  beverage  purposes  or  under  circumstances  warranting  reasonable 
belief  that  it  is  to  be  used  as  a  beverage,  liability  to  tax  will  be  asserted  regardless 
of  what  other  ingredients  preparation  may  contain.     (T.  I).  2760;  Oct.  9,  1918.) 

Apothecaries  will  not  be  charged  v/ith  liability  to  special  tax  on  account  of  sale 
in  quantities  not  exceeding  1  pint  of  alcohol  for  bathing  or  antiseptic  purposes, 
providing  it  is  compounded  prior  to  sale,  but  not  in  bulk  or  in  advance  ni  orders, 
in  such  manner  as  to  make  it  unfit  for  use  as  beverage;  approved  formulas  I  )•• 
purpose  of  rendering  alcohol  unfit  for  beverage  stated;  containers  of  alcohol  treated 
in  such  manner  must  bear  "poison"  labels.     (T.  I).  2760,  Oct.  9,  1918.) 

Apple  cider. 

Sweet  apple  cider  is  taxed  under  section  313  (b)  of  act  of  October  3,  1917,  if  it  con- 
tains less  than  one-half  per  cent  of  alcohol  and  no  added  sugar.  (T.  I).  2719;  Ait. 
XXXU) 

Carbonated  beverages. 

The  tax  imposed  by  section  313  (b)  of  act  of  October  3, 191 7,  is  1  cent  foreach  frallon 
of  carbonated  waters  and  beverages  manufactured  and  sold  by  the  manufacturer  of 
the  carbonic  acid  gas  used  in  carbonating  .same;  tax  attaches  wh(-n  person  who  (a) 


60 


BEVERAGES. 


Carbonated  beverages  Coutiniied. 
nviinihrtiircP  and  (b)  polls  Puch  waters  and  beverages  is  also  (c)  the  manufapturer, 
prudncer  or  importer  of  the  carbonic  acid  gas  used  in  their  manufacture;  soda  foun- 
tain ])roprietor  manufacturing  his  own  carbonic  acid  gas  must  pay  tax  on  carbonated 
drinks  dispensed  at  such  fountain;  carbonated  waters  or  beverages  are  not  taxable 
when  manufacturer  buvs  his  carbonic  acid  gas  and  pays  tax  of  5  cents  per  pound. 
(T.I). '2719;    Art.  XXXII.) 

Carbonic-acid  gas. 

Tax  imposed  by  section  315  of  the  act  of  October  3,  1917,  is  5  cents  for  each  pound 
of  carbonic  acid  gas  in  drums  or  containers  sold  by  the  manufacturer,  if  intended  for 
use  m  the  manufacture  or  produclion  of  carbonated  water  or  drinks,  including  fer- 
mented liquors  containing  less  than  one-half  per  cent  of  alcohol;  carbonic  acid  gas 
nsed  in  drawinsr  beer  from  containers  or  in  operation  of  refrigerating  planto,  or  in 
preserving  food  products,  or  in  manufacture  of  beverages  containing  one-half  per 
cent  or  more  of  alcohol,  is  not  subject  to  the  tax;  in  all  cases  of  sales  of  carbonic  acid 
eas  for  use  other  than  in  the  manufacture  of  carbonated  water  or  other  drinks,  manu- 
facturer must  prominently  stamp  on  or  affix  to  container  a  warning,  as  follows: 
"Federal  tax  not  paid.  Unlawful  to  use  in  the  manufacture  of  beverages."  (T.  D. 
2719;  Art.  XXXV.) 

Tax  imposed  by  section  315  of  the  act  of  October  3,  1917,  on  carbonic  acid  gas,  is 
to  be  j)aid  to  mauufact\u-er  by  producer  of  such  gas  at  the  time  of  sale,  and  former 
must  collect  amount  of  tax  and  make  monthly  returns  under  oath  in  dxiplicate,  on 
Form  72ti,  and  pay  taxes  so  collected  to  collector  of  district  in  which  his  principal 
office  or  place  of  business  is  located;  returns  are  to  be  rendered  and  tax  paid  on  or 
before  last  day  of  each  month,  covering  transactions  of  preceding  month,  first 
return  to  cover  all  transactions  since  October  3,  1917.     (T.  D.  2719;  Art.  XXXVI.) 

Carbonic  acid  gas  used  in  drawing  beer  from  containers  is  not  subject  to  tax  im- 
])osed  by  section  315  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXXV.) 

Computation  of  tax. 

In  computing  tax  a  fractional  part  of  a  cent  should  be  disregarded  unless  it 
amounts  to  one-half  cent  or  more,  in  which  case  it  should  be  increased  to  a  full  cent. 
(T.  D.  2719;  Art.  XXXIX.) 

Definitions. 

A  '  soft  drink' '  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3,  1917, 
is  a  nonintoxicating  beverage,  containing  less  than  one-half  per  cent  of  alcohol. 
(T.  D.  2719;  Art.  XXIX.) 

An  "extract"  is  a  preparation  supposed  to  possess  the  characteristic  property 
<r  virtue  f>f  the  original  substance  in  concentrated  form,  and  includes  essences, 
flavoring  extracts,  and  th&  like.     (T.  D.  2719;  Art.  XXIX.) 

A  "  prepared  sirup"  is  a  simple  sirup  with  flavoring  and  perhaps  other  materials; 
a  simple  sirup,  which  is  not  J^axable,  is  a  preparation  of  sugar  and  water,  or  rock 
.:andy  and  Avater.     (T.  D.  2719;  Art.  XXIX.) 

"Other  similar  places,"  as  used  in  fcection  313  (a")  of  the  act  of  October  3,  1917, 
includes  all  places  where  soft  drinks  are  sold.     (T.  D.  2719;  Art.  XXIX.) 

A  "bottler."  within  section  313  (c)  of  act  October  3,  1917,  is  the  producer  or  any 
person  who  puts  a  liquid  in  buttles  or  (itlitr  closed  containers  and  sells  it.  (T.  D. 
2719;  Art.  XXXIIl.) 

A  "dealer,"  within  section  1007  of  act  October  3,  1917,  does  not  refer  to  or 
include  a  purchaser  for  his  own  use,  unless  such  use  is  the  manufacture  or  produc- 
tion of  another  article  intended  for  sale.     (T.  D.  2719;  Art.  XXXVII.) 

Distilled  spirits     Bonds. 

Persons,  firms,  or  corporations  (except  distillers  and  proprietors  of  bonded  ware- 
liouses,  making  deliveries  in  original  tax-paid  packages,  who  are  already  required 
1o  give  bonds)  desiring  to  use  or  sell  or  to  use  and  sell  distilled  spirits  for  "other  than 
Ix-vcrage  purposes  must  apply  for  permit  and  file  bond  with  corporate  surety  or 
with  two  personal  sureties  who  qualified  on  Form  33,  to  be  approved  bv  collector; 
bond  with  personal  sureties,  without  justification  by  the  sureties  on  Form  33,  may 
])c  accepted  on  certain  conditions;  single  bond  authorised  where  same  person  or 
corporation  is  operating  number  of  drug  stores  in  same  city.  (T.  D.  2559;  Oct.  26, 
1917.    T.  D.  2576;  Xov.  10,  1917.    T.  1).  2788;  Feb.  0,  1919.) 


BEVERAGES.  61 

Distilled  spirits — Continued. 

Books  and  transcripts. 

Distillers  and  storekeepers  required  to  make  eertain  entries  on  their  records  wlieii 
packages  of  distilled  spirits  are  sent  out  from  distillery;  rectifiers  required  to  make 
certain  entry  in  record  when  spirits  are  received  for  rectification;  wholesale  liquor 
dealers  req\iired  to  make  entrv  on  book  52  and  on  mi:)nthly  transcripts.  (T.  D. 
2559;  Oct.  2(),  1917.     T.  D.  2788;  Feb.  0,  1919.) 

Biandy. 

Fermenting  and  distilling  of  any  materials  'for  production  of  beverage  brandy 
after  September  8,  1917,  is  prohibited;  brandy  produced  from  grapes  may  be  dis- 
tilled for  fortifying  sweet  wines  under  act  of  September  8,  191(>,  and  act  of  August  10, 
1917;  brandy  may  be  produced  from  materials  fermented  after  September  8,  1917, 
for  nonbevefage  purposes.     (T.  D.  2559;  Oct.  26,  1917.     T.  D.  2788;  Feb.  6,  1919.) 

— —  Compromise  o?  violation  of  law. 

Any  violation  of  law  or  regulations  which  is  violation  of  act  of  August  10,  1917, 
only,  can  not  be  made  subject  of  compromise  by  Commissioner  of  Internal  Revenue, 
under  section  :W2;),  Revised  Statutes,  which  section  is  applicable  to  offenses  arising 
under  internal  revenue  laws  only.  (T.  D.  2559;  Oct.  20,  1917.  T.  D.  2788;  Feb. 
«i,  1919.) 

Floor  tax. 

All  distilled  spirits  in  possession  of  manufacturing  chemists,  pharmacists,  or  any 
other  person  held  for  sale,  although  not  for  sale  as  distilled  spirits  on  October  4,  1917, 
are  subject  to  additional  floor  tax  at  $1.10  or  .|2.10  per  proof  gallon  as  case  may  be; 
distilled  spirit^in  possession  of  manufacturers  on  October  4,  1917,  which,  in  legiti- 
mate processes  of  manufacture,  had  been  rendered  unfit  for  use  as  beverages,  are 
not  subject  to  additional  floor  tax.  (T.  D.  2506;  Oct.  27,  1917.  Overruled  by 
T.  D.  2643;  Jan.  28,  1918.) 

■ Labels. 

Distilled  spirits  manufactured  for  other  than  beverage  pui'poses  from  foods, 
fruits,  etc.,  fermented  after  September  8,  1917,  when  entered  into  warehouse  must 
bear  printed  label,  to  be  provided  by  distiller,  bearing  stated  legend;  manner  of 
aflixing  label  and  form  thereof  stated ;  pasting  on  metal  packages;  signatures;  adver- 
tising matter;  changing  spirits  from  one  container  to  another;  effacement  and  oblit- 
eration. (T.  D.  2520;\\ug.  30,  1917.  T.  D.  2523;  Sept.  11,  1917.  T.  D.  2559: 
Oct.  26,  1917.     T.  D.  2788;  Feb.  6,  1919.) 

Losses. 

AAliere  losses  occvir  from  sj^irits  covered  by  bond,  rate  of  tax  to  be  asserted  in  con- 
nection with  such  losses  will  be  $6.40  per  gallon  when  bond  is  written  in  penal  sum 
measured  by  that  rate  of  tax;  when  penal  sum  of  bond  covers  tax  at  rate  of  $2.20 
a  gallon,  assessment  on  account  of  losses  will  be  made  at  that  rate,  unless  it  shall 
appear  that  spirits  or  any  part  thereof  were  diverted  to  beverage  purposes,  or  for 
use  in  manufacture  or  production  of  any  article  used  or  intended  for  use  as  a  bever- 
age, in  which  event  tax  will  be  assessed  at  rate  of  $6.40  a  gallon.  (T.  D.  2821;  Apr. 
10,  1919.) 

— —  Materials  prohibited  in  manufacture. 

Manufacture  of  distilled  spirits  from  foods,  fruits,  food  materials,  or  feeds,  for 
beverage  purposes  prohibited  after  September  8.  1917;  use  of  distilled  spirits  manu- 
factured from  such  materials  after  September  8,  1917,  in  manufacturing  or  preparing 
beverages  or  sale  of  such  spirits  for  beverage  purposes  forbidden;  materials  prohib- 
ited for  use  in  producing  beverage  spirits  held  to  include  cereals,  tubers,  fruits, 
cannery  refuse,  sour  wine,  etc.;  production  of  grape  spirits  solely  for  use  in  fortifica- 
tion of  sweet  wines  under  act  of  September  8,  1916.  not  within  prohibition  (T  D 
2520;  Aug.  30,  1917.  T.  D.  2523;  Sept.  11,  1917.  T.  D.  2559;  Oct.  26,  1917.  T.  D. 
2788;  Feb.  6,  1919.) 

.  Section  15  of  the  act  of  August  10,  1917,  contemplates  that  where  foods,  fruits,  food 
materials  or  feeds  are  used  in  manufacture  of  distilled  spirits  for  beverage  purposes 
all  fermentation  must  be  finished  not  later  than  11  o'clock  p.  m.  of  September  8, 
1917.     (T.  D.  2520;  Aug.  30,  1917.     T.  D.  2523:  Sept.  11,  1917.) 

Dilute  saccharine  liquid,  derived  from  sawdust,  Avood-waste,  pxilp,  and  like  bases, 
ie  material  from  Avhich  the  prodriction  of  distilled  spirits  for  beverage  purposes  is 
prohibited  by  Section  15  of  the  food-control  act  of  August  10,  1917.  (T.  D.  2526: 
Sept.  25,  1917.) 


62 


BEVERAGES. 


Distilled  spirits— Continuod. 

Materials  prohibited  in  manufacture— Contiuued. 

Internal  rcA'enue  slorekeoper-gaugers  and  storekeeper-gangers  assigned  as  gangers, 
will  be  g\iided  by  act  of  August  10,  1917,  and  regtilations  and  rahngs  thereunder, 
and  wilfnot  permit  the  use  in  the  production  of  beverage  spirits  of  anj^  material  held 
by  T.  D.  2559  to  be  foods,  fruits,  food  material,  or  feed.  (T.  D.  2576;  Nov.  10,  1917.) 
Spoiled  cereals  may  not  be  used  in  the  production  of  beverage  spirts,  but  may 
be  used  in  production  of  nonbeverage  spirits.     (T.  D.  2582;  Nov.  17,  1917.) 

Nonbeverage  products. 

Distilled  spirits  for  other  than  beverage  purposes  may  be  used  only  in  the  arts, 
sciences,  and  trades,  where  circumstances  are  such  that  there  can  be  no  probability 
that  the  spirits  M-illbe  used  or  sold  for  be-\-erage  purposes  or  in  the  manufacture  or 
production  of  an}-  article  intended  for  use  as  a  beverage;  medicinal,  culinary,  and 
liavoring  extracts;  cosmetics  and  toilet  preparations;  projirietarv medicines ;  potable 
proof  spirits.     (T.  D.  2559;  Oct.  26,  1917.     T.  D.  2788;  Feb.  G,'l919.) 

Distillers  producing  nonbeverage  spirits  under  act  of  Augtist  10,  1917,  required  to 
conserve  animal  feed,  contained  in  residue  or  slop,  after  distillation  of  spirits  from 
cereals.     (T.  D.  2582;  Nov.  17,  1917.) 

Distillers  producing  alcohol  exclusively  for  other  than  beverage  purposes  may 
operate  on  Sundays,  and  collectors  may  require  storekeeper-gaugersand  storekeeper- 
gangers  in  capacity  of  gangers  to  remain  on  duty;  notation  to  be  made  on  vouchers 
for  monthly  compensation  to  effect  that  distilleries  were  in  operation  under  provis- 
ions of  section  302  of  act  of  October  3,  1917;  distillers  manufacturing  ethyl  alcohol 
for  nonbeverage  purposes  exclusively  may  be  granted  ])ermission  to  fill  fermenting 
tubs  in  sweet-mash  distillerv  not  oftener  than  everv  48  hoiu's.  *(T.  D.  2636;  Jan. 
24,  1918.) 

Distilled  spirits  held  by  manufacturers  and  intended  not  for  sale  as  spirits,  but  for 
mamifacture  into  nonbeverage  products,  are  not  subject  to  taxation  under  section 
303  of  act  of  October  3,  1917.     (T.  D.  2643;  Jan.  28,  1918.) 

Homeopathic  pharmacists  who  are  tmwilling  to  take  out  permits  and  give  Jjonds 
required  may  purchase  and  n-ee  nonbeA'erage  alcohol  produced  from  materials  fer- 
mented prior  to  11  o'clock  p.  m.,  September  8,  1917,  and  taxable  at  the  rate  of  $3.20 
per  proof  gallon.     (T.  D.  2699;  Apr.  16,  1918.) 

• Penalties  for  violating  law  and  regulations. 

Storekeeper-gangers,  storekeeper-gangers  assigned  as  gangers,  and  deputy  collec- 
tors required  to  report  to  immediate  superiors  and  revenue  agents  and  collectors 
required  to  report  to  Commissioner  %iolations  of  law  and  regulations  of  date  of  Octo- 
ber 26,  1917;  penalty  for  violation  of  regulations  stated;  violation  of  law  or  regula- 
tions which  is  violation  of  act  of  August  10,  1917,  only,  not  subject  of  compromise 
by  commissioner  under  section  3229,  Revised  Statutes.  T.  D.  2559;  Oct.  26, 1917. 
T.  D.  2788;  Feb.  6,  1919.) 

Permits. 

All  persons,  firms,  or  corporations  desiring  to  use  or  sell,  or  to  use  and  sell  distilled 
spirits  for  nonbeverage  purposes  required  to  file  application  for  permit;  all  persons 
forbidden  to  sell  or  deliver  distilled  spirits  for  use  or  sale  or  for  use  and  sale  for  non- 
beverage purposes,  if  produced  subsequent  to  September  8,  1917,  or  tax  paid  at  rate 
of  §2.20  per  proof  gallon  to  any  person,  etc. ,  not  Qualified,  and  then  onlv  upon  delivery 
of  application  therefor  in  due  fonn;  contents  of  application:  to  whom  permits  will 
be  issued;  recall  of  permits.  (T.D.2559;  Oct.  26,  1917.  T.  D.  2576;  Nov.  10,  1917. 
T.  D.  2788;  Feb.  6,  1919.) 

• Besidue  of  distilleries. 

Residue  from  industrial  distilleries  containing  less  than  one-half  of  1  per  cent  of 
alcohol  by  volxime,  used  m  making  nontaxable  beverages,  may  be  manipulated  bv 
cooling,  flavoring,  carbonatmg,  settling  and  filtering  on  the  distillery  premises  or 
on  the  brewery  premises,  or  transferred  from  distillerv  premises  to  other  prem- 
ises tor  bottling  by  means  of  unstamped  packages  unlike  those  ordinarilv  used 
for  containmg  fermented  liquor,  or,  if  like  packages  are  used,  both  heads'  to  bo 
equipped  in  sohd  color  with  certain  lettering.  (T.^D  2564;  Oct.  26,  1917.) 
Withdrawals. 

Regulations  relative  to  sale  and  use  of  distilled  spirits  for  nonbeverac^e  purposes 
under  acts  ot  Angtis  10,  1917,  and  October  3,  1917  do  not  apply  to  alcX  with- 
drawn for  denaturation,  to  alcohol  withdrawn  for  scientific  purposes    trdsSled 


BEVERAGES.  C3 

Distilled  spirits — Coniiniicd. 

Withdrawals — Continued. 

spirits  withdrawn  for  use  of  United  Stales  free  of  tax  under  section  34C4,  Keviscul 
Statutes,  or  to  spirits  withdrawn  for  export.  (T.  D.  2559;  Oct.  26,  1917.  T.  D. 
2788;  Feb.  6,  1919.) 

Applicant  for  withdrawal  or  purchase  of  uonbeverage  spirits  will  make  out  appli- 
cation in  triplicate,  filling  in  necessary  data  within  his  knowledge;  instructiciis 
\\h]\  relation  to  distribution  of  spirits;  application  to  be  delivered  to  Aendor  ai 
spirits  who  vsill  fill  in  necessary  data;  disposition  of  triplicates;  approval  of  col- 
lector in  advance  of  withdrawal  or  purchase  not  reqxiired;  applicant  must  sign 
certificate  in  prepannl  spaces  A^ithcut  waking  affidavit.  (T.  I).  257rs  Nov.  10, 
1917.  T.  D.  2788;  Feb.  (i.  1919.) 
Exports. 

Ai  tides  may  be  normally  exported  in  several  ways — (1)  they  may  be  sliippqd 
by  the  mauufactvu'er  to  agent  in  foreign  country  and  after  reaching  there  may  bo 
sold  by  the  agent;  (2'.  they  may  be  shipped  by  manufacturer  to  foreign  purchaser 
to  fdl  orders  received  l:)y  agent  in  foreign  country;  (?>)  they  may  be  shipped  by 
manufacturer  to  foreign  purchaser  to  fill  ordeis  received  i)y  manufacturer  in  ITnited 
States;  (4)  they  may  l)e  shipped  by  manufacturer  to  foreign  purchaser  to  fill  orders 
solicited  bv  mail  and  received  bv  m.ail  from  foreign  purchaser;  T.  D.  271^9  super- 
seded.    (T.  D.  2781;  Dec.  20,  1918.) 

Taxes  imposed  by  sections  31:5  and  315  of  the  act  of  October  3.  1917,  do  not  apply 
to  articles  sold  in  foreign  commerce  by  any  of  the  methods  outlined  by  manu- 
facturer, producer,  or  importer  located  in  one  of  the  several  States  of  the  United 
States;  this  ruling  applies  only  to  cases  of  exportation  by  manufacturer  making  the 
sale  on  which  but  for  the  exportation  lie  would  liolialde  for  the  tax,  the  tax  there- 
fore api)l\ing  to  articles  sold  for  domestic  deliA  erv,  1  lut  exported !  )V  or  at  the  instance 
of  the  buyef;  T.  D.  2739  revoked.     (T.  D.  2781  ;''Dee-.  20,  1918., i  " 

Taxes  imposed  by  such  sections  313  and  315  of  the  act  of  October  3,  1917,  apply, 
howoA'er,  to  articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Terri- 
tory elsewhere  in  the  United  States  than  a  State  and  to  articles  going  from  United 
States  to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone,  except 
that  under  acts  of  Congi'ess  articles  going  from  United  States  into  the  W'est  Indian 
Islands,  or  into  the  Philippine  Islands  or  Porto  Rico,  are  exempt  to  same  extent  as 
articles  exported  from  a  State  to  a  foreign  country.     (T.  D.  2781;  Dec.  20,  1918.) 

Sale  to  concern  doing  business  in  United  States  is  sale  for  domestic  delivery 
jmless  terms  of  order  or  contract  of  sale  show  the  seller  is  to  export  article  or  that  ho 
is  to  make  such  delivery  of  it  as  will  result  in  its  exportation.  Examples  of  sale  by 
manufacturer  which  are  so  taxable,  notwithstanding  ultimate  exportation  of  articles 
sold,  are:  (1)  Sale  to  dealer  in  United  States,  effected  by  compliance  with  his 
shipping  instructions  to  export,  given  subsequent  to  contract  of  sale  which  did  not 
require  shipment;  (2)  sale  to  export  commission  house  in  United  States,  which  is 
effected  by  shipment  consigned  to  commission  house  at  domestic  port  and  which  is 
followed  by  immediate  exportation  to  foreign  buyer  in  whose  behalf  purchafe  vras 
made;  (3)  sale  to  corporation  in  United  States  which  immediately  exp-jrts  to  for- 
eign concern  of  v/liich  it  is  a  subsidiary;  (4)  sale  to  member  of  foreign  partnership 
conducting  buying  Inisiness  in  United  States  for  his  fiira  and  _  exporting  articles 
bought,  in  sucii  easels  application  of  tax  is  not  affected  by  [)rovision  in  contract  of 
sale  requiring  buAor  to  use  or  dispose  of  articles  sold  only  in  some  forcien  country. 
(T.  D.  278];  Dec!  20,  1918.) 

Extracts  and  sirups. 

Nonbeverage  distilled  spirits  taxable  at  rate  "of  $2.20  per  proof  gallon  may  be 
xised  by  manufacturers  of  flavoring  extracts  where  such  extracts  are  unfit  for  use  as 
a  beverage,  and  such  extra<;ts  raav  in  turn  be  used  in  inauufai'turin<r  beN'era-jes. 
(T.  D.  2om;  Oct.  27,  1917.) 

Alcohol  tax  paid  at  rate  of  S2.20  [>er  gallon,  whether  produced  from  materials 
fermented  be  i'ore  or  after  September  9,  1917,  maybe  used  in  manufucture  of  l)ona 
fulo  flavoring  extracts,  which  themselves  are  not  fit  tor  beverage  purposes;  such 
flavoring  extracts  may  be  subsequentlv  used  for  flavorine  be\erages  v>het,ber  alco- 
hohc  or  not.     (T.  D.  2567;  Oct.  30,  1917.) 

There  is  no  pnniaion  against  using  flavoring  extracts  which  cojitain  some  aVohol 
to  flavor  sirups  that  are  tc  be  used  in  msmufacturing  soft  driidcs.  (T.  D.  2570.  NoVo 
(i,  1917.) 

i^lxtracts  to  be  used  for  household  purposes  are  not  taxable.  (T.  D.  2570;  Nov. 
G,  1917.) 


g4  BEVERAGES. 

Extracts  and  sirups-  Continued. 

Di.-iilled  spirits  iipcd  in  manufacture  of  ordinary  flavoring  extracts  are  subject 
cnlv  +0  additional  tax  of  $1.10  per  proof  jrallon  imposed  by  section  303  of  art  of 
Octobor  3,  1017.     (T.  D.  2584;  Nov.  20,  1917.) 

Sirups  and  extracts  u«od  by  rectifiers  of  spirits  are  not  taxable  under  «o<tion 
313  of  ar't  of  October  3,  1917.     (T.  D.  2598;  Nov.  24,  1917.) 

Al<-ohol  which  i-an  not  lesaUy  be  used  for  beverasje  purposes  may  be  u^ed  in 
manufacture  of  flavoring  extracts.     (T.  D.  2598;  Nov.  24,  1917.) 

Tax  imposed  bv  section  313  (a)  of  the  act  of  October  3,  1917.  is  btised  on  price  for 
which  i)reparcd  sirui)s  or  extracts,  if  intended  for  use  in  manufacture  or  produc- 
tion of  beverages,  commonly  known  as  soft  drinks,  by  soda  fountains,  bottling 
cslublish meats,  and  other  similar  places,  are  sold  by  the  manufacturer;  i)o.-«ble 
scilino'  prices  and  corresponding  tax  per  gallon  in  each  case,  stated.  (T.  D.  2719; 
Art.  XXVIJI.) 

An  "extract"  is  a  ])rej)aration  suppos(Ml  to  possess  the  characteristic  prop^^rty 
or  virtue  of  the  original  substance  in  concentrated  form,  and  includes  essences, 
flavoring  extra<'ts,  and  the  like.     (T.  D.  2719;  Art.  XXIX.) 

A  "prepared  sirup' '  is  a  simi)le  sirup  with  flavoring  and  perhaps  other  materials; 
a  simple  sirup,  which  is  not  taxable,  is  a  preparation  of  sugar  and  \^ater,  or  rock 
candy  and  water.     (T.  D.  2719;  Art.  XXIX.) 

"Other  similar  places,' '  as  used  in  section  313  (&)  of  the  ace  of  October  3,  1917, 
iTu-ludes  all  places  where  soft  drinks  are  sold.     (T.  D.  2719;  Art.  XXIX.) 

Foam,  concentrates,  acid  solution,  cocoa  paste,  ginger-ale  paste  and  emulsions, 
and  ordinary  househoid  extracts  like  vanilla  are  subject  to  tax  imposed  by  section 
313  (n)  of  act  of  October  3,  1917,  when  sold  if  intended  for  use  in  productitm  of  soft 
drinks;  extracts  intended  for  use  for  culinary  purposes  or  in  manufacture  of  ice 
cream  are  not  taxable;  "sundae  dressings,  "  used  exclusively  for  pouring  over  ice 
cream,  are  not  taxable;  prepared  sirups  and  extracts  used  by  rectifiers  of  spirits 
and  as  bar  flavors  are  not  taxable;  an  extract  sold  to  another  extract  or  sirup  manu- 
facturer for  use  in  production  of  prepared,  ^irup  which  is  to  be  sold  as  such  is  not 
subject  to  tax,  but  manufacturer  of  prepared  siru}>  mu«t  pay  tax;  no  tax  is  imposed 
upon  sirups  or  extracts  as  such  used  by  the  maker  for  further  manufacturing  pur- 
poses and  not  sold  by  him.     (T.  D.  2719;  Art.  XXX.) 

Preparation  of  fruit  juice  and  sugar,  which  is  not  reasonably  suitable  for  beverage 
pnrpfises  and  is  not  so  used,  but  which  is  used  to  produce  a  palatable  beverage  by 
bi'ing  mixed  or  diluted  with  water  at  soda  fountains,  bottling  establishments,  and 
other  similar  places,  is  a  prepared  sirup  within  the  meaning  of  section  313(a)  of  the 
act  of  October  3,  1917,  and  was,  while  that  act  was  in  force,  subject  to  tax  levied 
ui)on  such  sirup.     (T.  D.  29.32;  Oct.  7,  1919.) 

Ginger  ale. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  ginger  ale  manufactured  and  sold  by  manufacturer  of  carbonic-acid  gas  used  in 
carbv^nating  same;  tax  attaches  when  person  who  manufactures  and  sells  ginger 
ale  is  also  n:auufacturer,  producer,  or  importer  of  carbonic-acid  gas  used  in  its 
manufacture;;  such  ale  is  not  taxable  -^heu  manufacturer  buvs  his  own  carbonic-acid 
gas  and  pays  tax  of  5  cents  per  pound.     (T.  I).  2719;  Art.  XXXII.) 

Inspection  of  books. 

ivooks  of  fc-\  ery  person  liable  to  tax  imposed  by  section  313  of  the  act  of  Octobor  3, 
1917.  shall  be  open  at  all  times  for  inspection  by  exaniining  internal-revenVie  olli- 
cers.     (T.  D.  2719;  Art.  XXXIV.) 

Medicinal  preparations— Excise  taxes. 

See  •'Alcoholic  medicinal  preparations,"  ante. 

.Artificial  mineral  waters  not  carbonated  sold  bv  manufacturer,  producer,  or 
importer,  in  bottles  orother  closed  containers,  carbonated  waters  manufai^turcd  and 
sold  by  the  manufacturer,  producer,  or  importer  of  the  carbonic  acid  cas  used  in  car- 
bonat-ng  the  same,  and  natural  mineral  waters  and  table  waters  sold  by  the  pro- 
ducer, bottler,  or  importer,  in  bottles  or  other  closed  containers  at  over  10  cents 
per  trallon,  all  of  which  are  taxed  under  section  313  of  the  act  of  October  3,  L917,  are 
not  Hubject  to  tax  under  section  600  (h)  il  intended  for  use  solely  as  beverages. 
(T.  U.  2719,  Art.  XXIII.) 


BEVERAGES.  65 

Mineral  waters. 

Tax  inipoaed  by  se^^tion  313  (r.)  of  art  of  Octobpr  3,  1917,  is  1  cent  for  oach  .2;allon 
of  mineral  wat<^rs  or  lable  waters  sold  by  the  producer,  bottler,  or  importer,  in 
bottleR  or  other  closed  contaiiiere,  at  over  10  cents  per  gallon;  a  mineral  water  sold 
just  as  it  comes  from  the  ground,  except  for  liltration,  is  subject  to  the  tax;  distilled 
waters,  aerated  waters,  and  artesian-well  waters  sold  for  drinking  purposes  are 
subject  to  the  tax;  a  "bottler' '  is  the  produce  or  any  penson  who  puts  a  liquid  in 
bottles  or  other  closed  containers  and  sells  it.     (T.  D.  27 U);  Art.  XXXIIL) 

'  'Other  similar  places. ' ' 

"Other  similar  places,"  as  used  in  section  313  fa)  of  the  act  of  October  3,  1917, 
includes  all  places  where  soft  drinks  are  sold.     (T.  P.  2719;  Art.  XXIX.) 

Payment  of  tax. 

The  manufacturer,  producer,  bottler,  or  importer  of  any  of  the  beverages  enu- 
merated must  pay  taxes  imposed  to  collector  for  district  in  which  his  principal 
plact?  of  business  is  located ;  tax  to  be  |)ai  I  on  or  before  last  day  of  each  month  cover- 
ing transactions  of  preceding  month;  where  articles  are  sold  over  period  of  time 
under  agreement  for  quantity  rebate,  tax,  if  originally  computed  on  gross  |)rice,  may 
be  adjusted  in  return  for  month  in  which  ])rice  is  finally  determined;  itinerant 
manufacturer  shoukl  paj^  tax  to  collector  of  district  •.\here  sales  are  made.  (T.  D. 
2719;  Art.  XXXiV.) 

Tax  imposed  by  section  315  of  the  act  of  October  3,  1917,  on  carbonic-acid  gas, 
is  to  be  paid  to  manufacturer  by  producer  of  such  gas  at  time  of  sale,  and  former 
must  collect  amount  of  tax  and  pay  same  to  collector  of  district  in  which  his  prin- 
cipal office  or  place  of  business  is  located;  tax  is  to  be  paid  on  or  before  last  dav  of 
each  month,  covering  transactions  of  preceding  month.     (T.  D.  2719;  Art.  XXXVI.) 

Section  1007  of  the  act  of  October  3,  1917,  permits  an  adjustment  of  tax  between 
manufacturer  and  dealer,  biit  it  does  not  affect  the  liability  of  the  manufacturer  to 
return  and  pay  tax  to  the  Government.     (T.  D.  2719;  Art.XXXVII.) 

Where  manufacturer  has,  prior  to  May  9,  1917,  made  bona  fide  contract  with 
dealer  for  sale  after  tax  takes  effect  of  any  article  upon  which  sales  tax  is  imposed, 
and  such  c-ontract  does  not  permit  adding  of  whole  of  such  tax  to  amount  to  be  paid 
under  such  contract,  dealer  shall  pay  so  much  of  tax  as  is  not  so  permitted  to  be 
added  to  contract  price.     (T.  D.  2719;  Art.  XXXVIl.) 

The  term  "dealer"  does  not  refer  to  or  include  a  purchaser  for  his  own  use,  unless 
such  use  is  the  manufacture  or  production  of  another  article  intended  for  sale.  (T. 
D.  2719;  Art.  XXXVIl.) 

A  foreign  government  buying  or  leasing  an  article  for  its  own  use  is  not  a  dealer. 
(T.  D.  2719;  Art.  XXXVIl.) 

A  State  or  any  political  subdivision  thereof  buying  or  leasing  an  article  for  its 
own  use  is  not  a" dealer.     (T.  D.  2719;  Art.  XXXVIl.) 

Taxes  payable  by  dealer  must  be  paid  to  manufacturer  at  time  sale  or  lease  is 
consummated,  and  such  mantifacturer  shall  collect  amount  of  tax  from  the  dealer 
and  pay  same  to  collector  of  district  in  which  his  principal  office  or  place  of  busi- 
ness is  located.     (T.  D.  2719;  Art.  XXXVIII.) 

Penalties. 

In  addition  to  penalties  provided  by  section  1004  of  the  act  of  October  3,  1917, 
other  punishment  for  failure  to  comply  with  law  and  regulations  is  prescribed  by 
sedion  3176  of  the  Revised  Statutes,  as  amended,  and  by  other  sections  of  the 
internal  revenue  laws.     (T.  1).  2719;  Art.  XL.) 

Pop. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  pop  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  need  in  carbo- 
riating  same;  tax  attaches  when  person  who  manufactures  and  sells  pop  is  also 
inanufactTirer,  produt'er,  or  importer  of  carbonic  acid  gas  used  in  its  manufacture; 
such  pop  is  not  taxable  when  manufacturer  buys  his  own  carbonic  acid  gas  and 
py.ys  tax  of  5  cents  per  pound.     (T.  D.  2719;  Art.  XXXII.) 

70420"— 21 5 


nn  BEVERAGES. 


Returns. 


Each  iminutacturer,  producer,  bottler,  or  importor  of  beverages  enumerated 

ixH  iSd  to  make  monthly  returns  under  oath,  m  duplicate,  for  distnc;t  in  which 

his  piineipal  place  of  business  is  located;  returns  to  be  made  on  Form  726,  and  to 

.'  nMidered  on  or  before  last  day  of  each  month  covering  transactions  of  preceding 
noS,lkstretTU-n  to  cover  all  transactions  since  October  3  1917,  where  articles 
are  sold  over  period  of  time  under  agreement  tor  quantity  rebate,  tax  if  originally 
computed  on  gross  price,  may  be  adjusted  in  return  tor  month  m  which  price  is 
finally  determined;  branc'h  houses  should  in  general  make  reports  to  parent  house 
which  is  liable  to  make  monthly  returns  of  sales  of  branch  houses;  itinerant  manu- 
facturer should  make  return  to  collector  of  district  where  sales  are  made.  (T.  D. 
2719;  Art.  XXXIV.)  . 

Manufacturer  of  carbonic  acid  gas  must  make  monthly  returns  under  oath,  in 
duolicate  on  Form  720;  such  returns  to  be  rendered  on  or  before  last  day  of  each 
month  covering  transactions  of  preceding  month;  first  return  to  cover  all  transac- 
tions since  October  1),  1917.     (T.  D.  2719;  Art.  XXXVI.) 

Manufacturer  who  has  collected  amount  of  tax 'from  dealer  required  to  make 
montlily  returns  under  oath  in  duplicate  on  Form  728  or  Form  726.  (T.  D.  2719; 
Art.  XXXVIII.) 

Root  beer. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  root  beer  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used  in 
carbonating  same;  tax  attaches  when  person  who  manufactures  and  sells  root  beer 
is  also  mamifacturer,  producer,  or  importer  of  carbonic  acid  gas  used  in  its  manu- 
facture- such  root  beer  is  not  taxable  when  manufacturer  buys  his  own  carbonic 
acid  gas  and  pays  tax  of  5  cents  per  pound.     (T.  D.  2719;  Art.  XXXII.) 

Samples. 

Instructions  relative  to  taking  samples  at  brewery,  on  premises  of  dea.lers,  at 
vinerar  factories,  etc.,  and  assessments  for  taxes  where  cereal  beverages  contain  or 
are  suspected  of  containing  one-half  of  1  per  cent  or  more  of  alcohol  by  volume. 
(T.  D.  2921;  Sept.  15, 1919^) 

Sarsaparilla. 

Tax  imposed  bv  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  sarsaparilla  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used 
in  carbonating  same;  tax  attaches  when  person  who  manufactures  and  sells  sarsa- 
parilla is  also  manufacturer,  producer,  or  im]iorter  of  carbonic  acid  gas  used  in  its 
manufacture;  such  sarsaparilla  is  not  taxable  when  manufacturer  buys  his  own 
carbonic  acid  gas  and  pays  tax  of  5  cents  per  pound.     (T.  D.  2719;  Art.  XXXII.) 

Soda  water. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  soda  water  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used  in 
carbonating  same;  tax  attaches  when  person  who  manufactures  and  sells  soda 
water  is  also  mamifacturer,  producef ,  cr  importer  of  carbonic  acid  gas  usecl  in  its 
manufacture;  such  soda  water  is  not  taxable  when  manufacturer  buys  his  own 
carbonic  acid  gas  and  pays  tax  of  5  cents  per  pound.     (T.  D.  2719;  Art.  XXXII.) 

Temperance  beer. 

Temporary  regulation  providing  that  until  further  notice  brewers  ha\'ing  estab- 
lished pipe  "line  for  transfer  of  fermented  liquors  may  set  aside  and  utilize  one  or 
more  cisterns  pertaining  thereto  for  containing  liquors  containing  not  to  exceed 
one-half  of  1  per  cent  of  alcohol  by  volume  for  transfer  through  the  pipe  line  for 
sole  purpose  of  bottling,  under  certain  conditions  and  restrictions;  duties  of  deputy 
collector  in  attendance.     (T.  D.  2359;  Sept.  9,  1916.) 

Responsibility  of  brewers,  manufacturers  of  beverages,  and  dealers  who  place  cr 
market  unstamped  beverages  found  to  contain  more  than  one-half  of  1  per  cent  of 
alcohol  by  volume,  stated;  dutv  of  revenue  agents  having  reason  to  suspect  that 
such  beverages  are  placed  on  market  without  payment  of  tax.  (T.  D.  2370;  Sept. 
18,1916.     T.D.  2921;  Sept.  15,  1919.) 

Metal  packages,  whisky  or  vinegar  barrels,  or  remodeled  beer  packages  differing 
in  size  and  shape  from  the  regular  statutory  packages  for  containing  fermented 
liquors  may  be  employed  to  contain  temperance  beer;  regular  beer  cooperage  may 
be  used  under  certain  conditions.     (T.  D.  2410;  Dec.  8,  1916.) 


BICYCLES BILLS   OF   EXCHANGK.  67 

Uncarbonated  beverages. 

The  tax  imposed  by  section  313  (b)  of  the  act  of  October  3,  1917,  is  1  cent  for  each 
gallon  of  tinfermcnted  grape  juice,  soft  drinks,  and  artificial  mineral  waters,  not 
carbonated,  and  fermented  liqiK^ra  containing  less  than  one-half  per  cent  of  alcohol, 
K;)ld  by  the  manufacturer  in  Ijotlles  or  other  closed  containers;  tax  is  none  the  less 
jsayable  because  tax  may  ha\-e  been  paid  on  extracts  or  i)repared  sirups  entering 
into  manufacture  of  such  saft  drinks;  manufacturer  may  be  bottler  or  proprietor 
of  soda  fountain.     (T.  D.  2719;  Art.  XXXI. ,) 

Carbonated  fermented  liquora  containing  less  than  one-half  per  cent  of  alcohol 
are  to  be  classod  as  carl)onated  beverages  and  not  as  fermented  liquors  within  mean- 
ing of  section  313  (b)  of  the  act  of  October  3,  1917,  and  are  accordingly  not  directly 
taxed  unless  manufactured  and  sold  by  the  manufacturer,  producer,  or  importer 
of  the  carbonic-acid  gas  used  in  carbonating  them.     (T.  D.  2719;  Art.  XXXI.) 

Tax  imposed  by  section  313  of  act  of  October  3,  1917,  applies  to  bottled  noncar- 
borated  fruit  juices,  although  somewhat  concentrated,  if  as  bottled  they  are  rea- 
sonably suitable  for  use  as  beverages  and  are  so  used  without  addition  of  water. 
(T.  D."2932;  Oct.  7,  1919.) 

Bottled  noncarbonated  fruit  juices,  somewhat  concentrated,  when  reasonably 
suitable  for  beverage  i>urposes  and  so  used  only  in  a  diluted  form,  are  not  of  them- 
selves soft  drinks  and  arc  not  subject  to  tax  imposed  on  such  drinks  by  act  of  October 
3,  1917.     (T.  D.  2932;  Oct.  7,  1919.) 

Wines — Alcoholic  content. 

Wines  containing  more  than  2-1  jjer  centum  of  absolute  alcohol,  being  classed  as 
distilled  spirits  by  paragraph  (a),  section  402,  act  September  8,  191G,  production 
of  same  for  beverage  purposes  is  prohibited  ])y  act  August  10,  1917,  section  15. 
(T.  D.  2748;  July  17,  1918.) 

BICYCLES. 

See  "Excise  Taxes." 

BILLS  OF  EXCHANGE. 

Income  tax — Information  at  source. 

Returns  of  information  required  regardless  of  amount,  in  case  of  payments  of 
interest  tipon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
corporations,  joint-stock  companies  or  associations,  and  insurance  companies;  and 
in  case  of  collection  of  items  (not  payable  in  the  United  States)  of  interest  upon 
bonds  of  foreign  countries  and  interest  upon  the  bonds  and  dividends  on  stock  of 
foreign  corporations,  by  persons,  corporations,  etc.,  undertaking  as  matter  of  busi- 
ness or  for  profit  collection  of  foreign  payments  of  sucli  interest  or  dividends  by 
means  of  coupons,  checks,  or  bills  of  exchange.     (T.  D.  2690;  art.  35.) 

— —  Licenses  of  collecting  agents. 

All  persons,  corporations,  etc.,  undertaking  as  matter  of  business  or  for  profit, 
collection  of  foreign  payments  of  interest  on  dividends  by  means  of  coupons,  checks, 
or  bills  of  exchange,  shall  obtain  license  from  Commissioner  of  Internal  Revenue, 
%B  prescribed  by  section  9  (b)  of  the  act  of  September  8,  1916,  as  amended;  such 
licensee  shall  wi-ite  or  stamp  on  the  face  of  the  item:  "Information  obtained  and 
furnished  by (name  of  collecting  agent.)"     (T.  D.  2690;  art.  48.) 

Banks  or  agents  collecting  foreign  items  required  to  obtain  license  from  Com- 
missioner of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such 
regulations  for  furni.shing  of  information  as  the  Commissioner,  with  approval  of  the 
Secretary  of  the  Treasury,  shall  prescribe,  and  to  penalties  prescribed  for  failure 
to  obtain  such  license.     (T.  D.  2759;  Oct.  2,  1918.) 

Stamp  taxes. 

The  rule  that  the  stamp  tax  on  drafts  and  checks  imi)osed  by  Schedule  A,  of 
Title  VIII,  of  the  act  of  October  3,  1917,  attaches  to  drafts  or  checks  at  the  time 
of  deliver^',  if  delivered  within  the  territorial  jurisdiction  of  the  laiitcd  States  and 
expressed  to  b3  payable  otherwise  than  at  sight  or  on  demand,  but  not  to  drafts 
or  checks  not  yet  delivered  or  delivered  in  a  foreign  country  or  expressed  to  be 
]>ayable  at  sight  or  on  demand,  is  applicable  to  ordinary  bills  of  exchange.  (T.  D, 
2682;  Mar.  26,  1918.) 


(jg  BJ1.LS   OF  LADING — BOARDS   OY   TRADE. 

BILLS  OF  LADING. 
Sec  "Transporlation  Tax." 

Stamp  taxes. 

Ordinary  sight  draft  with  hill  of  lading  attached  is  not  taxable,  but  draft  expressed 
t(i  be  payable  at  si^ht  "on  arrival  of  car,"  or  containing  mennorandlim  to  hold  until 
arrival  (">(  car,  is;  sight  draft  accompanied  by  instructions  outside  the  instrument, 
a?  "1)0  not  present  until  arrival  of  car,"  or  some  such  memorandum,  is  not  taxable. 
(T.  D.  2()S2;  Mar.  26,  11>18.) 

Becaxise  of  the  constitutional  restriction  that  no  tax  or  duty  shall  be  laid  on 
articles  (exported  from  any  J^tate,  drafts  with  bills  of  lading  attached  covering  goods 
in  course  of  exportation  are  not  subject  to  the  tax.     (T.  D.  2682;  Mar.  26,  1918.) 

BILLS  RECEIVABLE. 

Excess  profits  tax— "Tangible  property." 

Bills  receivable  construed  to  be  "tangible  property"  within  meaning  of  section 
207  of  act  of  October  3,  1917.     (T.  D.  2694;  art.  47. j 

BILLIABD  BALLS  AND  TABLES. 

Excise  taxes. 

The  tax  imposed  by  section  600  (f)  of  the  act  of  October  3, 1917,  is  3  per  cent  of  the 
price  for  which  tables'or  balls  are  sola  by  the  manufacturer.     (T.D.  2719;  Art.  XVII.) 

Special  taxes. 

Where  post  exchanges  are  under  complete  control  of  the  Secretary  of  the  Navy  as 
governmental  agencies,  they  are  not  liable  to  special  tax  on  account  of  billiard  or 
pool  tables  or  bowling  alleys,  operated  by  them.     (T.  D.  2439;  Jan.  27,  1917.) 

Billiard  tables  are  exempt  under  act  of  September  8,  1916,  if  tax  would  fall  upon 
State  treasury;  otherwise  tax  is  due  on  account  of  tables  in  State  armories,  fire 
houses,  etc.,  and  also  in  clubs,  fraternitv  houses,  lodge  halls,  charitable  institutions, 
Y.  i\l.  C.  A.  buildings,  hotels,  boarding  houses,  etc.     (T.  D.  2462;  Feb.  16,  1917.) 

BLENDED  WINES. 

See  "Wines." 

BOARDS  OF  TRADE. 
Capital  stock  tax. 

Board  of  trade  not  organized  for  profit  and  no  part  of  net  income  of  which  inures 
to  bf^nefit  of  any  private  stockholder  or  individual,  is  exempt  from  tax  imposed  by 
section  407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2760, 
art.  12;  Aug.  9,  1918.) 

Dues. 

Tax  imposed  by  section  701  of  the  act  of  October  3,  1917,  does  not  attach  to  dues 
paid  to  chambers  of  commerce  or  other  primarily  business  organizations.  (T.  D. 
2681;  Mar.  26,  1918.) 

Income  tax — Exemptions. 

Boards  of  trade  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on 
filing  with  collector  affidavit  setting  out  character  and  purpose  of  organization,  and 
Hhowing  that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or 
individual,  and  t.hat  such  income  is  used  exclusively  to  promote  purposes  for  which 
r)rganized  as  indicated  in  particular  paragraph  under  which  exemption  is  claimed. 
(T.  L).  2690;  art.  67.)  ^      &    i  i 

Exemption  from  filing  returns  and  paying  income  tax  of  boards  of  trade  is  con- 
ditional upon  such  an  organization  filing  affidavit  showing  character  and  purpose 
of  organization,  source  of  income  and  disposition  of  same,  whether  or  not  any  of  its 
income  is  creclrted  to  surplus  or  inures  to  benefit  of  any  private  stockholder  or  itidi- 
vulual,  to  whif  h  affidavit  should  be  attached  copy  of  charter  or  articles  of  incorpo- 
ration and  by-laws;  where  collector  is  in  doubt  as  to  taxable  status  of  organization, 
Upon  receipt  of  affidavit,  etc.,  he  will  refer  affidavit  and  accompanying  papers  to 


BOARDS   OF   TRADE.  09 

Income  tax — Exemptions — Omtimiptl. 

< 'ommisHionor  of  Intonial  Revenue  for  decision;  if  it  is  held  that  corporatimi  itself 
is  exempt  from  iucome  and  excess-profits  taxes  it  is  r\ot,  however,  exempt  from  the 
withliolding  requirements  nor  from  furnishing  information  in  accordance  with 
provisions  of  act  of  October  3,  1017.     (T.  D.  2693;  Apr.  X,  1918.) 

Information  at  source. 

Ever;/  person,  corporation,  partnership,  or  association,  doing  bt  siness  as  a  broker, 
or  any  exchange  or  board  of  trade  or  other  similar  place  of  business,  shall,  upon 
requ<;st  of  the  Commissioner  of  Internal  llevenue,  render  correct  return  under  oath, 
showing  names  of  customers  for  whom  STich  broker  has  transacted  any  business,  with 
such  details  as  to  profits,  losses,  or  other  information  as  may  be  called  for  by  such 
return  form  as  to  each  of  such  customers.     (T.  D.  2090;  art.  33.) 

Regular  documentary  stamps,  use  of. 

Instructions  as  to  use  of  regular  documentary  stamps  pending  preparation  and 
distribution  of  special  supply  of  overprinted  stamps,  provided  to  temporarily  take 
place  of  dislinctive  colored  stamps;  recpiisition;  issuanc.e  and  exchange.  (T.  D. 
2.394;  Nov.  28,  1917.) 

Sales  for  future  delivery — Affixing  and  canceling  stamps. 

.Stamps  in  value  equal  to  amount  of  tax  on  sales  must  be  affixed  to  memorandum 
or  other  e\'idence  of  sale  or  agreement  to  sell;  clearing  house,  acting  as  agent,  re- 
quired to  make  returns  showing  stamps  affixed  and  canceled;  manner  of  (-anceling 
stamps  stated.     (T.  D.  2G08;  Nov.  30,  1917.) 

■ Cotton. 

(Contracts  of  sale  of  cotton  for  future  delivery  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  business,  is  taxed  at  the  rate  of  SO. 02  for  each 
pound  of  cotton  involved  (to  be  paid  by  stamp);  tax  not  to  be  levied  on  contracts 
complying  with  conditions  prescribed.     (T.  I).  2558;  Oct.  26,  1917.) 

■ Exempt  transactions. 

No  tax  is  imposed  on  cash  sales  of  produce  or  merchandise  for  immediate  or  prompt 
delivery,  which,  in  good  faith,  are  actually  intended  to  be  delivered;  sellers  of 
produce,  etc.,  may  transfer  contracts  to  clearing-house  association  and  such  transfer 
shall  not  be  deemed  to  be  a  sale  or  agreement  of  sale,  provided  it  does  not  vest  bene- 
ficial interest  in  such  association  and  is  made  only  to  enable  such  association  to 
adjust  accotmts  of  its  members;  no  by-law  or  custom  of  any  exchange  or  similar 
institiition,  inconsistent  with  the  act  of  October  3,  1917,  or  anj-  regulations  there- 
tinder,  nor  any  collateral  agreement  inconsistent  with  such  act  or  regulations  there- 
under shall  exempt  any  person  from  payment  of  tax.     (T.  D.  2608;  Nov.  30,  1918.) 

Sales  of  produce  or  merchandise  for  future  delivery  must  be  made  at  an  exchange 
or  board  of  trade  or  other  similar  place  in  order  for  tax  imposed  by  section  807, 
Schedule  A,  subdivision  5,  act  of  October  3,  1917,  to  apply;  sale  by  member  of 
exchange  made  by  mail  or  wire  not  at  an  exchange  is  not  subject  to  the  tax.  (T.  D. 
2795;  Feb.  26,  1919.) 

— —  Memoranda  of  sales. 

Every  sale  or  agreement,  not  evidenced  by  memorandum  or  contract  expressly 
requiring  immediate  or  prompt  delivery,  shall  be  deemed  to  be  for  future  delivery; 
every  person  making  sale  of  any  product,  etc.,  at,  on,  or  in  any  exchange  for  future 
delivery  shall  deliver  to  the  buyer  a  bill,  memorand^im,  or  other  evidence  of  such 
sale,  showing  certain  sj^ecified  data  and  items  of  information:  )io  single  sale  cr  con- 
tract made  upon  an  exchange  by  one  member  for  another  need  be  CAidenced  by 
.  more  than  one  memorandum;  written  return  or  sheet  to  clearing  house  acting  as 
agent  considered  to  bo  memorandum;  return  by  tleari)ig  house.  (T.  D.  2608; 
Nov.  30,  1917.) 

Records. 

All  persons  who  make  sales  or  contracts  of  sales,  including  "transferred  or  scratched 
sales,'"  "'pass  outs,'"  "pair-offs, "  or  "matched  trades,''  and  all  other  forms  of  sale 
of  any  jjroduC  or  merchandise  on  exchanges  for  future  delivery  required  to  keep 
record  i-iljowing  specified  items  of  information;  form  of  record  required;  clearing 
houses  lu  keep  record  showing  certain  data.     (T.  1>.  2608;  Nov.  30,  1917.) 


,^0  BOATS BONDS. 

Sales  for  future  delivery— Continued. 

Registration.  .         .      ,  ,  . 

n,..mlatio-i  i\o  40,  part  2,  rcfiuirea  a  statement  of  registration  by  persons  maKing 
contract  of  sale  of  produce  or  mcrcliandise  on  exclmnses  for  future  dehycry;  record 
of  -is  ration  to  be  kept  by  collector,  and  certiPxate  of  registration  to  be  issued 
and  posted;  forms;  statement  of  registration  by  exchanges  and  clearing  houses. 
'I'T.  D.  2608;  Nov.  30,  1917.) 

Retui-ns. 

Clearing  houses  and  persons  making  contracts  of  sale  at,  on,  or  in  any  exchaii^e, 
etc  for  future  delivery,  required  to  make  return  showing  specified  data  and  infor- 
mation; substitute  returns;  clearing  houses  acting  ^agents  required  t^reairn 
statement  of  amounts  of  stamps  affixed  to  memoranda  of  sales.  (T.  D.  2608,  JNov. 
30,  1917.) 
^—  Stamp  sales. 

Stamps  required  to  be  affixed  to  contracts  of  sale  of  any  product  ojt-  merchandise 
before  a  delivery  shall  be  sold  only  by  collectors,  their  deputies,  an   Assistant 
^Veasurer  or  otlier  designated  United  States  depositary;  reqtusitions  for  stamps; 
3Cords;  kind  and  color  of  stamps.     (T.  D.  2008;  Nov.  30,  1917.) 


T 
recor 


BOATS. 


See  "Transportation  Tax." 
Admissions  to  excursion  boats. 

Charf^es-of  excursion  boats  providing  opportunity  for  dancing  arc  subject  to  tax 
imposed  by  section  700  of  act  of  October  3,  1917,  where  such  charges  exceed  the 
usual  or  reasonable  rates  for  transportation  furnished.     (T.  D.  2081;  Mar.  26,  1918.) 

Electric  raotor  boats. 

Electric  motor  boats,  within  the  meaning  of  Title  III  of  the  act  of  September  8, 
1916  are  those  boats,  regardless  of  size  or  character  of  construction,  which  are  pro- 
pelled by  electric  power.     (T.  D.  2384;  art.  2.) 

Excise  taxes. 

See  "Excise  Taxes." 


Dues. 

Sec  "Dues." 


BOATING   CLTJBS. 


BONDS. 


Additional  taxes — Extending  payment. 

Form  of  bond  to  be  executed  in  duplicate  with  approved  surety  company  pre- 
scribed for  extending  payment  to  date  not  exceeding  seven  months  from  passage  of 
act  of  October  3,  1917,  of  additional  taxes  imposed  by  act.  (T.  D.  2533;  Oct. 
6,  1917.)  Penai  sum  of  bond  fixed  at  not  less  than  tax  due;  if  tax  as  shown  by 
return  is  less  than  $1,000,  penal  sum  of  bond  may  be  less  than  $1,000.  (T.  D. 
2.574;  Oct.  31,  1917.) 

Collectors  authorized  to  accept  in  lieu  of  surety  bonds  as  security  for  payment 
of  floor  taxes  covered  by  section  1002  of  act  oi  October  3,  1917,  Liberty  bonds  of  the 
United  States  eqiiivalent  to  the  actual  amount  of  the  taxes  due.  (T.  D.  2537; 
Oct.  17,  1917.) 

Bonds  deposited  as  security  must  be  immediately  forwarded  to  Commissioner  of 
Internal  Revenue  by  registered  mail  for  safe  keeping,  except  where  collector's 
office  is  in  same  city'as  Federal  reserve  bank,  in  which  case  co\ipon  bonds  received 
should  be  deposited  with  such  bank,  which  will  issue  its  receipt;  disposition  of 
receipts;  assignraent  of  registered  bonds;  insurance  of  packages.  (T.  D.  2554; 
Oct.  25,  1917.) 

Collectors  authorized  to  accept  certificate  of  bank  or  trust  company,  member  of 
Federal  reser^-e  system,  sufficiency  and  solvency  of  whicii  are  satisfactory  to  col- 
lector, to  effect  that  taxpayer  has  deposited  caslt  or  Treasury  certificates  of  in- 
debtedness in  full  payment  of  Liberty  loan  bond  subscriptions  in  name  of  "  Commis- 
sioner of  Internal  licvenue  in  trust  for ■ — ,"  or  in  event  bond  transaction 

is  not  consimirnatcd  taxes  will  be  paid  to  collector  in  cash  or  corporate  surety  bond 


BONDS.  71 

Addition  al  taxes — Extending  payment — Contiuued . 

filed;  form  of  certificate  indicated;  certificate  to  be  forwarded  to  Commissioner  of 
Internal  Revenue.     (T.  D.  2554;  Oct.  25,  1917.) 

Payment  of  tax  shown  to  be  due  Under  section  403  of  act  of  October  3,  1917,  may, 
upon  filing  of  bond,  be  extended  to  date  not  exceeding  seven  montlL'3  from  passage 
of  such  act;  bond  to  be  executed  in  duplicate,  with,  approved  surety  company, 
in  penal  sum  of  not  less  than  double  the  tax  due  and  in  no  case  less  than  $1,000. 
(T.  D.  255G;  Oct.  IG,  1917.)     (But  see  T.  D.  2574  as  to  penal  slim  of  bond.) 

Form  of  bond  with  personal  stirety  to  be  executed  in  penal  sum  of  not  less  than 
tax  due  and  iu  no  caae  less  than  $1,000  prescribed;  personal  surety  need  not  be  re- 
quired to  qtialify  on  Form  33  when  he  is  supported  by  collateral  security  of  a  \-ahie 
clearly  in  excess  of  amount  of  tax  due.     (T.  D.  2557;  Oct.  27,  1917.) 

Payment  of  additional  taxes  on  account  of  stamps  for  payment  of  tax  on  cigars, 
cigarettes,  etc.,  on  hand  on  October  4,  1917,  and  NoA'ember  2,  1917,  must  be  made 
at  time  manufacturer  files  return  (in  case  of  inventories  of  Oct.  4,  1917,  on  or  before 
Nov.  2,  1917,  and  in  case  of  inventories  of  Nov.  2,  1917,  on  or  before  Dec.  1,  1917), 
and  in  no  case  can  this  time  be  extended  beyond  such  dates;  no  bond  for  extending 
payment  will  be  accepted,  as  iu  case  of  additional  taxes  on  stocks  in  hands  of 
dealers,  as  the  law  makes  no  proi-ision  to  that  effect.     (T.  D.  2569;  Oct.  17,  1017.) 

Where  Liberty  bonds  are  deposited  as  security,  principal  must  execute  bond  in 
stated  form;  Liberty  bonds  deposited  and  in  pos.session  of  collector  of  internal  rev- 
enue should  be  sru'rendered  to  taxpayer  as  soon  as  the  tax  and  interest  have  been 
paid;  if  tax  is  paid  in  installments,  a  proportionate  amount  of  the  collateral  depos- 
ited may  be  surrendered  in  the  discretion  of  the  collector.  (T.  D.  2574;  Oct.  31, 
1917.) 

Collectors  sliuuld  use  vigilauce  ii\  collection  of  taxes  and  issue  distraint  warrant 
Avherever  necessary;  if  taxes  secured  by  filing  of  bond  are  not  paiS  within  time 
limit,  collector  should  endeavor  to  collect  by  distraint.  (T.  D.  2574;  Oct.  31, 
1917.) 

Bond  as  security  for  payment  of  floor  taxes  filed  before  expiration  of  10  days 
after  the  date  of  notice  and  demand  for  payment  should  be  accepted  as  security; 
bond  may  be  accepted  after  such  10  days  if  sufficient  in  amount  to  cover  tax  and 
accrued  penalties.     (T.  D.  2574;  Oct.  31,  1917.) 

Where  collateral  other  than  Liberty  bonds  is  deposited  as  security,  principal 
must  execute  bond  in  stated  form,  and  collector  is  requii'ed  to  give  certain  receipt; 
coUateral  should  be  surrendered  to  taxpayer  as  soon  as  tax  and  interest  have  been 
paid;  if  tax  is  paid  in  installments  proportionate  amount  of  collateral  deposited 
may  be  surrendered  in  discretion,  of  collector.     (T.  D.  2574;  Oct.  31,  1917.) 

Returns  required  by  section  1002  of  act  of  October  3,  1917,  required  to  be  filed 
on  or  before  November  2,  1917.  time  for  filing  return  can  not  be  extended  bv  giving 
of  bond.     (T.  D.  2584;  Nov.  20,  1917.) 

Any  registered  or  coupon  bonds  of  the  United  States  may  be  accepted  as  security 
for  payment  of  floor  taxes,  in  accordance  with  T.  D.  2537,  T.  D.  2554,  and  T.  D .  2557. 
(T.  D.  2606;  Dec.  13,  1917.) 

Taxpayer  may  give  personal  bond  with  one  or  more  personal  sureties,  as  required 
by  statute,  supported  by  deposit  of  registered  bonds  of  United  States,  at  face  value, 
equal  to  penal  sum  of  bond,  assigned  to  '"The  Commissioner  of  Liternal  Revenue"; 
forms  of  bonds  prescribad  in  existing  regulations  may  be  modified  to  conform  with 
requirements  of  this  holding;  bonds  need  not  be  deposited  when  personal  sureties 
are  sufficient,  but  where  bonds  are  deposited  as  collateral  sureties  will  not  be 
required  to  qualify  on  Form  33;  registered  bonds  deposited  to  be  forwarded  to 
commissioner  by  registered  mail  for  safe-keeping; upon  cancellation  of  bonds  given 
by  taxpayer,  bonds  forwarded  will  be  reissued  in  accordance  with  instructions  of 
taxpayer.     (T.  D.  2606;  Dec.  13,  1917.) 

Where  satisfactory  bonds  have  not  been  given  for  extension  of  time  for  making 
pajonent,  notice  and  demand  should  b?  mailed  as  provided  by  section  3184,  ReAisod 
StatTites,  which  notice  and  demand  should  bo  served  on  Form  1-17,  and  should  be 
followed  in  order  by  Form  1-21  and  Form  69  within  inten-als  of  10  daj's  of  each  other; 
notice  where  required  bonds  haA'c  been  given;  penalties:  suits  on  bonds.  (T.  D. 
2648;  Jan.  28,  1918.) 

Capital  stock  tax. 

Any  siupius  or  undivided  profiis  of  a  foro-ign  corporation  tliat  r,re  invested  in 
United  States  bonds  or  other  securities  having  no  conncctiou  witli  actual  business 
of  corporation  transacted  in  this  country  may  be  stated  on  return,  Form  708,  under 
item  3,  but  should  not  be  included  under  item  1  as  "capital  invested  iu  the  United 
States."     (T.  D.  2467;  Mar.  27,  1917.) 


72 


BONDS. 


Distilled  spirits. 

Maiiufactiircrp  maniifactiiring  vermuth  or  taxable  liqtieurs,  etc.,  required,  under 
i-araTaiih  (h)  of  section  4(l2  of  the  act  of  September  8,  I91(),  to  execute  a  tax  bond 
111  stated  form,  and  to  keep  all  such  taxable  articles  separate  and  apart  from  non- 
taxable articles:  bond  to  be  execute<l  in  duplicate  with  sureties  satisfactory  to  col- 
lector in  a  penal  sum  at  least  equal  to  tax  on  estimated  quantity  of  articles  named 
remaining  on  hand  at  anv  one  time,  but  in  no  case  less  than  $5,000:  in  case  of  insuf- 
ficiency new  or  additional  bond  will  be  requiretl  by  collector.  (T.  D.  2404;  Nov. 
27,  191G.) 

H^xecution  of  new  bonds  required  wherever  specific  acts  of  Congress  or  rates  of 
taxation  necessitate  such  bonds.     (T.  D.  2525;   Sept.  24,  1917.) 

Persons,  firms,  or  corporations  (except  distillers  and  proprietors  of  bonded  ware- 
houses, makin£?  deliveries  in  original  tax-paid  packages,  who  are  already  required 
to  give  bonds)  desiring  to  use  or  sell  or  to  use  and  sell  distilled  spirits  for  other  than 
beverage  purposes,  must  apply  for  permit  and  file  bond  with  corporate  surety  or  with 
two  personal  sureties  who  qualified  on  Form  33,  to  be  approved  by  collector;  bond 
with  personal  sureties,  without  justification  by  the  sureties  on  Form  33,  may  be 
accepted  on  certain  conditions:  single  bond  authorized  where  same  person  or  cor- 
poration is  operating  number  of  drug  stores  in  same  city.  (T.  D.  2559;  Oct.  26, 
1917.    T.  D.  2576;  Nov.  10,  1917.     T.  D.  2788;  Feb.  6,  1919.) 

Instructions  with  reference  to  requiring  new  bonds  in  cases  where  old  bonds  are 
inadecpiate  because  of  increased  ratesimposed  by  act  of  October  3,  1917,  upon  manu- 
facture and  sale  of  distilled  spirits  and  fermented  liquors.  (T.  D.  2578;  Oct.  31, 
1917.) 

All  bonds  except  Form  432  mu^^  be  written  in  penal  sum  s\ifficient  to  cover  tax 
on  distilled  spirits  at  rate  of  $3.20  per  gallon  where  spirits  were  produced  prior  to 
September  9,  1917,  and  where  produced  subsequent  to  such  date,  penal  sum  to  be 
based  \ipon  tax  at  rate  of  $2.20  per  gallon ;  where  spirits  covered  by  bond  (Form  432) 
were  produced  prior  to  September  9,  1917,  penal  sum  must  be  in  sufficient  amount 
to  cover  twice  the  tax  at  rate  of  $3.20,  and  where  spirits  were  produced  subsequent 
to  siich  date,  penal  stim  must  be  sufficient  to  cover  tax  at  twice  the  amount  of  $2.20 
per  gallon;  in  case  of  losses  rate  of  tax  will  be  $3.20  per  gallon  in  all  cases;  recital  or 
condition  of  bond  must  fix  tax  to  be  asserted  according  to  "laws  of  the  United 
States."     (T.  D.  2644;  Jan.  28,  1918.) 

Special  instructions  regarding  cancellation  of  bonds  (Form  738)  in  cases  where 
it  is  impossible  to  surrender  the  permit  or  to  furnish  satisfactory  evidence  of  its 
destruction.     (T.  D.  2854;  June  3,  1919.) 

Bonds  covering  tax  on  distilled  spirits  required  to  be  written  in  penal  sum  suffi- 
cient to  cover  tax  at  rate  of  $0.40  per  gallon  on  spirits  produced  prior  to  September 
9,  1917;  where  spirits  produced  subsequent  to  such  date,  penal  sum  of  bond  mil 
be  based  upon  tax  at  rate  of  $2.20  per  gallon;  penal  sum  of  bond  Form  432  will  be 
in  amount  equal  to  $4.40  per  gallon  on  all  alcohol  charged  under  the  bond.  (T.  D. 
2821;  Apr.  10,  1919.) 

Where  losses  occur  from  spirits  covered  by  bond,  rate  of  tax  to  be  asserted  in 
connection  with  such  losses  will  be  $6.40  per  gallon  when  bond  is  written  in  penal 
sum  meiisured  by  that  rate  of  tax;  when  penal  sum  of  bond  covers  tax  at  rate  of  $2.20 
a  gallon,  assessment  on  account  of  losses  will  be  made  at  that  rate,  unless  it  shall 
appear  that  spirits  or  any  part  thereof  were  diverted  to  beverage  purposes,  or  for 
use  in  manufacture  or  production  of  any  article  used  or  intendei!  for  use  as  a  bev- 
erage, in  which  event  tax  will  be  assessed  at  rate  of  $0.40  a  gallon.  (T.  D.  2821; 
Apr.  10,  1919.) 

• Bottling  in  bond. 

rnder  section  405  of  the  act  of  September  8,  1916,  gin  of  not  less  than  80  per  cent 
proof  may  be  bottled  in  bond  in  bottling  warehouse  on  distillery  premises  for  export 
at  any  time  within  eight  years  after  entry  in  bond  in  distillery  warehouse;  except 
as  herein  provided.  Regulations  No.  23,  re\ased  December  21,  1912,  and  Regula- 
tions No.  29,  revised  August  18, 1914,  are  made  applicable  to  withdrawal  and  bottling 
m  bond  for  export  before  expiration  of  fo\ir  vears  after  entry  in  bonded  distillery 
warehouse;  spirits  withdrawn  tax  paid,  and  spirits  withdrawn  for  export  can  not  be 
permitted  m  bottling  warehouse  of  distillery  at  same  time.  (T.  D.  2371;  Sept.  15, 
1916.)  ^  ^  '       f         ' 

When  whisky  bottled  in  bond  is  found  on  the  market  the  actual  proof  of  which 
does  not  exceed  101°,  office  of  Commissioner  of  Internal  Revenue  will  not  regard  such 
overproof  as  cause  for  detention  of  spirits;   when  proof  of  spirits  bottled  iii  bond  is 


BONDS.  73 

Distilled  spirits — Continnod. 

Bottling  in  bond — ( ■ontiinicd. 

found  on  market  to  be  over  10f).3°  facts  should  be  reported  to  ofTico  of  roramissioner 
of  Internal  Revenue,  in  order  that  where  deemed  necessary  an  investigation  may  be 
made  of  bottling  warehDUse  where  spirit's  were  bottled.     (T.  D.  2432;  Jan.  6,  l'jl7.) 

Spirits  removed  to  bottling  houses  must  be  immediately  bottled,  cased,  and  re- 
moved from  the  premises:  one  day  considered  sufhcient  time  within  wliich  to  bottle 
<<>ntents  of  each  tank,  unless  distiller  is  filling  bottles  less  than  quart  in  capacity,  in 
which  case  time  may  be  extended,  but  in  no  case  to  exceed  three  consecutive  days. 
(T.  D.  2480;   Apr.  5,  1917.) 

Requirement  of  article  34,  Regulations  No.  23,  reqtiiring  name  of  domestic  port  of 
clearance  and  port  of  foreign  destination  to  be  marked  on  cases  of  distilled  spirits 
bottled  in  bond  for  export,  waived:  distillers,  however,  reqtiired  to  mark  on  "Gov- 
ernment side  "  of  the  cases  the  words  "For  export  from  U.  S.  A."  (T.  D.  2486;  Apr. 
21,  1917.) 

Practice  of  underfilling  bottles  or  tising  undersized  bottles  will  not  be  tolerated; 
where  qtiarts  do  not  vary  in  capacity  more  than  one-half  once  from  the  standard  of 
32  ounces  and  other  sizes  in  like  proportion,  same  will  not  be  noticed,  but  if  bottles 
are  found  tipon  either  the  distillers'  premises  or  the  open  market  uniformly  to  con- 
tain 31.i  ounces  as  to  quarts  and  other  sizes  in  like  proportion,  and  if  bortles  are  found 
to  contain  less  than  31}  otmces  of  spirits  as  to  quarts  and  other  sizes  in  like  propor- 
tion, such  spirits  will  be  subject  to  seizure;  allowance  for  variation  of  ^  ounce  from 
standard  of  32  ounces  will  not  be  made  unless  there  shall  be  as  many  bottles  run- 
ning 32i  otmces  as  there  are  those  that  run  31A  ounces  as  to  quarts  and  other  sizes  in 
like  proportion.     ^T.  D.  2488;  May  9,  1917.     T.  D.  2498;  June  0,  1917.) 

Marks  and  brands  imprinted  or  embossed  on  a  loose  sheet  to  be  attached  to  "Gov- 
ernment side''  of  case  permitted,  provided  that  suitable  paste  or  glue  is  used  which 
will  protect  the  loose  sheet  after  it  has  been  attached  to  the  case  from  the  effects  of 
moisture.     (T.  D.  2492;   May  28,  1917.) 

Estate  tax. 

Ignited  States  Government  bonds  must  be  added  to  value  of  estates  for  ptirposc  of 
taxation.     (T.  D.  2449;   Feb.  13,  1917.) 

Under  section  202  of  act  of  September  S,  1916,  bonds,  both  foreign  and  domestic, 
owned  by  nonresident  decedents,  which  bonds  are  physically  situate  in  the  I'nited 
States,  Hawaii  or  Alaska  at  the  time  of  the  owner's  death,  must  be  returned  as  a 
portion  of  the  gross  estate;  where  bonds  are  physically  situate  outside  of  the  Fnited 
States,  Hawaii,  or  Alaska,  they  need  not  be  so  returned;  bonds  owned  by  residents 
are  taxable,  regardless  of  where  situate  at  time  of  owner's  death.  (T.  D.  2530;  Oct, 
4,  1917.) 

Circular  No.  13*2,  issued  under  date  of  January  30,  1919,  with  reference  to  receipt 
of  Liberty  bonds  in  payment  of  estate  or  inheritance  taxes,  published.  (T.  D.  2802; 
Mar.  12,  1919.     See  also  T.  l)s.  2878,  2898,  2904,  2905.) 

Excess  profits  tax — "Tangible  property." 

Stocks,  bonds,  billsand  accounts  receivable,  notes  and  other  evidences  of  indebted- 
ness, and  leaseholds,  when  paid  in  for  stock  or  shares  in  corporation  or  partnership, 
wdll  he  regarded  as  tangible  property  so  paid  in,  but  when  corporation  pays  for  in- 
tangible property  by  the  isstiance  of  its  own  stock  or  bonds,  this  will  not  be  regarded 
as  being  a  payment  bona  fide  made  in  cash  or  tangible  property  within  meaning  of 
section  207.     (T.  D.  2694;   art.  47.) 

Fermented  liquors. 

Execution  of  new  bonds  required  wherever  specific  acts  of  Congress  or  rates  of 
taxation  necessitate  such  bonds.     (T.  D.  2525;   Sept.  24,  1917.) 

Instructions  with  reference  to  recjtiiring  new  bonds  in  cases  where  old  bonds  are 
inadequate  because  of  increased  rates  imposed  by  act  of  October  3,  1917,  upon  manu- 
facture and  sale  of  fermented  liciuors.     {T.  D.  2*578;   Oct.  31,  1917.) 
Floor  taxes. 

See  "Additional  taxes,"  ante. 
Income  taxes — Exemptions. 

See  "Liberty  bonds,"  post. 

Section  30  of  the  act  of  Se})teniber  8,  1916,  as  amended  by  the  act  of  October  3, 
1917,  does  not  exempt  from  tax  any  income  collected  by  foreign  (iovernnients  from 
investments  in  t])e  L'^nited  States  in  stocks,  bonds,  or  other  domestic  securities, 
which  are  not  bona  fide  owned  by  but  are  loaned  to  surh  foreign  Government.  (T. 
D.  2690;  art.  87.) 


74 


BONDS. 


Income  taxes— Exemptions— Continued. 

\U  intorost  recoivcd  on  obligations  of  United  States  or  its  possessions  or  on  obliga- 
tions of  a  State,  or  any  political  subdivision  thereof,  should  be  eliminated  in  ascer- 
taining gross  income;  "accrued  interest  on  bonds  purchased  must  not  be  inchided  in 
amount  ^eliminated  from  gross  income;  in  case  of  obligations  of  United  States  issued 
after  September  1,  1917,  inrtme  therefrom  is  exempt  from  tax  only  to  extent  pro- 
vided in  the  act  authorizing  their  issue,  and  incomes  from  such  obligations  received 
by  insurance  companies  is  exempt  from  2  per  cent  and  4  per  cent  tax.  (T.  D.  2690; 
aft.  239.)  ■ 
Gross  income. 

Interest  acaaied  to  time  of  purchase  of  bonds  (advanced  by  purdiaser)  is  not  to  be 
accouiited  for  as  income  by  purchast-r;  onlj'  amount  of  interest  assignable  to  portion 
of  interest  paid  subsequent  to  puix-hase  has  status  of  income,  aad  amount  of  accrued 
interest  so  advanced  by  purchaser  is  taxable  income  to  be  accounted  for  in  return  of 
vendor;  coupons  from  bonds  for  interest  thereon,  exchanged  for  other  bonds,  are 
equivalent  of  payment  of  interest  coupons  and  purchase  of  new  bonds  with  cash; 
amount  of  cotipons  is  to  be  accounted  for  as  income  for  calendar  year  in  wluch  ex- 
change is  made.     (T.  D.  2690;   art.  4.) 

Interest  on  State,  municipal,  and  United  States  bonds  received  by  corporations  is 
not  taxable  to  the  corporation;  upon  amalgamation  with  other  funds  of  corporation 
such  income  loses  its  identity;  when  distributed  to  stockliolders  as  a  dividend, 
entire  amount  of  dividend  is  subject  to  inclusion  in  raturns  of  income  for  purposes  of 
tax;  foregoing  holds  true  for  scrip  payment  of  interest.     (T.  D.  2690;  art.  4.) 

Gross  income  from  sources  within  United  States,  as  applied  to  foreign  corporations, 
includes  interest  received  on  bonds,  notes  or  other  inteivst-bearing  obligations  of 
residents,  corporate  or  otherwise.     (T.  D.  2690;  art.  89.) 

Interest  received  on  bonds  held,  whether  guaranteed  to  be  tax  free  or  not,  must 
be  included  in  income  and  must  be  accounted  for  in  return  of  annual  net  income; 
matter  of  complying  with  covenant  of  bond  is  matter  to  be  adjusted  between  debtor 
corporation  and  the  bondholder.     (T.  D.  2690;  art.  122.) 

Information  at  source. 

Owners  of  bonds  of  domestic  and  resident  corjwrations  shall,  when  presenting  inter- 
est coupons  for  pajonent,  file  certificate  of  ownerahip  for  each  issue  of  bonds  showing 
name  and  address  of  debtor  corporation,  name  and  address  of  owner  of  bonds, 
whether  pavee  is  married  or  head  of  a  family,  and  amount  of  interest.  (T.  D.  2690; 
art.  43.) 

Returns  of  information  required,  regardless  of  amount,  in  case  of  pa>Tnents  of 
interest  upon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  and  insurance 
companies,  and  in  the  case  of  foreign  items;  original  ownership  certificates,  when 
duly  filed,  shall  constitute  and  be  treated  as  returns  of  information.  (T.  D,  2759; 
Oct.  2,  1918.) 

The  term  "foreign  item,"  as  used  in  article  35  of  Regulations  No.  33,  revised, 
means  any  dividend  i\pon  stock  cf  foreign  corporation  or  any  item  of  interest  upon 
bonds  of  foreign  countries  or  foreign  corporations,  whether  such  dividend  or  interest 
is  paid  in  the  United  States  or  bv  check  drawn  on  a  domestic  bank.  (T.  D.  2759; 
Oct.  2,  1918.) 

The  term  "foreign  cor[5oration,"  as  used  in  article  35  of  Regulations  No.  33,  re- 
vised, means  one  not  organized  and  existing  under  the  laws  of  the  United  States  or 
of  any  State  or  Territory  thereof,  or  of  the  District  of  Columbia,  Porto  Rico,  or  the 
Philippine  Islands.     (T.  D.  2759;  Oct.  2,  1918.) 

Y\'herever  a  foreign  coimtrj-  or  foreign  corporation  issuing  bonds  lias  appointed  a 
paying  agent  in  this  country,  chai-ged  with  duty  of  pa>-ing  interest  upon  such  bonds, 
such  agent  shall  be  source  of  information;  if 'such  country  or  corporation  has  no 
such  agent  then  last  bank  or  collecting  agent  in  this  country  shall  be  source  of  in- 
formation; m  case  cf  di^ddends  on  clock  of  foreign  corporation,  first  bank  or  collect- 
ing agent  accepting  such  item  for  collection  shall  be  source  of  information. 
(T.  D.  2759;  Oct.  2,  1918.) 

\Miere  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  citizens,  or  residents  of  United  States,  individual  or  fiduciary,  or  by  do- 
mestic or  resident  corporations,  joint-stock  companies,  associations,  insurance  com- 
panie.s,  or  partnerships,  ownership  certificate  lOOlA  shall  be  executed  bv  actual 
owner,  or  by  hi  a  duly  authorized  agent,  when  presenting  item  for  collection,  whether 
Item  la  dmclend  or  interest  payment,  except  in  case  of  foreign  country  or  foreign 


BONDS.  75 

Income  taxes — Continued. 

Information  at  source — Continued. 

corporation  liaving  paying  agent  in  this  country  and  issuing  bonds  containing 
'Max-free''  covenant  clause:  in  such  cases  paying  agent  will  withliold  normal  tax 
upon  interest  on  such  bonds,  and  ownership  certificate,  Form  1000,  properly  modi- 
fied to  show  that  debtor  has  paying  agent  in  this  covuitry,  .should  he  used,  unless 
owner  desii-es  to  claim  exemption,  when  Form  lOOlA  .should  i:ie  used.  (T.  D.  2759; 
Oct.  2,  1918.) 

Where  l)onds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  nonresident  alien  individuals,  or  foreign  corporations,  associations,  or 
liOTtnerships,  ownership  certificate.  Form  1071,  revised,  shall  be  used  for  and  on 
behalf  of  such  owners  by  any  i-esponsi'ole  bank  or  banker,  either  foreign  or  domes- 
tic.    (T.  D.  2759;  Oct.  2,  1918.) 

Banks  or  agents  collecting  foreign  items  requii'ed  to  obtain  license  from  Commis- 
sioner of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such  regu- 
lations for  furnishing  of  information  as  the  Commissioner,  with  ajjproval  of  Secre- 
tary of  the  Treasurv,  shall  prescribe,  and  to  penalties  prescrilied  bv  failure  to  obtain 
such  license.     (T.  D.  2759;  Oct.  2,  1918.) 

Foreign  items  shall  not  be  accepted  for  collection  l:)y  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed  or  accompamed  by  jjroper  ownership  certificates, 
giving  all  information  called  for  by  such  certificate;  where  first  licensed  bank  or 
collecting  agent  is  source  of  information,  licensee  shall  attach  ownership  certifi- 
cate and  indorse  on  item  the  words  "Certificate  attached  and  information  fur- 
nished," adding  his  name  and  address;  when  foreign  items  have  been  properly 
indorsed,  certificates  shall  l)e  attached  and  forwarded  to  Commissioner  of  Internal 
Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of  month 
follomng  that  during  which  items  were  accepted,  accompanied  by  letter  of  trans- 
mittal, showing  number  of  certificates  and  aggregate  amount  of  foreign  items  dis- 
closed thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall  accom- 
pany coujion  to  paj-ing  agent  in  this  country,  or  if  there  is  no  such  agent,  then  to  last 
bank  or  collecting  agent  handling  item  in  this  country;  when  more  than  one  coupon 
of  same  matiuity  is  received  at  one  time  from  same  owner  and  from  same  issue  of 
bonds,  single  certificate  may  be  used;  when  foreign  items  have  l)een  properly  in- 
dorsed, certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal 
Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  l>efore  20th  day  of  month 
following  that  during  which  items  were  accepted,  accompanied  by  letter  of  trans- 
mittal, showing  number  of  certificates  and  aggregate  amount  of  foreign  items  dis- 
closed thereon.     (T.  D.  2759;  Oct.  2.  19f8.) 

WJicre  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of 
information,  ownership  certificate  shall  accompany  coupon  to  such  agent  or  source 
of  information,  who  shall  forward  certificate  to  Commissioner  of  Internal  Revenue, 
in  manner  pro\'ided  where  duty  is  placed  upon  licensee,  provided  that  in  case  own- 
ership certificate,  Form  1000,  is  u.sed,  paving  agent  shall  make  return  on  Form 
1012.     (T.  D.  2759;  Oct.  2.  1918.) 

■ Liberty  bonds. 

Interest  on  obligations  of  United  States  (but,  in  case  of  obligations  issued  after 
September  1,  1917,  only  if  and  to  extent  provided  in  act  authorizing  issue  thereof), 
or  its  possessions  shall  not  be  included  as  income.     (T.  D.  2G90;  art.  5.) 

Income  from  United  States  bonds  issued  imder  the  act  of  September  24,  1917,  is 
exempt  from  the  war  income  tax  of  4  per  cent  imposed  upon  net  income  of  corpora- 
tions by  section  4  of  Title  I  of  the  act  of  October  3,  1917,  and  the  2  per  cent  tax  im- 
posed by  section  10  of  Title  I  of  the  act  of  September  8,  1916,  as  amended.  (T.  D. 
2690;  art.  85.) 

When  income  as  such  is  taxable  to  beneficiaries,  as  in  case,  under  present  income 
tax  law,  of  trust  income  of  which  is  to  be  distributed  aunually  or  regularly  between 
existing  beneficiaries,  each  beneficiary  is  regarded  as  owner  of  proportionate  part 
of  bonds  held  in  trust,  and  subscription  of  trustee  for  bonds  of  Fourth  Liberty  Loan 
constitutes  each  beneficiary  an  original  subscriber  for  his  proportionate  part  and 
entitles  him  to  collateral  exemption  of  interest  on  bonds  of  previous  issues,  whether 
OMmed  by  beneficiary  or  by  trustee,  and  subscription  by  such  beneficiary  for  bonds 
of  Fourth  Liberty  Loan  entitles  him  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues  held  by  tru,steo.     (T.  D.  2762;  Oat.  18,  1918.) 

When  income  is  taxable  to  trustee,  as  in  case,  under  present  income  tax  law,  of  a 
trust  income  of  which  is  accumulated  for  benefit  of  unborn  or  unascertained  persons, 
trustee  is  regarded  as  owner  of  all  bonds  held  in  trust  and  tiie  trust  is  eu titled  to 


70 


BONDS. 


Income  taxes  -Coiitituiod. 

Liberty  bonds     ('ontiiiucd. 

cxenintion  on  account  of  sue  h  ownership;  in  such  case  subscription  by  trustee  for 
bondtf  of  lH)urth  Liberty  Loan  constitutt^s  .trustee  as  such  the  original  subscriber  and 
entities  the  trunt  on  account  of  such  subscription,  to  collateral  exemption  of  mter- 
estou  bonds  of  previous  issues.     (T.  D.  27G2;  Oct.  18,  1918.) 

When  income  of  p;)rtnership  is  taxable  to  individual  partners,  as  under  present 
incoin(>  tax  law  each  partner  is  treated  as  owner  of  proportionate  part  of  Liberty 
loaji  bonds  held'bv  partnership  and  entitled  to  exemption  on  account  of  such  owner- 
Hh'ip  a.s  if  such  partner  owned  such  proportionate  part  of  bonds  directly.  (T.  D. 
27()2;  Oct.  18,  1918.) 

When  income  of  partner.-hip  is  taxable  to  partnership  as  such,  as  under  present 
excess  profits  tax  law,  partnership  is  treated  as  owner  of  Liberty  loan  bonds  held 
by  it  and  entitled  to  exemption  from  taxes  assessed  upon  income  of  partnership  an 
6uch.     (T.  D.  27G2;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  upon  individual  partner  on  share  of  partnership 
income  such  partner,  if  partner  at  time  of  original  subscription  by  partnership  for 
bonds  of  Fourth  Liberty  Loan,  is  treated  as  original  subscriber  for  proportionate 
part  of  such  bonds  and  is  entitled  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues,  as  if  he  had  subscribed  directly  for  such  proportionate  part.  (T.  D. 
27H2;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  to  partnership  upon  partnership  income  as  a  whole, 
such  partnership  is  original  subscriber  and  entitled  to  collateral  exemption  of 
interest  on  Liberty  bonds  of  previous  issues  on  account  of  such  original  subscription 
ior  bonds  of  Fourth  Liberty  Loan.     (T.  D.  2762;  Oct.  18,  1918.) 

Oorporation,  and  not  stockholders,  is  regarded  as  owner  of  Liberty  loan  bonds 
held  by  a  corporation  and  entitled  to  exemption  on  account  of  such  ownership; 
when  bonds  of  Fourth  Liberty  Loan  are  subscribed  for  by  corporation  it,  and  not 
stockholders,  is  original  subscriber  and  entitled  to  collateral  exemption  of  interest 
on  bonds  of  previous  issues  on  account  of  such  original  subscription.  (T.  D.  27o2; 
Oct.  18,  1918.) 

Net  income. 

Where  it  is  clearly  established  that  debtor  corporation  has  actually  withheld  and 
paid  to  proper  othcers  of  the  United  States  the  tax  on  interest  on  bonds  containing 
tax-free  covenant,  recipient,  having  returned  such  interest  as  income,  may  take 
credit  against  any  tax  to  which  subject  on  the  basis  of  the  return,  for  tax  so  paid  by 
debtor  corporation.     (T.  D.  2690;  art.  122.) 

Discount  on  bonds  issued  and  sold  prior  to  1909,  if  such  discount  was  then  charged 
against  surplus  or  against  income  of  year  in  which  bonds  were  st)ld,  not  deductible 
from  income  of  subsequent  years,  for  reason  that  charging  off  prior  to  January  1,  1909, 
of  entire  amount  of  discount  constitutes  closed  transaction.  (T.  D.  2690;  art.  149.) 
Where  bonds  v.-ere  sold  subsequent  to  January  1,  1909,  at  a  discount,  and  amount 
of  discount  was  charged  off  on  books,  either  against  earnings  or  surplus,  but  not 
deducted  in  corporation's  return  of  net  income,  such  discount  as  was  not  then  de- 
ducted may  be  spread  over  life  of  the  bonds  and  an  aliquot  part  of  the  discount  may 
be  deducted  from  gross  income  of  each  year  until  bonds  mature  or  are  redeeined. 
(T.  I).  2690;  art.  150.) 

Where  corporation  sells  its  bonds  at  discount  plus  commission  for  selling,  amount 
of  such  discount  and  commission,  together  with  other  expenses  incidental  to  issuing 
bonds,  constitute  a  loss,  aggregate  amount  of  which  will,  for  purpose  of  income-tax 
return,  be  prorated  over  iife  of  bonds  sold,  and  amount  thus  apportioned  to  each 
year  will  be  deduc'tible  from  gross  income  of  each  year  until  bonds  shall  have  been 
redeemed.     (T.  D.  2690;  art.  150.) 

Where  corporation  having  sold  its  bonds  at  discount,  discount  having  been  de- 
ducted from  gross  income,  later  repurchases  or  redeems  the  bonds  at  a  price  less  than 
par,  difference  between  price  at  which  they  are  redeemed  and  their  par  value  will 
be  returned  as  income;  if  bonds  are  sold  at  premium,  premium  must  be  returned  as 
income.     (T.  D.  2690;  art.  150.) 

Where  corporation,  under  terms  of  its  indenture,  securing  issue  of  bonds  is  re- 
quired at  certain  specified  period  to  purchase  and  retire  certain  number  of  its  bonds, 
and  in  doing  so  pays  more  than  par  for  the  bonds,  loss  sustained  is  allowable  as 
deduction  from  gross  inr'ome  for  year  in  which  purchase  is  made,  under  certain  speci- 
fied conditions.     (T.  D.  2690;  art.  152.) 

District  irrigation  bonds  generally  are  a  lien  upon  real  estate  affected  by  irriga- 
tion project,  and  until  corporation  holding  such  bonds  has  taken  necessary  action 
to  protect  its  interest  and  enforce  collection  of  such  bonds,  corporation  will  not  be 


BONDS.  77 

Income  taxes — Continued. 

Net  income — Continuod. 

allowed  to  deduct  face  value  or  any  estimated  amount  sup])oacd  to  repreRcnt  loss  or 
ehrinkage  in  value  of  Huch  bonds;  any  estimated  shrinkage  in  value  does  not  con- 
stitute loss  within  meaning  of  Title  1  of  the  a<;  t  of  September  S,  191(!,  as  amended  by 
act  of  October  3,  1917;  so  long  as  value  of  security  is  uncertain  or  unknown  loss  can 
not  definitely  be  ascertained  and  is  therefore  not  deductible.  (T.  D.  2(590;  art.  153.) 
Where  bonds  or  other  forms  of  indebtedness  are  issued  with  guaranty  that  interest 
thereon  shall  be  free  from  taxation  as  against  holder,  corporation  paying  tax  pursuant 
to  guaranty  will  not  be  permitted  to  deduct  tax  so  paid,  as  contract  is  not  binding 
upon  or  recognized  by  Government  in  determining  tax  liability  of  corporation.  (T. 
D.  2690;  art.  193.) 

Withholding. 

Form  1000,  revised,  shall  be  used  when  no  i>ersonal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  the  United 
States;  by  nonresident  alien  individuals,  foreign  corporations  having  no  office  or 
place  of  business  in  the  United  Stales,  whether  or  not  siu-h  bonds  contain  a  (ax-free 
covenant;  and  in  case  where  coupons  are  received  not  actxnnpanied  by  certilicates  of 
ownership.  First  bank  receiving  coupons  not  accompanied  by  ownership  certifi- 
cates will  make  certificate,  crossing  out  ''owner' '  and  inserting  "payee,"  and  will 
enter  amount  of  interest  on  line  4.     (T.  D.  2690;  art.  43.) 

Form  1001,  revised,  shall  be  used  when  personal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  United 
States,  and  when  presenting  coupons  from  bonds  not  containing  tax-free  covenant; 
by  domestic  partnerships,  corporations,  or  associations;  by  nonresident  alien  part- 
nerships; and  by  foreign  coporations  ha\ing  office  or  place  of  business  in  United 
States,  whether  or  not  such  bonds  contain  tax-free  covenant.  In  case  citizen  or 
resident  individual  receives  interest  on  bond  containing  tax-free  covenant  in  excess 
of  amount  of  personal  exemption  which  individual  may  claim,  any  such  excesa 
must  be  reported  on  Form  1000,  revised.     (T.  D.  2690;  art.  43.) 

Withholding  provisions  of  sections  9  (b)  and  (c)  of  the  income  tax  law  a]>ply  to 
normal  income  tax  of  citizens  and  resident  aliens,  only  when  deri\'ed  from  interest 
on  bonds  and  mortgages,  deeds  of  trust,  or  other  siipilar  obligations  of  corporations, 
associations,  etc.,  which  have  a  "tax-free  covenant  clause,"  regardless  of  amount 
and  period  of  pavTnent;  on  and  after  January  1,  1918,  normal  tax  of  2  per  cent  im- 
posed by  the  act  of  October  3,  1917,  is  the  tax  to  be  deducted  and  withheld  from 
citizens  or  residents  of  the  Uaited  States  in  accordance  with  section  9  (c).  (T.  D. 
2690;  art.  43.) 

Withholding  will  at  all  times  be  limited  to  2  per  cent,  except  in  case  of  interest 
on  corporate  bonds  owned  by  foreign  corporations  having  no  office  or  place  of  busi- 
ness in  the  United  States,  in  which  case  deduction  will  be  at  rate  of  6  per  cent.  (T. 
D.  2690;  art.  45.) 

Public  officers — War  tax. 

Bonds  given  by  officials  of  a  State,  township,  county,  or  village  for  faithful  per- 
formance of  duties  are  free  from  Federal  taxation  on  broad  ground  that  sovereign 
States  and  subdivisions  thereof  are  constitutionally  free  from  taxation  by  Federal 
Government.     (T.  D.  2624;  Dec.  14,  1917.) 

Release  of  seized  property. 

In  case  of  seizures  of  automobiles,  horses,  and  other  similar  property,  collectors 
instrticted  to  refuse  to  accept  bond  under  section  3459,  Revised  Statutes;  for  release 
Unless  property  was  seized  tinder  provisions  of  section  3453,  Revised  Statutes,  only; 
where  seizure  was  not  made  under  such  section,  if  property  is  appraised  at  $500  or 
less,  collectors  will  dispose  of  same  promptly  under  provisions  of  section  3460.  unless 
bond  for  costs  is  given,  in  which  event  bond  should  be  forwarded  to  United  States 
attorney  wdth  reqtiest  to  institute  libel  proceedings;  if  value  exceeds  $500,  property 
should  be  turned  o->,-er  to  United  States  marshal  and  the  attorney  requested  to 
institute  forfeiture  proceedings,  no  bond  for  costs  being  required;  question  of  release 
of  property  on  bond  is  within  jurisdiction  of  court.     (T.  D.  2511 ;  July  12,  1917.) 

Replacem.ent  fund^ — Securing  income  and  excess  profits  taxes. 

Only  acti\e  deposits rie.'<  of  jiublic  moneys  and  surety  com])auie8  holding  certifi- 
cates of  authority  from  Secretary  of  Treasury  as  acceptable  sureties  on  Federal 
bonds  will  be  approved  as  sureties  or  depositaries  under  Schedules  B  and  C  of  Form 
1114,  prescribed  by  T.  D.  27H3,  on  application  for  establishment  of  replacement 
fund  in^-ase  of  property  requisitioned  lor  war  uses  or  lost  or  destroyed  in  whole  or  in 
part  through  war  hazards,  as  permitted  by  T.  D.  2706.     (T.  D.  2755;  Aug.  26,  1918.) 


78  BONDS. 

stamp  taxes. 

Indemnity  or  surotv  bonds  given  by  trustees  in  bankruptcy  for  purpose  of  quali- 
fviue  iia  sU("h  are  boiids  required  in  legal  proceedings  and  therefore  exempt  from 
taxaiion  under  Schedxile  A,  act  of  October  3,  1917.     (T.  D.-2647;  Feb.  2,  1918.) 

Promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
])ledge  of  anv  bonds  or  obligations  of  United  States,  issued  after  April  24,  1917, 
and  all  promissory  notes  issued  and  delivered  on  or  after  April  6, 1918.  and  secured 
by  pledge  of  promissory  note  which  itself  is  secured  by  pledge  of  United  States 
bonds  of  obligations  issued  after  April  24, 1917,  are  exempt  from  stamp  tax  imposed 
by  section  301  of  the  act  of  April  5.  1918;  bonds  herein  mentioned  include  Lib- 
erty bonds;  exemption  applies  only  where  par  value  of  bonds  or  obligations  pledged 
shall  equal  amount  of  promissory  note.     (T.  D.  2701;  Apr.  16,  1918.) 

Instruments  containing  essential  features  of  promissory  note  but  issued  by  cor- 
porations in  numbers  tmder  trust  indenture,  either  in  registered  form  or  with  coupons 
attached,  embodying  pro-fusions  for  acceleration  of  maturity  in  event  of  default  by 
obligor,  for  optional  registration  in  case  of  bearer  bonds,  for  authentication  by  trustee, 
and  sometimes  for  redemption  before  maturity  or  similar  provisions,  are  bonds 
within  meaning  of  Schedule  A  of  Title  VIII  of  act  of  October  3,  1917,  whether 
called  bonds,  debentures,  or  notes,     (T.  D.  2713;  May  14,  1918.) 

Instrtiment  under  seal  conditioned  in  penal  amount  for  pajunent  of  sum  of  money, 
such  as  often  accompanies  mortgages,  is  bond  wuthin  meaning  of  Schedule  A  of 
Title  YIII  of  the  act  of  October  3,  1917.     (T.  D.  2713;  May  14,  1918.) 

Bonds  of  a  private  corporation  delivered  by  it  to  the  United  States  Housing  Corpo- 
ration as  collateral  security  for  a. loan  to  aid  the  borrower  in  performing  its  contract 
with  the  United  States  Housing  Corporation  are  subject  to  stamp  tax.  (T.  D.  2782; 
Dec.  24,  1918.) 

Premiums  on  indemnity  or  surety  bonds  executed  prior  to  December  1,  1917,  are 
not  the  subject  of  stamp  tax  when  premiums  due  and  payable  subsequent  to  Decem- 
ber 1,  1917,  are  not  essential  to  continuance  in  force  of  such  bonds;  where  bonds 
issued  prior  to  December  1,  1917,  are  continued  in  force  after  December  1,  1917,  by 
the  execution  of  continuation  certificates  the  tax  applies  to  the  premium  charged 
for  the  issuance  of  such  certificates.     (T.  D.  2782;  Dec.  24,  1918.) 

Stamp  tax  imposed  on  indemnity  and  surety  bonds  by  paragraph  2  of  Schedule  A, 
Title  VIII,  act  of  October  3, 1917,  applies  to  indemnity  bonds  made  to  the  Govern- 
ment to  secure  issuance  of  duplicate  checks  for  allotment  and  allowance  or  other 
benefits  under  the  act  of  October  G,  1917.     (T.  D.  2795:  Feb.  26,  1919.) 

So-called  business  property  investment  bond,  wherein  it  is  certified  that  the 
holder  thereof  is  the  owner  of  interest  in  certain  specified  real  property,  legal  title 
to  which  was  previously  conveyed  to  a  trustee,  and  whereby  corporation  issuing 
same  agrees  to  manage  the  property  and  distribute  proceeds  in  certain  mannef,  is 
not  subject  to  tax  as  a  certificate  of  stock.     (T.  D.  2795;  Feb.  26,  1919.) 

Wines — Blended  wines. 

Unstamped  wines  may  be  blended  on  bonded  premises  btit  when  removed  mtist 
be  stamped  according  to  the  alcoholic  strength  of  wine  as  blended.  (T.  D.  2387; 
Oct.  30,  1916.) 

Wines  are  taxable  according  to  their  alcoholic  strength  when  placed  on  the  market, 
but  blending  on  bonded  premises  of  wines  of  different  alcoholic  strength  is  per- 
missible.    (T.  D.  2387;  Oct.  30,  1916.) 

• Carbonated  wines. 

Carbonated  wines  can  be  produced  only  at  the  -\vinery  or  other  bonded  premises 
and  can  not  therefore  be  produced  on  premises  of  retail  dealer.  (T.  D.  2387;  Oct. 
30,  1916.)  ^  f  V  . 

The  artificially  carbonating  of  still  wines  on  which  tax  has  been  paid  is  not  per- 
missible, as  such  carbonated  winesare  a  distinct  product  and  must  be  produced 
on  bonded  premises.     (T.  D.  2387;  Oct.  30,  1916.) 

Clarified  wines. 

"Uines  returned  to  bonded  premises  in  stamped  packages  to  be  clarified  may 
wlicn  clarihed  be  replaced  m  such  stamped  packages  which  should  be  set  apart 
lor  tliat  particular  purpo.sc;  if  otherwise  recasked  the  wines  will  be  subject  to  tax  as 
if  originally  produced.     (T.  D.  23S7;  Oct.  30,  1916  ) 


BONDS.  79 

Wines — Con  linned . 

ITortification. 

Pending  revision  of  regulations  fortification  of  wines  permitted  to  continue 
under  existing  regulations  and  existing  form  of  bond,  if  consent  of  signers  to  bond 
is  obtained.   '(T.^D.  2387;  Oct.  30,  1916.) 

I*\irm  699A  may  be  exeetited  by  wine  makers  covering  tax  on  brandy  used  in 
fortification  of  wines,  transportation  of  brandy  to  bonded  winery,  and  its  use  in 
fortification.     (T.  D.  2.325;  Sept.  24.) 

Imports. 

Bonds  securing  paymeiit  of  internal-revenue  tax  will  not  be  recjuired  for  imported 
wines,  as  such  wines  remain  in  custody  of  customs  officers  until  eiich  tax  is  paid. 
(T.  D.  2387;  Oct.  30,  1916.) 

Tax  on  imported  wines  being  payable  on  remo\-al  of  wines  from  ctistomhouse, 
such  wines  can  not  be  transferred  to  bonded  premises  established  under  the  wane 
act.     (T.  D.  2387;  Oct.  30,  1916.) 

Imported  wines  transferred  in  bond  from  port  of  entry  to  another  port  will  be  tax 
paid  on  removal  from  bond  at  Last  named  port.     (T.  D.  2387;  Oct.  30,  1916.) 

Makers. 

Proprietors  of  bonded  wineries  or  storerooms  who  Itave  filed  Forms  698  and  699 
not  requii'ed  to  again  file  such  Foi'ms  for  each  fiscal  year  unless  an  increase  in  their 
business  necessitates  a  bond  of  larger  penal  sum,  btit  they  may  continue  to  manu- 
facture wine  under  their  original  bond,  Form  699,  \miil  application  for  cancella- 
tion of  same  has  been  made.     (T.  D.  2516;  Aug.  17,  1917.) 

Instructions  with  reference  to  execution  of  new  wine  bonds  covering  bonded 
wineries  and  bonded  storerooms;  change  in  Forms  699,  709,  and  710;  single  bond 
to  cover  several  wineries;  duplicates;  filing;  when  bond  Form  699 A  may  be  used. 
(T.  D.  2525;  Sept.  24,  1917.) 

All  premises  where  wines  are  prodticed  for  sale  or  where  cjuantity  prodticed  for 
family  use  exceeds  200  gallons  per  year  must  be  bonded;  wine  makers  on  failing  to 
bond  such  premises  or  to  comply  with  the  law  and  regulations  to  be  reported  to 
United  States  district  attorney  for  prosecution.     (T.  D.  2387;  Oct.  30,  1916.) 

Bonded  premises  can  be  established  by  wine  makers  and  wholesale  dealers  only. 
(T.  D.  2387;  Oct.  30,  1916.) 

Wine  maker  producing  not  exceeding  1,000  gallons  may  either  file  bond,  Form 
699,  or  may  deposit  with  collector  as  security  Liberty  loan  bonds  or  cash  equal  to 
amount  of  tax;  if  Liberty  loan  bonds  are  deposited,  he  must  execute  bond,  in 
duplicate,  in  stated  form,  and  in  such  form  with  appropriate  substitutions  in  case 
cash  is  deposited;  bond  and  security  must  be  filed  with  collector  i)rior  to  time  of 
crushing  grapes.     (T.  D.  2765;  Oct.  21.  1918.) 

When  Liberty  loan  bonds  or  cash  are  deposited  as  security  by  wine  maker  pro- 
ducing not  exceeding  1,000  gallons  per  year,  the  collector  should  give  the  depositor 
a  receipt  in  stated  form,  whicli  receipt  should  be  made  in  triplicate,  one  copy  being 
immediately  transmitted  to  Commissioner  of  Internal  Revenue;  safekeeping  of 
bonds;  assigning  of  registered  bonds;  security  thus  pledged  should  not  be  held  by 
collector  except  upon  instructions  from  Commissioner,  and  security  will  be  sur- 
rendered as  soon  as  tax  and  accrued  penalty  and  interest  ha-\'e  been  i^aid.  (T.  D. 
2765;  Oct.  21,  1918.) 

Untax-paid  wines. 

Premises  of  storage  companies  can  not  be  bonded;  Untax-paid  wines  can  not 
therefore  be  received  on  such  premeises.     (T.  D.  2387;  Oct.  30,  1916.) 

Wholesale  dealers  who  do  not  bond  their  premises  and  who  ha^'o  untax-paid 
wines  in  their  possession  must  make  monthly  returns  under  oath  as  to  sale  of  such 
wines.     (T.  D.  2387;  Oct.  30,  1916.) 

Retail  dealers  being  exempt  from  giving  bond  can  not  receive  on  their  premises 
luitax-paid  wines.     (T.  D.  2387;  Oct.  30,  1916.) 

Storage  on  bonded  premises  of  wines  on  which  tax  has  been  paid  is  not  i^ermlssible; 
so  much  of  premises  used  for  storage  or  treatment  of  untax-paid  wines  nuist  be 
bonded.     (T.  D.  2387;  Oct.  39,  1916/) 

Tax  on  Unstamped  wines  removed  from  or  to  premises  not  bonded  should  be 
reported  for  assessmciit  against  sliipper  of  such  wines.     (T.  D.  2387;  Oct.  30,  191().) 

Unstamped  wines  heretofore  removed  from  bonded  premises  should  be  at  once 
reported  for  assessment.     (T.  T>.  2;3S7;  Oct.  30,  1916.) 


gQ  BONUSES. 

Wines — Contimicd. 

■ Wholesale  dealers. 

Whi)lesalo  dealers  who  do  not  bond  their  premises,  and  who  have  nntax-pai4 
wines  in  their  possession,  must  make  monthly  returns  nnder  oath  as  to  sale  of  such 
wines.     (T.  D.  2:^87;  Oct.  30,  19K).) 

Wholesale  dealers  are  not  reqinred  to  bond  their  promises,  but  unless  bonded 
all  wines  received  thereon  must  be  first  tax  paid.     (T.  D.  2387;  Oct.  30,  1916.) 

Withdrawal  of  alcohol,  spirits,  etc. 

Where  domestic;  wines  are  to  be  removed  from  bonded  premises  free  of  tax  for 


^..^  .  .)p .  -  -     - 

of  Internal  Revenue;  penal  sum  of  bond  must  be  at  least  equal  to  double  amount 
of  tax  on  estimated  quantity  of  wine  to  be  removed  during  period  of  three  months 
and  in  no  case  less  than  $1,000;  bond  will  be  continuing  bond,  and  an  account  will 
be  kept  with  each  bond  in  which  principal  will  be  charged  with  tax  on  each  lot 
removed  for  exportation  and  will  receive  credit  for  each  lot  concerning  which  sat- 
isfactory proof  of  exportation  is  receiAcd.     (T.  D.  2416;  Dec.  12,  1916.) 

Instructions  with  reference  to  withdrawal  of  alcohol  for  tise  in  central  denaturing 
warehouses  from  different  distilleries  under  one  bond;  requisites  of  bond;  permit; 
application  for  regauge  and  withdrawal;  order;  storekeeper's  duties;  certificate  of 
ganger.     (T.  D.  2630;  Jan.  17,  1918.) 

Distillers  or  owners  of  spirits  permitted  to  execute  continuing  (blanket)  bond, 
under  which  spirits  may  be  withdrawn  from  time  to  time,  in  lieu  of  bond.  Form  643, 
prescribed  in  Regulations  No.  29,  for  each  spacified  let  of  distilled  spirits,  which 
bond  will  be  executed  in  duplicate  with  satisfactory  sureties,  and  in  penal  sum 
euffifient  to  cover  125  per  cent  of  estimated  amount  of  tax  which  will  at  any  one 
time  constitute  a  charge  against  the  bond,  and  in  no  case  less  than  $1,000;  new  or 
additional  bond;  credit  in  bonded-spirits  accounts.     (T.  D.  2495;  June  8,  1917.) 

In  case  of  shipment  of  wines  free  of  tax  from  bonded  premises  established  under 
eection  402  of  act  of  September  8,  1916,  to  bonded  manufacturing  warehotise  to  be 
manufactured  into  articles  for  export,  proprietor  must  execute  Form  703,  in  quad- 
ruplicate; on  arrival  of  wines  at  port  of  entry  manufacturer  will  report  same  to  col- 
lector of  customs,  who  will  cause  wines  to  be  inspected  and  gauged  and  will  certify 
receipt  of  wines  on  blue  Form  703  returning  one  blue  copy  to  collector  of  internal 
revenue  and  sending  other  to  commissioner;  separate  transportation  bond  covering 
tax  on  wines  need  not  be  executed;  credit  given  bond  (Form  699  or  699A)  on  receipt 
of  certificate  bv  collector  of  internal  revenue  from  collector  of  customs.  (T.  D. 
2738,  June  20,  1918.) 

Burden  is  on  plaintiff  in  suit  at  law  to  recover  tax  paid  under  protest,  pursuant 
to  a^isessment  based  on  alleged  transferring,  in  removing  spirits  from  bond,  of  portion 
of  contents  of  barrels  containing,  respectively,  more  than  requii'ements  of  Carlisle 
allowance  to  barrels  containing,  respectively,  less  than  the  minimum  contents 
required  by  Carlisle  alloAvance,  to  show  what  part  of  assessment  was  wrongful; 
burden  is  not  met  by  proof  that  payment  was  made  in  accordance  with  govern- 
mental regauge,  nor  does  added  fact  of  long  delay  in  making  assessment  overcome 
its  prima  facie  evidenciary  effect.     (T.  D.  2757;  Sept.  5,  1918.     Ct.  Dec.) 

BONUSES. 
Income  tax — Gross  income. 

Where  common  stock  is  received  as  bonus  in  consideration  of  purchase  of  pre- 
ferred stock,  entire  proceeds  derived  from  sale  or  transfer  of  such  stock  is  income 
subject  to  normal  and  additional  tax.     (T.  D.  2690;  art.  4.) 

Net  income. 

(iifts  or  bonuses  to  employees  constitute  allowable  deductions  when  m&de  in 
good  faith  and  as  additional  compensation  for  services  actually  rendered;  if,  v.hen 
added  to  salaries,  they  do  not  exceed  reasonable  compensation  for  serA^ces,  they 
will  be  regarded  as  part  of  the  wage  or  hire,  and  therefore  an  ordinarv  and  neces- 
sary expense  of  operation  and  maintenance,  and  as  such,  Avill  be  deductible.  (T.  D. 
2690:  arts.  8,  138.) 

(iifts  or  bonuses  to  officers  or  employees  mav  be  deducted  from  gross  income  in 
asvertairnng  net  income,  when  made  in  good  faith  and  as  additional  compensation 
for  services  actually  rendered;  if,  when  added  to  stipulated  salaries,  they  do  not 
exceed  reasonable  compensation  for  services  rendered,  they  will  be  regarded  as 
part  of  the  wage  or  hire  of  the  officer  or  employee,  and  as  such  will  be  deductible. 
(T.  D.  2616;  Dec.  11,  1917.) 


BOTTLERS — BROKERS.  81 

BOTTLERS. 

Definition. 

A  "bottler"  is  a  producer  cr  aiiv  person  who  puts  a  liquid  in  bottles  or  other 
closed  containers  and  sells  it.     (T.'D.  2719;  Art.  XXXlll.) 

Excise  taxes. 


I^ee  "Excise  Taxes." 


BOWLING  ALLEYS. 


Excise  tax  on  tenpins. 

15ow]ing  alley  tenpins  are  "parts  of  games''  witiiin  the  meaning  of  section  600(f) 
of  the  act  of  October  3,  1917,  and  are  subject  to  taxation  thereunder.  (T.  D.  2795; 
I'ob.  26,  1919.) 

Special  taxes. 

Where  post  exchanges  are  under  com))leTo  control  of  the  Secretary  of  the  XaAy 
as  governmental  agencies  they  are  not  liable  to  special  tax  on  account  of  billiard 
or  pool  tables  or  bowling  alleys,  operated  by  them.  (T.  I).  2439;  Jan.  27,  1917.) 
Bowling  alleys  are  exempt  under  act  of  September  8,  1916,  if  tax  would  fall  upon 
State  treasury;  otherwise  tax  is  due  on  account  of  bowling  alleys  in  State  armories, 
lire  houses,  etc.,  and  also  in  clubs,  fraternity  houses,  lodge  halls,  charitalile  insti- 
tutions, Y.  M.  C.  A.  buildings,  hotels,  boarding  houses,  etc.  (T.  D.  2462;  Feb.  16, 
1917.) 

BOXING  CLUBS. 
Dues. 

See  "Dues." 

BRANDS. 
See  "Marks  and  Brands." 

BRANDY. 

See  "Distilled  Spirits";  "Wines." 

BREWERIES. 

See  "Fermented  Liquors." 

BROKERS. 

Admission  tickets. 

Ticket  brokers  required  to  keep  daily  records  showing  tickets  sold  for  each  enter- 
tainment; proceeds;  cost  of  tickets  and  tax  returnable;  monthly  rettirn,  which 
shall  be  recapitulation  of  daily  records,  required  to  be  made  in  duplicate  on  Form 
729  and  to  be  transmitted  to  office  of  collector,  with  amount  of  tax,  on  or  before 
last  day  of  month  following  that  for  which  return  is  made;  daily  record  of  brokers, 
with  copies  of  their  monthly  returns,  required  to  be  kept  on  file  for  two  years,  in 
such  manner  as  to  be  readily  accessible  to  internal  revenue  officers.  (T.  D.  2681; 
Mar.  26,  1918.) 

Ticket  brokers  required  to  collect  tax  on  admissions  shall,  on  the  1st  day  of  April, 
1918  (and  if  not  on  that  date  engaged  in  business,  then  mthin  10  days  after  engaging 
in  business),  and  annually  thereafter  on  the  Ist  day  of  July,  file  in  the  office  of  the 
collector  of  internal  revenue  of  the  district  in  which  his  place  of  business  is  located, 
an  application  for  registry,  setting  forth  certain  stated  information;  traveling  or 
itinerant  shows;  collector,  if  satislied  that  all  statements  given  in  application  are 
correct,  will  isstie  certificate  of  registration  on  certain  form,  which  proprietor  shall 
keep  conspicuously  posted  in  his  j)lace  of  business,  or  carry  on  his  person  if  he  has 
no  fixed  place  of  business.     (T.  D.  2681;  Mar.  26,  1918.) 

Where  a  broker  purchases  tickets  for  resale,  with  right  to  return  those  not  sold, 
proprietor  of  entertainment  held  responsible  for  collecting  tax  on  full  price  paid 
for  acttial  use  of  tickets;  independent  brokers  and  dealers  m\ist  collect  and  account 
for  tax  on  their  sales,  less  amount  of  tax  on  each  ticket  collected  and  accounted  for 
by  amusement  enterprise;  if  ticket  is  sold  for  tise  and  not  for  resale,  at  less  than 
face  vahie.  tax  is  on  price  paid,  but  seller  must  collect  tax  on  face  Aalue  unless  he 
can  furnish  satisfactory  eA'idence  iliot  presumptive  pur<-haser  was  not  agent  of,  or 
acting  n>  collusion  with,  the  seller.     (,T.  U.  2681;  Mar.  26,  1918.) 

70420°— 21 6 


32  BEOKEJJS. 

Corporation  tax — Interest. 

The  case  of  Altlieimcr  and  Rawlinga  Investment  Co.  v.  Allen  holds  that  a  corpo- 
ration wMch  did  a  brokerage  business  and  bought  securities  for  customers  v/ho 
paid  only  part  of  the  price,  paying  interest' on  balances,  corporation  also  pajdng  for 
securities  purchased  only  part  of  the  price  and  paying  interest  on  balances,  includ- 
ing in  return  of  gross  income  difference  between  interest  received  and  interest  paid, 
made  incorrect  return;  interest  received  by  corporation  from  its  customers  should 
be  included  in  gross  income  and  interest  paid  by  the  corporation  on  said  purchases 
is  allowable  as  interest  payable  on  its  bonded  or  other  indebtedness;  in  determining 
net  income  interest  can  be  deducted  only  to  an  amount  not  exceeding  the  paid- 
up  capital  stock  outstanding  at  close  of  the  year.  (T.  D.  2441;  Feb.  8,  1917.  T.  D. 
2686;  Apr.  1,  1918.     Ct.  Decs.) 

Estate  tax — Nonresident  decedent. 

Brokers  holding  as  collateral  securities  belonging  to  nonresident  decedent  may 
not  release  to  foreign  administrator  or  executor  or  foreign  beneficiary  such  securities 
untU  either  tax  clue  has  been  paid  or  ancillary  letters  have  been  taken  out  or  other- 
wise provision  has  been  made  by  estate  for  satisfaction  of  tax  lien.  (T.  D.  2454; 
Feb.  28,  1917.    See  paragraph  (5J,  T.  D.  2490;  May  14,  1917.) 

Excess  profits  tax. 

Agents  and  brokers  requiring  and  using  no  capital  or  merely  a  nominal  capital  in 
their  bxisiness  are  taxable  Under  article  15  of  Regulations  No.  41,  but  commission 
houses  regularly  employing  substantial  amount  of  capital,  whether  to  lend  to 
principals  or  to  carry  -goods  on  their  own  account,  are  not  deemed  to  be  agents  or 
brokers  and  arc  taxable  under  proAisions  of  article  16.     (T.  D.  2694;  art.  73.) 

Members  of  a  partnership  who  are  paid  neither  a  salary  nor  commissions  for  their 
serAdces,  but  who  buy  and  sell  lumber  and  undertake  and  assume  all  the  risks  and 
enjoy  all  the  benefits  of  a  merchandising  lousiness,  employing  a  large  amount  of 
capital,  are  not  brokers,  and  do  not  come  within  section  209  of  the  act  of  October  3, 
1917.     (T.  D.  3080;  Oct.  19,  1920.  Ct.  Dec.) 

Income  tax — Commissions. 

Commissions  paid  in  purchasing  and  selling  securities  are  a  part  of  the  cost  of 
selling  price  of  the  securities  and  not  otherwise  deductible;  they  do  not  constitute 
expense  deductio^is.     (T.  D.  2690;  art.  8.) 

Information  at  source. 

Every  person,  corporation,  partnership,  or  association  doing  business  as  a  broker, 
or  any  exchange  or  board  of  trade  or  other  similar  place  of  business,  shall,  Tipon 
request  of  the  Comnrissioaer  of  Internal  Revenue,  render  correct  return  under  oath, 
sho\ving  names  of  customers  for  whom  such  broker  has  transacted  any  business, 
■with  such  details  as  to  profits,  losses,  or  other  information,  as  may  be  called  for  by 
such  return  form  as  to  each  of  such  customers.     (T.  D.  2G90;  art.'SS.) 

Insurance. 

Brokers  who  place  risks  for  clients  with  insurance  companies  are  not  subject  to 
tax  under  section  504  of  act  of  October  3,  1917,  as  tax  is  imposed  upon  companies 
issuing  the  msurance.     (T.  D,  2588;  Nov.  21,  1917.) 

Occupational  tax. 

One  who  holds  himself  out  as  dealing  in  exchange,  and  in  regular  course  of  business 
accepts  orders  and  takes  them  to  a  ba^iik  for  execution  bv  the  latter,  receiving  sub- 
stantial remuneration  for  his  services,  is  liable  to  tax  as  a  broker.  (T.  D.  2785; 
Jan.  23,  1919.)  ^ 

A  bank  which  does  not  hold  itself  out  to  the  public  as  engaged  in  negotiating 
purchases  or  sales  of  stock,  bonds,  etc.,  but  merelv  negotiates  the^purchase''and  sale 
tnereot  tor  depositors  and  other  patrons,  without  remuneration  and  for  their  accom- 

^-«o    T*^^  ^ o7\n?o^  ^^*  thereby  incur  liability  to  special  tax  as  a  broker.     (T.  D. 
2y82;  Dec.  24,  1918.) 

Real  estate. 

Payments  of  rent  made  to  real  estate  agenta  do  not  require  reports  of  information. 

•lnrVnf'?m7'f''/V"T.''lP~n^''^P*'  ^^  landlord  if  the  same  amounts  to  .§800  or  more 
aunng  1917.)     (T.  D.  2070;  Mar.  11,  1918.) 


BUILDIXG  AND  LOAN   ASSOCIATIONS.  83 

Stock  brokers — Affixing  and  canceling  stamps  on  sales. 

Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer 
is  effected  by  delivery  of  certificate  of  stock  assigned  in  blank;  in  case  change  of 
ownership  is  by  transfer  of  certilicate  of  stock,  stamp  shall  be  afTixed  to  the  certifi- 
cate of  stock;  in  case  evidence  of  transfer  is  shown  only  by  books  of  company, 
stamp  shall  be  placed  upon  the  books;  in  all  other  cases  payment  shall  be  evi- 
denced by  affixing  stamp  upon  memorandum  or  agreement  of  sale  to  be  delivered 
by  the  seller  to  the  buyer;  manner  of  canceling  stamps  stated.  (T.  D.  260S; 
Nov.  30,  1917.) 

Exempt  transact-dons. 

No  tax  is  imposed  upon  agreement  evidencing  deposit  of  stock  certificates  aa 
collateral  security,  nor  upon  deliveries  or  transfers  to  brokers  for  sale,  nor  upon 
deliveries  or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfera 
shall  be  accompanied  by  certificate  setting  forth  the  facts,  nor  upon  transfers  or 
deliveries  to  clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  between 
members;  no  by-law  or  custom  of  any  exchange  or  similar  institution,  nor  any  col- 
lateral or  additional  agreement  or  understanding,  inconsistant  or  in  conflict  with 
any  requirement  of  the  act  of  October  3,  1917,  or  of  Regulation  No.  40,  part  1,  shall 
exempt  any  person  from  the  payment  of  the  tax.     (T.  D.  2608;  Nov.  30,  1917.) 

Memoranda  of  sales. 

Persons  selling  or  agreeing  to  sell  stocks  reciuired  to  deliver  to  buyer  numbered 
memorandum  of  sale,  or  agi'eement  to  sell,  signed  by  principal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  number  and 
price  of  shares.     (T.  D.  2608;  Nov.  39,  1917.) 

Rate  of  taxation. 

In  the  case  of  shares  or  cerf  ificates  of  stock  having  a  face  or  par  value,  amoimt  of  tax 
shall  be  based  upon  total  face  value  of  shares  involved,  and  shall  be  at  rate  of  2  cents 
for  each  §100  of  such  total  face  value  or  fraction  thereof,  whether  such  aggregate  face 
value  is  greater  or  less  than  §100.     (T.  D.  2608;  Nov.  30,  1917.) 

■ Record  of  sales. 

Persons  engaged  in  business  of  buying,  selling,  or  transferring  shares  of  stock, 
required  to  keep  record  showing  specified  items  of  information;  form  of  record 
required.     (T.  D.  2G08;  Nov.  30,  1917.) 

Registration  of  sales. 

Regulation  No.  40,  Part  1,  requires  a  statement  of  registration  by  persons,  cor- 
porations, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock 
and  other  like  securities;  record  of  statement  of  registration  to  be  kept  by  con- 
lector  who  must  issue  certificate  of  registration  to  be  posted  in  places  of  business. 
(T.  D.  2608;  Nov.  30,  1917.) 

■ Return  of  sales. 

Clearinghouses  and  persons  engaged  wholly  or  i^artly  in  buying,  selling,  or  trans- 
ferring shares  of  stock,  required  to  make  returns  showing  specified  data  and  in- 
formation; substitute  returns.     (T.  D.  2G08;  Nov.  39,  1917.) 

Stamp  sales. 

vStamps  shall  be  sold  only  by  collectors,  their  deputies,  and  assistant  treasurer, 
or  other  designated  United  States  depositary;  requisitions  for  stamps;  records;  kind 
and  color  of  stamps.     (T.  D.  2608;  Nov.  30,  1917.) 

BUILDING  AND  LOAN  ASSOCL^TIONS. 

Capital  stock  tax — ^Exemption. 

Tax  does  not  apply  to  domestic  building  and  loan  associations  with  no  capital 
stock,  oi-ganized  and  operated  for  mutual  purposes  and  without  profit.  (T.  D.  2383 • 
Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Income  tax — Exemptions. 

Domestic  building  and  loan  associations  are  exempt  from  tar.  without  condition; 
collector,  being  satisfied  that  organization  comes  within  exempted  class,  is  author- 
ized to  eliminate  it  from  his  list  and  relieve  it  fi-om  necessity  of  making  returns 
(T.  D.  2G90;  art.  GS.) 


84  BUSINESS — BUSINESS   OEGANIZATIONS. 

Income  tax- Exemptions— Continued. 

Domestic  buildiiisj  and  loan  aesociation  exempt  is  one  organized  under  and 
pursuant  to  laws  of  United  States  or  of  some  State  or  Territory  thereof,  and  which 
is  actually  carrying  on  for  benefit  of  its  members  a  building  and  loan  association 
business  in  accordance  with  such  laws;  fact  that  association  issues  fully  paid  or 
prepaid  shares,  calling  for  specified  rate  of  interest  or  dividends,  will  not  disqualify 
it  for  exemption;  exemption  is  without  qualification  other  than  that  association  is  a 
domestic  building  and  loan  association;  if  corporation  by  any  other  name  is  carrying 
on  an  exclusive  building  and  loan  business,  before  it  is  entitled  to  exemption  it 
must  show  to  satisfaction  of  Commissioner  of  Internal  Revenue  that  it  is  in  fact  a 
building  and  loan  association.     (T.  D.  2G90;  art.  70.) 

Gross  income. 

Amount  credited  to  shareholders,  when  title  to  credit  passes  to  shareholder  at  time 
of  credit,  is  subject  to  normal  and  additional  tax  as  for  year  of  credit;  where  amount 
of  such  accumulations  does  not  become  available  until  maturity  of  share  amoimt 
of  share  in  excess  of  aggregated  amount  paid  in  by  shareholder  is  income  to  be  ac- 
counted for  as  for  vear  of  maturity  of  shares  for  both  normal  and  additional  tax. 
(T.  D.  2690;  art.  4.) 

BUSINESS. 
Definition. 

Difference  between  losses  incurred  in  business  or  trade  and  losses  in  transactions 
entered  into  for  profit  but  not  connected  with  business  or  trade,  -within  meaning  of 
income  tax  law,  is  illustrated  by  difference  between  definitions  of  "avocation," 
that  which  takes  one  from  his  regular  calling,  and  "vocation,"  the  occupation  or 
pursuit  to  which  one  devotes  his  time  or  life,  a  calling.  It  is  possible  for  a  man  to 
give  sufBcient  time,  attention,  and  capital  to  the  pursuit  of  different  lines  of  busi- 
ness to  constitute  more  than  one  avenue  of  "business  or  trade  or  employment," 
his  business  or  trade.     (T.  D.  2690;  art.  8.) 

In  case  of  corporation  or  partnership  all  income  from  whatever  source  derived  is 
deemed  to  be  from  its  trade  or  business,  and  the  terms  "trade,"  "business,"  and 
"trade  or  business,"  as  used  in  war  excess  profits  tax  regulations,  include  all  sources 
of  income,  and  unless  otherwise  indicated  by  the  context,  the  terms  will  be  deemed 
to  be  used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  7.) 

In  case  of  an  individual,  the  terms  "trade,"  "business,"  and  "trade  or  business," 
as  used  in  war  excess  profits  tax  regulations,  comprehend  all  his  activities  for  gain, 
profit,  or  livelihood  entered  into  with  sufficient  frequency  or  occupying  such  por- 
tion of  his  time  or  attention  a^s  to  constitute  a  vocation,  including  occupations  and 
professions;  when  such  activities  constitute  a  vocation  they  shall  be  construed  to 
be  a  trade  or  business  whether  continuously  carried  on  during  taxable  year  or  not; 
unless  otherwise  indicated  by  the  context,  terms  will  be  deemed  to  be  used  only 
with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  8.) 

The  word  "business,"  as  used  in  act  September  8,  1916,  is  a  very  comprehensive 
term  and  embraces  everything  about  which  a  person  can  be  employed;  fair  test  as 
to  whether  or  not  a  corporation  is  doing  business  is  whether  the  corporation  has 
reduced  its  activities  to  the  owning  and  holding  of  property  and  the  distribution 
of  its  avails  and  doing  only  the  acts  necessary  to  continue  that  status,  or  is  still 
active  and  is  maintaining  its  organization  for  purpose  of  continued  efforts  in  pur- 
suit of  profit  and  gain  and  such  activities  as  are  essential  to  those  purposes.  (T.  D. 
2750,  art.  4;  Aug.  9,  1918.) 

BUSINESS  ORGANIZATIONS. 

See  "Boards  of  Trade." 

Capital  stock  tax. 

Business  league  not  organized  for  profit  and  no  part  of  net  income  of  which  inurea 
to  benefit  of  any  pnvate^stockholder  or  individual,  is  exempt  from  tax  imposed  by 
section  407  of  the  act  of  Septembers,  1916.     (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750, 

art.  -»-*-j    jVU^.   Jj   1  ylo. ) 

Dues. 

r^if'^.^ZTi'^  by  section  701  of  act  of  October  3,  1917,  does  not  attach  to  dues 
2681;  Mai^  2^  1918")  '''""'"*'''''^  '^^  ""^^^^  primarily  business  organizations.     (T.  D. 


CABAKETS.  85 

Dues — Continued . 

Those  social  facilitiep  afforded  by  a  rommercial  clnb  which  are  kept  open  freely 
to  the  public  and  not  limited  to  members  are  not  sufficient  to  constitute  the  club 
a  social  club  for  purposes  of  the  dues  tax.     (T.  D.  2782;  Dec.  24,  1918.) 

Income  tax — Exemptions. 

Business  leagues  aro  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on 
lilin<>;  with  collector  affidavit  setting  out  cliaracter  and  purpose  of  organization  and 
showing  that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder 
or  individual  and  that  such  incomn  is  used  exclusively  to  promote  purposes  for 
which  organized  as  indicated  in  particular  paragraph  under  whirh  exemption  is 
claimod.     (T.  D.  2690;  art.  «7.) 

Exemption  from  filing  returns  and  paying  income  tax  of  business  leagues  is 
conditional  upon  such  an  organization  filing  affidavit  showing  character  and  purpose 
of  organization,  source  of  income  and  disposition  of  same,  whether  or  not  any  of 
its  income  is  credited  to  surplus  or  inures  to  benefit  of  any  private  stockholder  or 
individual,  to  which  affidavit  should  be  attached  copy  of  charter  or  articles  of 
incorporation  and  by-laws;  where  collector  is  in  doubt  as  to  taxable  status  of  organiza- 
tion, upon  receipt  of  affidavit,  etc.,  he  will  refer  affidavit  and  accompanying  papers 
to  Commissioner  of  Internal  Revenue  for  decision;  if  it  is  held  that  corporation 
itself  is  exempt  from  income  and  excess-profits  taxes  it  is  not,  however,  exempt 
from  the  withholding  requirements  nor  from  furnishing  information  in  accordance 
with  provisions  of  act  of  October  3,  1917.     (T.  D.  2(J93;  Apr.  8,  1918.) 

CABARETS. 

Admissions — Basis  of  tax. 

Where  an  adequate  fixed  charge  is  made  for  admission,  seats,  and  tables,  the 
tax  of  1  cent  for  each  10  cents  or  fraction  thereof  paid  for  admission,  imposed  by 
section  700  of  the  act  of  October  3,  1917,  shall  be  based  upon  such  charge;  where 
a  nominal  admission  not  actually  covering  cost  of  entertainment  is  charged, 
admission  being  wholly  or  partly  absorbed  in  price  of  refreshments  and  service, 
such  charge  will  not  be  accepted  as  basis  of  tax,     (T.  D.  2681;  Mar.  26,  1918.  j 

— —  Checks  and  coupons. 

Cabaret  proprietors  must  furnish  each  guest,  upon  paying  his  check,  a  coupon 
receipt  to  be  detached  therefrom,  containing  separately  in  indelible  figures  the 
jtotal  of  the  amount  paid  for  refreshments,  etc.,  and  the  war  tax  paid  thereon;  the 
cheeks  and  coupons  must  be  serially  numbered.     (T.  D.  2681;  Mar.  26,  1918.) 

Computation  of  charge. 

Twenty  per  cent  of  total  amount  paid  for  refreshments,  merchandise,  service, 
convert  charge,  etc.,  including  any  sum  paid  for  seats  and  tables,  at  any  public  per- 
formance for  profit,  to  which  charge  for  admission  is  included  in  amount  so  paid, 
shall  be  deemed  to  be  paid  for  admission,  unless  satisfactory  evidence  is  submitted 
to  ('ommissioner  of  Internal  Revenue  that  different  percentage  should  be  fixed  on 
basis  of  which  commissioner  shall  approve  different  percentage;  tax  is  at  rate  of 
1  cent  on  each  10  cents  or  fraction  thereof  of  such  20  per  cent  of  total  charge  to  each 
patron,  and  must  be  paid  by  person  paying  for  such  refreshment,  service,  etc.,  and 
can  not  be  reckoned  or  paid  by  proprietor  upon  monthly  gross  receipts.  (T.  D. 
2681;  Mar.  26,  1918.) 

Definition. 

The  words  '  'cabaret  or  other  similar  entertainment,' '  as  used  in  section  700  of  the 
act  of  October  3,  197,  include  every  hotel,  or  room  therein,  restaurant,  hall,  or 
other  public  place,  at  or  in  which,  in  connection  with  service  or  sale  of  food  or  other 
refreshments  or  merchandise,  any  vaudeville  or  other  performame  or  diversion  in 
way  of  acting,  singing,  declamation,  or  dancing,  either  with  or  without  instrumental 
orother  music,  is  conducted;  every  form  of  entertainment  so  conducted  is  included, 
except  that  furnished  by  orchestras  such  as  were  usual  in  hotels  and  restaurants 
before  advent  of  cabarets,  performing  instrumental  music  only,  unaccompanied 
by  any  other  form  of  entertainment;  hotel,  restaurant,  or  hall,  affording,  in  connec- 
tion with  service  of  refreshment,  food,  or  merchandise,  entertainment  in  form  of 
dancing  by  its  patrons,  is  included;  performance  must  be  public  and  for  profit; 
where  there  is  entertainment  in  one  dining  room  and  not  in  an  entirely  separate 
dining  room  of  same  hotel  or  restaurant,  only  admissions  to  first  room  are  taxable. 
(T.  U.  2681;  Mar.  26,  1918.; 


86  CALENDAR  YEAR — CAPITAL  STOCK. 

Admissions — Continued . 

Payment  of  tax. 

Tax  must  be  paid  by  person  paying  for  refreshments,  service,  merchandipe,  etn.; 
it  can  not  be  reckoned  or  paid  by  proprietor  upon  monthly  gross  receipts;  tax  to  be 
collected  only  from  persons  present  or  who  have  paid  or  agreed  to  pay  for  accommo- 
dations during  some  period  of  day  at  which  entertainment  is  in  progress  or  there 
is  opportunity  for  public  dancing  in  case  of  public  banquets  including  dancing. 
(T.  D.  2681;  Mar.  26,  1918.) 

Bstuxns. 

Cabaret  proprietors  must  furnish  each  guest,  upon  paying  his  cheek,  a  coupon 
receipt  to  be  detached  therefrom,  containing  separately  in  indelible  figures  the 
total  of  the  amount  paid  for  refreshments,  etc.,  and  the  war  tax  paid  thereon;  the 
checks  and  coupons  must  be  serially  numbered.     (T.  D.  2681;  Mar.  26,  1918.) 

Every  person,  corporation,  partnership,  or  association,  recei"ving  any  payments 
for  admission  to  cabarets  and  other  similar  entertainments,  or  admitting  any  person 
free  where  admission  is  charged,  must  collect  tax  on  such  admissions  from  pf?rsons 
admitted  or  making  such  payments,  and  make  monthly  return  and  payment  of 
collections  as  provided  in  section  503.     (T.  D.  2681;  Mar.  26,  1918.) 

CALENDAR  YEAR. 
Basis  of  computation  of  tax. 

See  specific  heads. 

Excise  tarces. 

See  "Excise  Taxes.'? 

See  'Panama  Canal." 

Excise  taxes. 

See  "Excise  Taxes." 

Dues. 

See  ■'"Dues." 

See  "Invested  Capital." 

Definition, 

The  words  "capital  invested,"  as  used  in  sections  5  and  12  of  Title  I,  act  of  Sep- 
tember 8,  1916,  is  meant  the  fair  market  value  of  the  properties  as  of  March  1, 1913, 
if  acq^iired  prior  to  that  date,  or  their  actual  coat  if  acquired  subsequent  to  that  date, 
as  it  relates  to  the  owner  in  fee  of  the  properties  leased.     (T.  D.  2447;  Feb.  8,  1917.) 

CAPITAL  STOCK. 
Issue — Stamp  tax. 

Issue  of  stoclv  ])y  a  consolidated  corporation,  in  exchange  for  stock  of  the  con- 
solidating corporations,  is  a  taxable  original  issue  under  act  October  3,  1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Tax  imposed  Ijy  act  October  3,  1917,  on  issue  of  capital  stock  is  measiu-ed.  not  by 
amount  paid  m,  on,  or  for  the  stock,  but  br  the  face  or  par  value  in  the  case  of 
shares  having  a  face  or  par  value,  and  by  the  actual  value  determined  by  the  market 
price  or  other^vlse  in  case  of  shares  having  no  face  or  par  value  but  an  actual  value 
m  excess  of  ?100  a  share.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
preferred  and  common  stock,  whether  or  not  exchanged  for  old  stock,  npon  reorgan- 
ization of  corporation  under  section  24  of  the  New  York  stock  corporation  law  for 
piupose  of  issuing  stock  without  par  value,  but  tax  on  transfers  of  stock  is  inapplica- 
ble to  surrender  of  o  d  stock  m  exchange  for  new  stock  pursiuuit  to  such  reorganiza- 
tion.    (T.  D.  2/o2;  Aug.  14,  1918.) 


CAMERAS. 

CANAL  ZONE. 
CANDY. 

CANOE    CLUBS. 

CAPITAL   INVESTED. 


CAPITAL  STOCK.  87 

Issue — Stamp  tax — Contiuued. 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
stock  of  either  corporation  in  addition  to  already  existing  stock  upon  merger  of 
trust  companies  under  sections  487-49G  of  New  York  banking  law,  but  such  tax 
does  not  attach  to  substitution  of  new  certificates  for  certificates  representing  old 
stock  of  merging  corporation.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  l)y  act  October  3,  1917,  on  issue  of  capital  stock,  does  not  apply  to 
issue  of  voting-trust  certificates,  representing  stock  certificates  already  issued,  nor 
to  mere  issue"  of  new  certificates  in  place  of  old  certificates  for  stock  prc\dously 
outstanding.     (T.  D.  2752;  Aug.  14,  1918.) 

Where  corporation  issues  preferred  stock  in  place  of  common,  or  one  kind  o' 
preferred  stock  in  place  of  another  kind  of  preferred  stock,  or  stock  -R-ithout  par 
value  in  place  of  stock  with  i)ar  value,  tax  imposed  by  act  October  3,  1917.,  on  issue 
of  capital  stock  applies,  even  though  total  outstanding  stock  is  not  therebv  increased. 
(T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917;  on  issue  of  capital  stock  applies  to  issue  of 
certificates  of  shares  in  so-called  ilassachusclts  trusts  and  other  unincorporated 
associations.     (T.  D.  2752;  Aug.  14,  1918.  > 

Tax  imposed  by  act  October  3,  1917,  on  issiie  of  capital  stock  attaclies  to  issue  of 
certificates  representing  stock  never  before  issued,  no  matter  when  authorized. 
(T.  D.  2752;  Aug.  14,  1918.) 

Paid-up  capital  stock. 

"Paid-up  capital  stock,"  as  used  in  section  38  of  the  act  of  August  5,  1909,  means 
such  an  amount  received  by  the  corporation  as  does  not  exceed  the  par  value  of 
the  outstanding  shares,  plus  amount  received  for  any  part-paid  stock;  such  term 
does  not  mean  the  aggregate  amount  (v/hcther  more  or  less  than  par  value)  received 
])y  the  corporation  for  the  shares,  the  full-paid  stock  receipts,  and  part-paid  stock 
receipts  issued  by  it.     (T.  D.  2896;  .ruly  21,  1919.     Ct.  Dec.) 

Indebtedness  upon  which  interest  may  be  taken  as  a  deduction  under  the  act 
of  August  5,  1909,  can  not  be  greater  than  par  value  of  capital  stock  paid  up  and 
outstanding;  in  computing  paid-up  capital  stock,  a  surplus  created  by  paying  a 
premium  on  capital  stock  subscribed  for  can  not  be  added  in  detennining  indebted- 
ness upon  which  interest  may  be  deductod.     (T.  I).  3004;  Apr.  21,  1920.     Ct.  Dec.) 

Definition  of  "paid-up  capital  stock"  by  a  local  State  statute  is  not  controlling 
on  a  Federal  court  construing  the  corporation  excise  tax  act  of  1909,  which  is  ap- 
plicable to  all  States.     (T.  D.  3004;  Apr.  21,  1920.     Ct.  Dec.) 

Transfer — ^Stamp  tax. 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the 
consolidated  corporation,  is  not  a  taxable  transfer  under  act  October  3,  1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Where,  as  under  section  15  of  the  New  York  stock  corporation  law,  providing 
for  merger  of  ordinary  corporations,  acquisition  of  stock  of  corporation  to  be  merged 
is  condition  precedent  to  merger,  transfer  of  such  stock  to  merging  corporation  prior 
to  actual  merger  is  taxable  under  act  October  3.  1917.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  jjy  act  October  3.  1917,  on  transfers  of  stock  does  not  attach  to  ex- 
change of  stock  certificates  of  merged  corporation  for  slock  certificates  of  merging 
corporation  at  the  time  and  as  part  of  the  merger  of  trust  companies  under  sections 
487-496  of  the  New  York  banking  law.  nor  to  substitution  of  new  certificates  for 
certificates  representing  old  stock  of  the  merging  corporation.  (T.  D.  2752;  Aug. 
14,  1918".) 

Tax  imposed  by  act  October  3,  1917,  on  t)'ausfer  of  capital  stock  does  not  ai52)ly 
to  transfer  of  "rights"  to  sul:>scribe  for  stock,  prior  to  exercise  of  the  right,  and  actual 
subscription.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfers  of  capital  stock  does  not  apply 
to  siu-render  of  certificates  in  exchange  for  other  certificates  representing  same  or 
new  stock,  provided  tliey  are  issued  to  the  same  holder,  nor  does  it  apply  to  surrender 
of  stock  certificates  for  retirement  and  redemption  for  cash;  if,  however,  corporation 
l>uvs  some  of  its  own  stock  and  transfers  it  to  itself,  whether  or  not  it  intends  evcnl  u- 
ally  to  cancel  it,  transfer  is  subject  to  tax.     (T.  D.  2752:  Aug.  14,  1918.) 

Tax  imjwsed  by  act  October  3,  1917,  on  issue  of  capital  slock  attaches  to  issue  of 
preferred  and  common  stock,  whether  or  not  exchanged  for  old  stock,  upon  reorgan- 
ization of  corporation  under  section  24  of  the  New  York  stock  coq^oratiou  law  for 
purpose  of  issuing  stock  without  par  value,  but  tax  on  transfers  of  stock  is  inappli- 


gg  CAPITAL  STOCK   TAX. 

Transfer— Stamp  tax— Continued. 

cable  to  surrender  of  old  stock  in  exchange  for  new  stock  pursuant  to  such  reorganiza- 
tion.    (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  attaches  to  sales 
or  transfers  of  stock,  whether  or  not  represented  by  certificates.  (T.  D.  2752;  Aug. 
14.  1918.) 

Tax  imposed  by  act  October  3,  1917.  on  transfer  of  capital  stock  applies  to  transfer 
of  stock  to  or  from  voting  trustees  or  other  trustees,  to  transfer  of  voting-trust  certif- 
icates, to  transfer  of  shares  in  so-called  Massachusetts  trusts,  and  other  unincor- 
porated associations,  to  transfer  of  right  to  receive  a  stock  dividend  already  declared, 
and  to  transfer  of  interest  of  a  .subscriber  for  stock,  however  such  interest  may  l;e 
evidenced  or  conditioned  upon  further  payments.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  .3,  1917,  on  transfer  of  capital  stock  is  rneasured.  not 
by  amount  paid  fn,  on,  or  for  the  stock.  Init  by  the  face  or  par  value  in  the  case  of 
shares  having  a  face  or  par  value,  and  liy  the  actual  value  determined  by  the  market 
price  or  otherwise  in  case  of  shares  having  no  face  or  par  value  but  an  actual  \alue 
in  excess  of  $100  a  share.     (T.  D.  2752;  Aug.  14,  1918.) 

CAPITAL  STOCK  TAX. 
Act  published. 

Extract  from  act  of  September  8,  1916,  relating  to  tax  on  capital  stock,  published 
for  information  of  internal-revenue  ofhcers  and  others  concerned.  (T.  D.  23C4; 
Sept.  11,  1916.) 

Basis. 

Tax  levied  by  act  September  8,  1916,  is  imposed  with  respect  to  the  carrjdng  on 
or  doing  business  by  a  corporation:  it  may  lie  described  generally  as  a  tax  upon 
doing  of  bu.siness  in  the  capacity  of  a  corporation,  joint-stock  company,  or  insurance 
company;  every  corporation  that  is  doing  business,  and  no  corporation  that  is  not 
carrying  on  or  doing  bu.siness,  is  subject  to  the  tax.     (T.  D.  2750,  art.  4;  Aug.  9.  1918.) 

Foreign  corporation. 

Tax  on  foreign  corporation  is  in  all  cases  to  be  computed  on  basis  of  average  amount 
of  capital  invested  in  transaction  of  its  business  in  the  Cnited  States  during  tlip  pre- 
ceding year,  except  for  deduction  of  legal  re.serve  funds  in  case  of  insurance  com- 
panies; ba?is  of  tax  is  accordingly  different  from  that  in  case  of  domestic  corpora- 
tions, which  pay  tax  measured  by  fair  \al(ie  of  their  capital  stock.  (T.  D.  2750,  art. 
14,  Appendix  B;  Aug.  9,  19J8.) 

Collection. 

Tax  imposed  by  act  of  September  8,  1916,  collected  by  assessment  on  special  list 
for  months  of  January  and  July,  1917,  and  anmially  thereafter  in  July,  and  any 
delinquent  returns  made  in  February  or  other  months  may  be  listed  on  regular  list, 
P^orm  23,  and  collected  in  iisual  way;  returns  listed  on  special  lists  to  be  retained  in 
collector's  office,  as  special  list  will  be  prepared  so  as  to  give  essential  data  shown  by 
return,  and  returns  listed  on  regular  lists  will  be  forwarded  to  office  of  Commis- 
sioner with  list  for  audit.     (T.  D.  2383;  Oct.  19,  1916.) 

Collectors  will  accept  payment  of  tax  when  retxirns  are  fded  as  "advance  collec- 
tions," provided  there  is  no  question  abi>ut  ihe  amount  of  tax  due,  but  corporations 
are  not  required  to  pay  the  tax  until  after  receipt  of  notice  and  demand  on  Form  17. 
(T.  D.  2417;  Dec.  16,"l916.     T.  D.  2423;  Dec.  30,  1916.) 

Computation. 

Tax  is  imposed  upon  every  corporation,  joint-stock  company  or  association,  or 
insurance  company,  now  or  hereafter  organized  in  the  United  States  for  proiit  and 
having  a  capital  stock  represented  by  shares,  computed  at  the  rate  of  50  cents  for 
each  full  $1,000,  and  not  upon  any  fractional  part  thereof,  of  the  average  fair  \alue 
of  the  capital  slock  for  the  preceding  year  in  excess  of  tlie  exemption  allowed  by 
law  and  not  upon  the  face  or  par  value  of  the  capital  stock;  methods  of  ascertain- 
ing fair  value  of  capital  stock,  stated:  tax  is  not  imposed  upon  corporations,  ptc, 
not  engaged  in  business  during  preceding  taxable  year  or  exempt  under  provisiona 
of  section  11,  Title  I,  of  the  act  of  September  8,  1916,  or  in  case  of  taxable  period 
ended  June  30,  1917,  not  so  engaged  during  the  vear  July  1,  1915,  to  June  .30,  1916. 
(T.D.  2383;  Oct.  19,  1916.     T.  D.  2423;  Dec.  30/1916.) 


CAPITAL   STOCK   TAX.  89 

Computation — Continuotl. 

Tax  is  imposed  on  corporations,  joint-stock  com])anios  or  associations,  or  insurance 
coni|)anie.s  organized  for  profit  uncfer  the  laws  of  any  foreign  country  and  engaged  in 
business  in  the  United  States,  computed  at  the  rate  of  50  cents  for  each  full  $1,000, 
and  not  any  fractional  part  thereof,  upon  the  actual  capital  invested  in  the  trans- 
action of  business  in  the  United  States;  the  basis  of  taxation  is  the  average  amount 
of  cajntal  so  invested  during  preceding  year;  exemption  from  amount  of  ca[)ital 
invested  in  the  United  States  equal  to  proportion  of  $99,000  as  the  amount  so  in- 
vested bears  to  the  total  amount  invested  in  transaction  of  business  in  the 
United  States  or  elsewhere  shall  be  allowed  the  company  or  association  or  insurance 
company  which  makes  return  to  the  Commissioner  of  amount  of  capital  invested  in 
business  outside  of  the  United  States;  tax  not  imposed  cm  corporation,  etc.,  not  en- 
gaged in  business  during  preceding  taxable  year,  or  in  case  of  taxable  period  ended 
June  ;30,  1917,  not  so  engaged  during  vear  July  1,  1915.  to  June  30,  1916.  (T.  D. 
2383;  Oct.  19,  1916.     T.  D.  2423;  Dec." 30,  1916.) 

Jf  corporation  was  engaged  in  btisiuess  for  any  time,  oven  one  day,  during  pre- 
ceding fiscal  year,  Jnly  1 ,  1915,  to  Jtme  30,  1916,  it  is  required  to  fde  return  on  Form 
707;  there  is  no  relation  between  amount  of  tax  pavable  and  length  of  time  during 
which  corporation  was  engaged  in  business.  (T.  D.  2417;  Dec.  16,  1916.  T  D 
2423;  Dec.  30,  1916.) 

The  individual  fair  value  of  stocks  of  two  banks  that  have  a  definite  combined 
market  value  but  no  separate  market  value  may  be  ascertained  by  apportionment 
of  the  market  vahie  on  the  basis  of  the  capital  stock,  surplus,  and  undivided 
profits  of  each  corporation  for  the  fiscal  year.     (T.  D.  2426;  Dec.  29,  1916.) 

Tax' for  period  July  1,  1917,  to  June  30,  1918,  required  to  be  filed  on  or  before  July 
31,  1917,  is  computed  on  the  fair  value  of  the  stock  of  the  corporation  for  the  preceding 
taxable  year,  which  is  the  fiscal  year,  July  1,  1916,  to  June  30,  1917.  (T.  D.  2503; 
June  25,' 1917.) 

If  stock  of  corporation  is  listed  on  an  exchange  or  dealt  in  on  New  York  curb,  fair 
value  should  be  computed  under  Case  I,  Form  707,  from  the  highest  price  bid  on  the 
last  day  of  each  month,  or  the  last  day  of  the  month  on  which  a  bid  was  made;  if  it 
prefers,  corporation  may  average  fair  Aalue  throtighout  entire  fiscal  year  by  showing 
on  statement  attached  to  back  of  return  the  highest  price  bid  for  the  stock  on  each 
day  throughout  the  year.     (T.  D.  2503;  June  25,  1917.) 

If  stock  is  not  listed  on  exchange  or  New  York  ctirb,  fair  value  may  be  computed 
from  actual  sales  made  dtiring  preceding  fiscal  year  under  Case  II,  Form  707;  if  there 
are  not  sufficient  sales  of  stock  listed  tinder  Case  II  to  establish  basis,  corporation 
will  be  reqtiired  to  fill  out  Case  III,  and  t-orporation  should  set  forth  amount  of  net 
I)rolits  earned  during  preceding  five  years,  as  reported  on  Federal  income  tax  re- 
turns, together  with  average  number  of  shares  outstanding  each  year,  average  per- 
centage of  profits  over  5-year  period  indicating  earning  ca])acity,  and  fair  value 
may  then  be  estimated  from  such  earning  capacity.     (T.  D.  2503;  June  25,  1917.) 

Capital  stock  tax  imposed  by  act  Septeml;)er  8,  1916,  becomes  due  on  1st  day 
of  July  in  each  ydar,  or  on  commeiicing  any  trade  or  business  on  which  tax  is  ini- 
y)0sed;in  former  case  tax  is  reckoned  for  one  year,  and  in  latter  case  it  is  reckoned 
proportionately  from  the  first  day  of  the  month  in  which  the  liability  to  special 
tax   commenced  to  1st  day  of  July  following.     (T.  D.  2750,  art.  1;  Atig.  9.  1918.) 

Tax  is  not  upon  par  value  of  capital  stock  but  upon  its  fair  average  value  for 
preceding  fiscal  year  ending  June  30:  fair  a  alue  of  entire  capital  stock  of  corporation 
is  not  necessarily  product  of  market  value  of  each  share  multiplied  by  number 
of  shares:  if  corporation  is  doing  any  business  it  is  taxed  on  its  entire  capital  stock, 
even  though  most  of  it  may  not  be  emplo\ed  in  the  business.  (T.  D.  2750,  art  7- 
Aug.  9,  1918.) 

Capital  stock  tax  is  measured  by  fair  value  of  total  capital  stock  including  surplus 
and  undivided  profits  for  year  preceding  the  taxable  year,  whether  conduct  of 
business  is  profitable  or  otherwise;  for  purpose  of  tax  fair  \a\ue  of  entire  ca])ital 
stock  of  going  concern,  regardless  of  stock  ownership  or  ability  of  individual  stoc-k- 
holders  to  liquidate  their  holdings,  is  required.  (T.  D.  2750,  Appendix  A-  Aut'  9 
1918.J  ■      . 

Tax  on  foreign  corporation  is  in  all  cases  to  be  computed  on  basis  of  average 
amount  of  capital  invested  in  transaction  of  its  business  in  the  United  States  during 
the  preceding  year,  except  for  deduction  of  legal  reserve  funds  in  case  of  insurance 
companies;  basis  of  tax  is  accordingly  different  from  that  in  i-ase  of  domestic  cor- 
porations, which  pay  tax  measured  by  fair  value  of  their  capital  stock.  (T.  1). 
2750,  art.  14,  Appendix  B;   Aug.  9,  1918.; 


90  CAPITAL  STOCK  TAX, 

Computation— Coutiuued. 
Deductions. 

No  deductions  are  allowed  corporations  organized  in  the  United  States  for  capital 
invested  in  England,  Franco,  and  other  foreign  countries.  (T.  D.  2417;  Dec.  16, 
191G.) 

No  deduction  is  allowed  corporations  organized  in  the  United  States  for  capital 
invested  outside  the  United  States;  if  corporation  is  doing  any  business,  it  is  taxed 
on  its  entire  capital  stock,  even  though  most  of  it  may  not  be  emploved  in  the 
business.     (T.  D.  2750,  art.  7;  Aug.  9,  1918.) 

From  the  total  fair  value  of  the  capital  stock  the  sum  of  $99,000  is  deductible, 
and  the  tax  is  upon  each  full  $1,000  of  any  balance;  accordingly  corporations,  the 
fau-  value  of  whose  capital  stock  is  not  more  than  $99,000,  are  not  subject  to  tax; 
howe^'er,  for  purpose  of  avoiding  errors  every  corporation  must  file  return,  even 
though  par  value  or  fair  value  of  its  capital  stock  does  not  exceed  $99,000.  (T.  I). 
2750,  art.  9;  Aug.  9,  1918.) 

The  amount,  if  any,  of  the  munition  manufacturer's  tax  imposed  by  Title  III  of 
the  act  of  September  8,  1916,  actually  paid  by  the  corporation  since  making  its  last 
previous  return  is  deductible  from  capital  stock  tax;  if  munition  manufacturer's 
tax  is  due  and  payable  but  has  not  l)een  paid  at  time  capital  stock  tax  becomes 
due  and  payable  no  credit  of  the  munition  manufacturer's  tax  is  permissible  until 
after  such  latter  tax  has  been  paid;  after  its  payment  the  credit  may  be  availed 
of  by  a  claim  for  refimd  of  so  much  of  capital  stock  tax  actually  paid  as  is  not  in 
excess  of  the  munition  manufacturer's  tax  which  became  due  and  payable  within 
the  same  calendar  year.     (T.  D.  3009;  Apr.  22,  1920.) 

Credit  of  payment  of  munition  manufacturer's  tax  applies  alike  to  foreign  corpora- 
tions and  to  domestic  corporations.     (T.  D.  2750,  art.  16;  Aug.  9,  191S.) 

From  fau-  value  of  entire  capital  stock  will  be  deducted  the  amount  of  $99,000, 
exemption  allowed  by  law,  and  tax  will  be  assessed  upon  balance  at  rate  of  50  cents 
for  each  full  $1,000  of  such  reminder;  only  amount  of  munition  manufactiuer'a 
tax  actually  paid  since  making  of  last  previous  retiun  prior  to  July  1.  1918,  is  de- 
ductible from  capital  stock  tax.     (T.  D.  2750,  Appendix  A;  Aug.' 9,  1918.) 

In  ascertaining  taxable  invested  capital,  exemption  for  amount  of  capital  in- 
vested in  United  St'ates  is  allowed  equal  to  such  proportion  of  $99,000  as  amount 
so  invested  bears  to  total  amount  of  invested  capital  of  the  corporation,  but  this 
exemption  applies  only  if  corporation  makes  retui-n  of  amount  of  capital  invested 
in  transaction  of  business  in  the  United  States  and  elsewhere,  and  cor  juration 
making  no  return  of  capital  invested  outside  the  United  States,  irrespective  of 
size  of  its  capital,  is  entitled  to  no  deduction.  (T.  D.  2750,  art.  15,  Appendix  B; 
Aug.  9,  1918.) 

No  deduction  is  allowed  in  return  of  a  holding  corporation  for  tax  paid  bv  a  sub- 
sidiary.    (T.  D.  2750,  art.  24;  Aug.  9,  1918.) 

Date  due. 

Capital  stock  tax  imposed  by  act  September  8,  1916,  became  effective  January  1 , 
1917,  and  is  to  be  paid  annually  in  advance  for  each  year  beginning  July  1,  except 
as  to  first  payment  for  the  six  montlis  ending  June  30",  1917,:  special  taxes  become 
due  on  1st  day  of  July  in  each  vear,  or  on  com.mencing  anv  trade  or  business  on  which 
such  tax  is  imposed.     (T.  D.  "2750,  art.  1;  Aug.  9,  1918!) 

Definitions — '  'Business. ' ' 

The  word  "business,"  as  used  in  act  September  8,  1916,  is  a  very  comprehensive 
term  and  embraces  everything  about  which  a  person  can  be  employed;  fair  test 
as  to  whether  or  not  a  corporation  is  doing  business  is  whether  the  corporation  has 
reduced  its  acti\'ities  to  the  owning  and  holding  of  property  and  the  distribution 
of  Its  avails  and  doing  only  the  acts  necessarv  to  continue  that  status,  or  is  still 
actn-e  and  is  mamtaming  its  organization  for  purpose  of  continued  efforts  in  pursuit 
ot  prolit  and  gain  and  such  actiA-ities  as  are  essential  to  those  piu-poses.  (T.  D. 
2750.  art.  4;  Aug.  9,  1918.) 

"Corporation." 

The  term  "corporation"  is  used  in  Regulations  No.  B8  (re^•i3ed)  for  convenience 

/^^iT  i--n^       "'•1?™*-^*'^*'^  company  or  association,"  and  "insurance  company." 
(T.  D.  2/^0,  art.  24;  Aug.  9,  1918.) 


CAPITAL  STOCK   TAX.  91 

D  ofmitions— Continued . 

"Organized  for  profit." 

A  corporation  is  organized  for  profit,  within  act  Pepteniber  8,  1916,  i£  its  stock- 
holders or  members  may  benefi-t  pecuniaiily  from  its  operations.  (T.  D.  2750, 
art.  2;  Aug.  9,  1918.) 

• "TJmted  States." 

"United  States,"  as  use<I  in  Regulations  No.  38  (revised),  includes  the  State.'?, 
the  Tenitories  of  Alaska  and  Hawaii,  and  the  District  of  Columbia.  (T.  D.  2750, 
art.  24;  Aug.  9,  1918.) 

Doing  business. 

The  word  "business,"  as  used  in  act  September  8,  1916,  is  a  very  comprehen.sive 
term  and  embraced  everything  about  wluch  a  person  can  be  employed;  fair  test  as 
to  whether  or  not  a  coipo ration  is  doing  business  is  whether  the  corporation  has  reduced 
its  activities  to  the  owTiing  and  holding  of  property  and  the  distribution  of  its  avails 
and  doing  only  the  acts  ncce.ssaiy  to  continue  that  status,  or  is  still  active  and  is 
maintaining  its  organization  for  purpose  of  continued  efforts  in  pursuit  of  profit  and 
gain  and  such  activities  as  are  essential  to  those  purposes.  (T.  D.  2750,  art.  4; 
Aug.  9,  1918.) 

Corporations  organized  for  purpose  of  doing  Ijusiness  and  actually  engaged  in  such 
activities  as  buying  timberlands  and  other  real  estate,  leasing  property,  collecting 
rents,  managing  office  buildings,  making  investments  of  profitij,  or  leasing  of  lands  and 
collecting  royalties,  managing  wharves,  dividing  profits,  and  in  some  cases  investing 
surplus,  are  engaged  in  business  witliin  meaning  of  act  Septembers,  191G.  (T.  ]>. 
2750,  art.  5;  Aug.  9,  1918.) 

Corporation  engaged  in  mining,  or  in  owning,  developing,  and  speculating  in 
mineral  lands,  is  doing  business;  corporation  formed  to  take  over  miscellaneous 
stocks,  bonds,  and  otlier  property,  to  negotiate  sale  of  various  items  from  time  to 
time  as  opportunity  and  judgment  dictate,  and  to  distribute  proceeds  from  time  to 
time  as  liquidation  is  effected,  is  organized  for  profit,  and  while  engaged  in  such 
liquidation  is  carrying  on  business.     (T.  D.  2750,  art.  5;  Aug.  9,  1918.) 

Holding  company  whose  objects  and  activities  are  exclusively  restricted  to  hold- 
ing the  stocks  and  securities  of  other  corporations,  and  a  corporation  all  of  v/hose 
property  and  business  is  operated  by  or  in  the  iiands  of  a  receiver  or  the  alien  prop- 
erty custodian,  ai-e  not  doing  business.     (T.  D.  2750,  art.  6;  Aug.  9,  1918.) 

Corporation  whicli  has  discontinu3d  active  operations  and  whose  sole  purpose 
and  a,cti\-it3^  is  limited  to  holding  title  to  parcel  of  real  estate  subject  to  long-term 
lease  and  to  receiving  and  distributing  rents  accndng  imder  such  lease  is  not  doing 
business.     (T.  D.  2750,  art.  6;  Aug.  9,^] 918.) 

Mere  receipt  of  income  from  leased  railroad  property,  wliich  is  used  in  business 
by  lessee  and  not  bj'  lessor,  and  receipt  of  interest  and  div-idends  from  invested 
funds,  bank  balances,  and  the  like,  and  distribution  thereof  among  stockholders  of 
corporation,  amount  to  no  more  than  receiving  ordinary  fruits  that  arise  from  or-Tier- 
ahip  of  property,  and  do  not  constitute  doing  business'  (T.  D.  2750,  art.  6;  Aug.  9, 
1918.) 

Exemptions. 

Tax  does  not  apply  to  any  corporation  not  engaged  in  business  during  any  part 
of  fiscal  year  preceding  year  for  which  tax  is  due,  but  if  it  was  in  business,  even  one 
day,  it  is  subject  to  the  tax;  there  is  no  relation  between  amount  of  tax  payable 
and  length  of  time  corjioration  vvas  in  business.     (T.  D.  27.50,  art.  11;  Aug.  9,  1918.) 

Corporation  organized  after  beginning  of  taxable  year  is  not  subject  to  tax  for 
remaining  portion  of  year  in  wliich  organized,  but  when  one  corporation  succeeds 
another  after  beginning  of  fiscal  year,  and  the  old  concern,  pursuant  to  agreement 
between  respective  organizations  during  preceding  fiscal  year,  ceases  to  do  business 
at  that  time,  business  being  carried  on  thereafter  by  new  concern,  new  corporation 
is  liable  to  tax;  tax  should  not  be  imposed  on  any  corporation,  joint-stock  company 
or  association,  or  insurance  company,  not  engaged  in  business  in  United  States 
dming  fiscal  vear  Julv  1,  1917,  to  June  30,  1918.  (T.  D.  2750,  art.  11,  Appendix  B; 
Aug.  9,  1918.) 

A  corporation  engaged  in  business  during  part  of  preceding  year,  but  not  engaged 
in  business  at  beginning  of  taxable  year,  is  not  reqiure'd  to  make  any  return  if  i1  is 
dissolved  or  in  process  of  dissolution,  l)ut  if  it  is  only  temporaiily  inactive  and  sub- 
sequently during  year  engages  in  business,  it  ahouUl  file  relmn  in  month  in  which 
it  recommences  business.     (T.  D.  2750,  art.  11;  Aug.  9,  1918.) 


92 


CAPITAL,  STOCK  TAX. 


Exemptions- rontinurd. 

. Agricultural  organizations. 

A <-ri cultural  organizatione  are  epecifirally  exempt  from  tax  imposed  by  section 
407  oflhe  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2750,  art.  12; 
Aus?.  9,  1918.) 

Provision  of  article  2,  of  RegxUations  38,  exempting  agricultural  organizations, 
onlv  applies  to  those  organizations  that  are  engaged  m  that  business  merely  for  the 
eeneral  welfare  and  benefit  of  the  public,  such  as  agricultural  fairs  or  exhibitions;  a 
corporation  engaged  in  general  farming,  raising  cattle,  or  the  agricultural  business  for 
iZtie  liable  to  the  tax.  (T.  D.  2417;  Dec.  16,  1916.  T.  D.  2750,  art.  12;  Aug.  9, 
1918.) 

Beneficiary  societies. 

Tax  does  not  apply  to  fraternal  beneficiary  society,  order,  or  association,  oper- 
ating under  lodge  system  or  for  exclusive  benefit  of  members  of  fraternity  itself 
operating  under  lodge  svstem.  and  providing  for  payment  of  life,  sick,  accident,  or 
other  benefits  to  members  of  such  societv,  order,  or  association,  or  their  dependents. 
(T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Boards  of  trade. 

Board  of  trade  not  organized  for  profit  and  no  part  of  net  income  of  which  inures 
to  benefit  of  anv  private  stockholder  or  individual,  is  exempt  from  tax  imposed  by 
section  407  of  the  act  of  September  8,  1916.     (T.  D.  2383;  Oct.  19,  1916.     T.  D. 
2750,  art.  12;  Aug.  9,  1918.) 
Building  and  loan  associations. 

Building  and  loan  associations  operated  exclusively  for  mutual  benefit  of  their 
members  are  exempt:  isstiance  of  prepaid  stock  does  not  destroy  mutuality.  (T.D. 
2383;  Oct.  19,  1916.    T.  D.  2418;  Dec.  15,  1916.) 

Tax  does  not  apply  to  domestic  building  and  loan  associations  with  no  capital 
stock  organized  and  operated  for  mutual  purposes  and  without  profit.  (T.  D.  2750, 
art.  12;  Aug.  9,  1918.) 

Business  leagues. 

Business  league  not  organized  for  profit  and  no  part  of  net  income  of  which  inures 
to  the  benefit  of  any  private  stockholder  or  individtial,  is  exempt  from  tax  imposed 
by  section  407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D. 
2750,  art.  12;  Aug,  9,  1«18.) 

Cemetery  companies. 

Cemetery  companies  owned  and  operated  exclusively  for  benefit  of  its  members 
are  exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8, 1916.  {T.  D. 
2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Chambers  of  commerce. 

Chamber  of  commerce  not  organized  for  profit  and  no  part  of  net  income  of  which 
inures  to  the  benefit  of  any  private  stockholder  or  individual,  is  exempt  from  tax 
imposed  bv  section  407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916. 
T.  D.  2750",  art.  12;  Aug.  9,  1918.) 

Charitable  organizations. 

Corporation  or  association  organized  and  operated  exclusively  for  charitable 
purposes,  no  part  of  net  income  of  which  inures  to  benefit  of  any  private  stockholder 
or  indiA'idual,  is  exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8, 
1916.     (T.  D.  2383;  Oct.  19,  1916.    T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Civic  leagues. 

Civic  leagues  or  organizations  not  organized  for  profit,  but  operated  exclusively 
for  promotion  of  social  welfare,  are  exempt  from  tax  imposed  by  section  407.of  the 
act  of  September  8, 1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2750,  art.  12;  Aug.  9, 
1918.) 

Commercial  clubs. 

Business  league,  chamber  of  commerce,  or  board  of  trade,  not  organized  for  profit 
and  no  part  of  net  income  of  which  inures  to  benefit  of  any  private  stockholder  or 
individual,  is  exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8, 
1916.     ^T.  D.  2383;  Oct.  19,  1916.    T.  D.  2750,  art.  12;  Aug*.  9,  1918.) 


CAPITAL  .STOCK  TAX.  93 

Exemptions — Continued. 

Cooperative  banks. 

Tax  does  not  apply  to  cooperative  banks  with  no  capital  stock  organized  and 
operated  for  mutual  purposes  and  without  profit.     (T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Educational  organizations. 

Corporation  or  association  organized  and  operated  exclusively  for  educational 
purposes,  no  part  of  net  income  of  which  inures  to  benefit  of  any  private  stock- 
holder or  indi\"idual,  is  exempt  from  tax  imposed  by  section  407  of  the  act  of 
September  8,  1916.     (T.  D.  2333;  Oct.  19,  19iG.    T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Farmers'  organizations. 

Farmers'  or  other  mutual  insurancij  company,  mutual  ditch  or  irrigation  com- 
pany, mutual  or  cooperative  telephone  company,  or  like  organization  of  purely 
local  character,  income  of  which  consists  solely  of  assessments,  dues,  and  fees  col- 
lected from  members  for  sole  purpose  of  meeting  expenses,  and  associations  organ- 
ized and  operated  as  sales  agent  for  purpose  of  marketing  products  of  members  and 
turning  back  to  them  proceeds  of  sales  le.s3  necessary  selling  expenses  on  basis  of 
quantity  of  produce  furnished  by  them,  are  exempt  from  tax  imposed  bv  section 
407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2750,  art. 
12;  Aug.  9,  1918. 

Federal  land  banks. 

Federal  land  banks,  as  provided  in  section  26  of  act  of  Julv  17,  1916,  are  exempt 
from  tax  imposed  bv  section  407  of  act  of  September  8,  1916.  (T.  D.  2383;  Oct. 
19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

— —  Foreign  corporations. 

pjxemption  from  tax  of  certain  corporations  applies  to  foreign  and  to  domestic  cor- 
porations.    (T.  D.  2750,  art.  16;  Aug.  9,  1918.) 

Fraternal  beneficiary  societies. 

Fraternal  beneficiary  society,  order,  or  association,  operating  Tinder  the  lodge 
system,  or  for  the  exclusive  benefit  of  the  members  of  a  fraternity  itself  operating 
under  the  lodge  system,  and  pro\'iding  for  payment  of  life,  sick,  accident,  or  other 
benefits  to  members  of  such  society,  order,  or  association,  or  their  dependents,  is 
exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8,  1916.  ^T.  D. 
2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

■ Fruit  growers'  associations. 

Friiit  growers'  association  organized  and  operated  as  sales  agent  to  market  prod- 
uct of  its  members,  turning  back  to  them  proceeds  of  sales,  less  necessary  selling 
expenses,  on  basis  of  quantity  of  produce  furnished  by  them,  is  exempt  from  tax 
imposed  by  section  407  of  the  act  of  September  8,  1916'.  (T.  D.  2383;  Oct.  19,  1916. 
T.  1).  2750,  art.  12;  Aug.  9,  1918.) 

Holding  companies. 

Corporation  or  association  organized  for  exclusive  purpose  of  holding  title  to 
property,  collecting  income  therefrom,  and  turning  over  entire  amount  thereof, 
less  expenses,  to  an  organization  which  itself  is  exempt  from  tax,  is  exempt  from 
tax  imposed  bv  section  407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19, 
1916.    T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

■ Horticultural  organizations. 

Ilorticiiltural  organizations  are  specifically  exempt  from  tax  imposed  by  section 
407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2750,  art.  12^ 
Aug.  9,  1918.) 

Provision  of  article  2,  of  Regulations  38,  exempting  from  tax  horticultural  organi- 
zations only  applies  to  those  corporations  that  are  engaged  in  that  business  merely 
for  the  general  welfare  and  benefit  of  the  public,  siich  as  horticultural  fairs  or  ex- 
hibitions.    (T.  D.  2417;  Dec.  16,  1916.) 

Joint-stock  land  banks. 

Tax  does  not  apply  to  joint-.'^tock  land  banks  as  to  income  derived  from  bonds  or 
debentures  of  other  joint-stock  land  banks  or  Federal  land  bank  belonging  to  such 
joint-stock  land  bank.     ^T.  D.  2750,  art.  12;  Aug.  9,  1918.) 


94  CAPITAL.  STOCK   TAX. 

Exemptions— Continued. 
—  Labor  organizations. 

Labor  organizations  ai-e  specifically  exempt  from  tax  imposed  by  section  407  of 
theactof  September  8, 1916.     (T.  D.  2383;  Oct.  19, 191G;  T.  D.  2750,  art.  12;  Aug.  9, 
1918.) 
Mutual,  etc.,  companies. 

Farmers'  or  other  mutual  ditch  or  irrigation  company  of  purely  local  character, 
or  mutual  hail,  cyclone,  or  fire  insurance  company,  or  mutual  or  cooperative  tele- 
phono  company,  income  of  which  consists  solely  of  assessments,  dues,  and  fees 
collected  from  members  for  sole  purpose  of  meeting  expenses,  is  exempt  from  tax 
imposed  by  section  407  of  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916. 
T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Mutual  savings  bank  not  having  capital  stock  represented  by  shares  is  specifically 
exempt  from  tax  under  section  407  of  the  act  of  September  8,  1916.  (T.  D.  2383; 
Oct.  19,  1916.    T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Those  corporations,  joint-stock  companies  or  associations,  or  insurance  companies, 
which  are  exempt  from  income  tax  under  the  provisions  of  section  11,  Title  I,  of 
the  act  of  September  8,  1916,  are  made  specifically  exempt  fi'om  the  capital  stock 
tax  under  section  407,  Title  IV,  of  such  act.     (T.  D.  2383;  Oct.  19,  1916.) 

Inasmuch  as  the  basis  of  tax  imposed  on  capital  stock  by  the  act  of  September 
8,  1916,  is  the  fair  value  of  the  stock  of  a  corporation,  mutual  insurance  companies 
and  other  associations  not  having  capital  stock  represented  by  shares,  will  be  ex- 
empt from  tax  in  the  absence  of  a  basis  for  the  computation  of  the  tax.  (T.  D. 
23S3;  Oct.  19,  1916.) 

Cooperative  banks  without  capital  stock  organized  and  operated  for  mutual  pur- 
poses and  without  profit  are  exempt  from  tax  imposed  bv  section  407  of  the  act  of 
September  8,  1916.     (T.  D.  2383;  Oct.  19,  1916.    T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

National  farm-loan  associations. 

National  farm-loan  associations,  as  provided  in  section  26  of  the  act  of  July  17, 
*    1916,  are  exempt  from  tax  imposed  by  section  407  of  act  of  September  8,  1916. 
(T.  D.  2383;  Oct.  19,  1916.    T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Beligious  organizations. 

Corporation  or  association  organized  and  operated  exclusively  for  religious  pur- 
poses, no  part  of  net  income  of  which  inures  to  benefit  of  any  private  stockholder 
or  indi\-idual,  is  exempt  from  tax  imposed  by  section  407  of  the  act  of  September 
8,  1916.     (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Scientifi.c  organizations. 

Corporation  or  association  organized  and  operated  exclusively  for  scientific  pur- 
poses, no  part  of  net  income  of  which  inures  to  benefit  of  any  private  stockholder 
or  individual,  is  exempt  from  tax  imposed  by  section  407  of  the  act  of  September 
8,  1916.     (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Social  clubs. 

Clubs  organized  and  operated  exclusively  for  pleasure,  recreation,  and  other  non- 
profitable  purposes,  no  part  of  net  income  of  which  inures  to  benefit  of  any  private 
Etockholder  or  member,  is  exempt  from  tax  imposed  bv  section  407  of  act  of  Sep- 
tember 8,  1916.     (T.  D.  2383;  Oct.  19,  1916.    T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Fair  value  of  stock. 

Tax  13  not  upon  par  value  of  capital  stock  but  upon  its  fair  average  value  for 
preceding  fiscal  year  ending  June  30;  as  regards  domestic  corporations  it  is  on  en- 
«  tirely  different  basis  from  excess  profits  tax,  which  is  concerned  with  invested 
capital  and  not  with  present  fair  value  of  the  capital;  fail-  value  of  entire  capital 
stock  is  not  necessarily  i>roduct  of  market  value  of  each  share  multiplied  by  number 
of  shares.     (T.  D.  2750,  art.  7;  Aug.  9,  1918.) 

In  ascertaining  value  of  capital  stock  for  purpose  of  tax,  such  deposits  and  reserA-e 
funds  of  insurance  companies  as  they  are  required  by  law  or  contract  to  maintain  or 
liold  for  protection  of  or  pajmient  to  or  apportionment  among  policyholders  are 
to  bo  omitted;  aside  from  such  legal  reserve  funds  the  capital  stock  of  mutual  in- 
surance compames  consists  of  any  capital  or  surplus  or  contiogent  reserves  invested 
in  real  estate  and  other  assets  or  maintained  for  the  general  use  of  the  business. 
(T.  D.  2750,  art.  8;  Aug.  9,  1918.) 


CAPITAL  STOCK   TAX.  95 

Fair  value  of  stock — Continued. 

Fair  value  of  capital  stock  is  not  necessarily  the  book  value  or  the  market  value, 
or  even  the  earning  value,  although  it  is  often  more  directly  dependent  upon  the 
last;  it  can  best  be  estimated  by  officers  of  corporation  liaving  special  knowledge 
of  its  affaii's  and  general  knowledge  of  line  of  business  in  which  it  is  engaged;  fair 
value  shown  Ijy  Exhibit  C  must  not  be  set  at  a  sum  less  tlian  the  reconstructed 
book  value  shown  by  Exhibit  A,  or  market  value  shoAvn  by  Exhibit  B,  unless 
corporation  is  materially  affected  by  extraordinary  conditions  which  justify  lower 
figures;  commissioner  will  estimate  fair  value  in  casa?  regarded  as  involving  any 
understatement  or  undervaluation;  when  second  assessment  is  made,  no  tax  col- 
lected under  such  assessment  shall  be  recovered  in  any  suit  unless  it  is  proved  that 
return  was  not  false  or  fraudulent  and  did  not  contain  any  understatement  or  under- 
valuation.    (T.  D.  2750,  art.  19;  Aug.  9,  1918.) 

Tax  is  measured  by  fair  value  of  total  capital  stock,  including  surplus  and  undi- 
vided profits  for  year  preceding  the  taxable  year,  whetlier  conduct  of  business  is 
profitable  or  otherwise:  fair  value  of  entire  capital  stock  of  going  concern,  regardless 
of  stock  ownership  or  ability  of  individual  stockholders  to  liquidate  tlieir  holdings, 
is  required;  sales  prices  for  any  number  of  shares  of  stock  less  than  majority  interest 
are  not  necessarily  indicative  of  fair  value  of  entue  capita.1  stock;  capital  invested, 
nature  of  business,  kind  of  assets  (slow  or  quick  turning),  good  will,  franchises, 
earning  capacity,  etc.,  are  importaat  factora  that  affect  worth  of  enterprises  and 
must  be  given  due  consideration  in  arriving  at  fair  value  at  any  given  date.  (T.  D. 
2750,  Appendix  A;  Aug.  9,  1918.) 

Fair  average  value  of  capital  stock  and  tax  payable  thereon  shall  be  determined 
in  accordance  with  instructions  in  Form  707,  which  provides  in  Exhi]>it  A  for  book 
value  of  capital  stock,  in  Exhibit  B  for  market  value,  and  in  Exhibit  C  for  value 
based  on  cai)italizing  the  earnings.     (T.  D.  2750,  art.  18,  Appendix  A ;  Aug.  9, 1918 . ) 

Imposition  of  tax — Domestic  corporations,  etc. 

Section  407  of  the  act  of  September  8,  1916,  imposes  a  special  excise  tax  with  re- 
spect to  the  carrying  on  or  doing  business  by  corporations,  joint-stock  companies  or 
associations,  or  insurance  companies  organized  in  the  Unite<l  States  for  profit,  and 
having  a  capital  stock  represented  by  shares,  50  cents  for  each  $1,000  of  the  fair  value 
of  the  capital  stock  in  excess  of  $99,000,  except  in  certain  enumerated  instances. 
(T.  D.  23S3;   Oct.  19,  1916.) 

— —  "Engaged  in  business." 

If  purpose  for  which  corporation  was  organized  was  to  build  and  lease  property, 
rents  derived  from  such  lease  are  taxable  even  though  thereby  the  corporation  leases 
all  the  propertv  and  of  necessity  goes  out  of  all  corporate  business  excepting  the  col- 
lection and  distribution  of  the  rents.     (T.  D.  2418';   Dee.  15,  1916.) 

Corporations  engaa:ed  in  mining  are  subject  to  the  tax.  (T.  D.  2418;  Dec.  15, 
1916.    T.  D.  2457;  Mar.  14,  1917.) 

Railroad  corporation  which  has  leased  its  property  for  a  term  of  years  and  parted 
with  its  control  and  management,  but  which  maintains  its  corporate  organization 
and  collects  rentals  from  lessee  company,  and  distributes  same  among  its  stockholders 
is  not  engaged  in  business  so  as  to  be  liable  for  tax,  notwithstanding  lease  provides 
for  recover^'  of  property  in  case  of  default;  this  docs  not  apply  where  corporation  is 
organized  for  ostensible  purpose  of  building  and  operating  a  i-ailroad  and  leases  the 
road  before  it  is  built.     (T.  D.  2418;   Dec.  lo,  1916.) 

When  corporation  owning  property  has  gone  out  of  business  in  connection  there- 
with and  disqualified  itself  from  anv  acti^•ity  in  regard  to  it  there  is  no  liability  to 
tax.     (T.  D.  2418;   Dec.  15,  1910.)  " 

A  corporation  originally  organized  for  the  purjiose  of  owning  and  renting  an  office 
building  which  leased  the  property  for  130  years  and  reorganized  and  practically 
went  out  of  business,  its  sole  authority  being  to  hold  the  title  subject  to  the  lease  and 
to  receive  and  distribute  the  rentals  accruing  thereunder  or  the  proceeds  of  sale,  if 
the  property  should  be  sold,  is  not  liable  to  tax.     (T.  D.  2418;   Dec.  15,  1916.) 

Corporations  whose  business  in  principally  the  holding  and  man2«Tement  of  real 
estate  are  actually  '  'engaged  in  business  "  so  as  to  be  subject  to  the  tax  imposed  bv 
section  407  of  the  act  of  September  8,  1916.     (T.  D.  2418;   Dec.  15,  1916.) 

A  ' '  holding  company, ' '  organized  in  the  United  States  for  the  purpose  of  acquiring 
and  holding  capital  stock  of  subsidiary  companies,  and  actually  engaged  in  holding 
such  stock,  voting  thereon,  receiving  dividends  thereon,  and  distributing  money 
among  its  own  shareholders,  is  engaged  in  business  within  the  meaning  of  act  of 
September  8,  1916,  and  is  subject  to  special  excise  tax  imposed  imder  section  407, 


96  CAPITAL   STOCK   TAX. 

Imposition  of  tax— Continued. 

. "Engaged  in  business" — Continued. 

and  this  applies  to  all  holding  companiee  organized  in  the  United  States  for  profit, 
even  though  the  subsidiary  companies  operate  exclusively  in  foreign  countries;  hold- 
ing c-ompanies  required  to  lile  returns  on  Form  707,  and  will  be  held  strictly  liable  to 
penalties  imposed  for  failure  to  make  returns  within  prescribed  time.  (T.  D.  2429; 
Jan.  4,  1917.) 

— ^ —  Foreign  corporations. 

Section  407  of  the  act  of  September  8,  1916,  imposes  a  special  excise  tax  with 
respect  to  the  carrying  on  or  doing  business  by  every  corporation,  joint-stock  com- 
pany or  association,  or  insurance  company,  organized  for  profit  under  laws  of  any  for- 
eign country  and  engaged  in  business  in  the  United  States,  50  cents  for  each  $1,000 
of  the  capital  actually  invested  in  the  transaction  of  its  business  in  the  United 
States.  Certain  exemption  allowed  if  total  amount  invested  in  United  States  or 
elsewhere  is  stated.     (T.  D.  2383;  Oct.  19,  1916.) 

Canadian  corporation  making  news  print  paper  which  sends  agents  into  the  United 
States  to  solicit  purchasers  for  its  product,  paying  their  expenses,  hiring  desk  room 
in  the  United  States,  empowering  salesmen  to  make  written  contracts,  in  part  in  the 
United  States,  subject  to  corporation's  approval  in  Canada,  and,  when  approved,  to 
deliver  the  contracts,  pajdng  rent,  storage  charges  on  paper  shipped  into  United 
States,  and  also  for  work  done,  by  checks  drawn  on  banks  in  United  States  where 
company  keeps  its  funds  received  from  goods  delivered  in  the  United  States,  and 
then,  to  perform  its  written  contracts,  shipping  paper  consigned  to  itself  in  the 
United  States  to  different  points  where  it  hired  storage  rooms  to  store  paper  in  ita 
own  name  and  at  its  own  risk,  pending  delivery,  is  engaged  in  business  and  is  doing 
business  in  United  States  so  as  to  be  subject  to  the  tax  imposed  by  section  407  of  the 
act  of  September  8,  1916.     (T.  D.  2418;   Dec.  15,  1916.) 

The  amount  of  capital  invested  in  transaction  of  business  in  United  States  by  for- 
eign insurance  companies  is  the  amount  of  "surplus  to  policyholders,"  as  shown 
by  convention  form  of  report  to  State  insurance  departments;  foreign  companies  are 
permitted  to  state  amounts  of  surplus  to  policyholders  as  shown  by  report  for  last 
Hfival  year,  ending  December  31,  1916,  the  only  deduction  allowed  being  amount  of 
deposits  actually  required  by  States  in  which  company  is  transacting  business. 
(T.  D.  2503;  June  25,  1917.) 

— —  Insurance  companies. 

Tax  imposed  by  act  September  8,  1916,  applies  to  insurance  companies  organized 
under  statute  or  deriving  from  that  source  some  quality  or  benefit  not  existing 
at  common  law,  irrespective  of  whether  or  not  they  are  organized  for  profit  or  have 
capital  stock  represented  by  shares;  mutual  and  participating  plan  companies  are 
included;  and  mutual  protective  associations  organized  under  statute,  whose  only 
source  of  revenue  is  assessments  paid  by  members  and  whose  net  income  for  each 
year  is  paid  into  reserve  fund  constituting  sole  resource  of  company,  aside  from 
current  assessments,  for  payment  of  losses,  is  insurance  company  within  meaning 
of  statute.     (T.  D.  2750,  art.  3;  Aug.  9,  1918.) 

In  ascertaining  vahie  of  capital  stock  for  purpose  of  tax  such  deposits  and  reserve 
funds  of  insurance  companies  as  they  are  required  by  law  or  contract  to  maintain 
or  hold  for  protection  of  or  payment  to  or  apportionment  among  policyholders  are 
to  be  omitted;  aside  from  such'legal  reserve  funds  the  capital  stock  of  mutual  insur- 
ance companies  consists  of  any  capital  or  surplus  or  contingent  reserves  invested 
in  real  estate  and  other  assets  or  maintained  for  the  general  use  of  the  business. 
(T.  D.  2750,  art.  8;  Aug.  9,  1918.) 

Tax  is  payable  by  every  corporation,  joint-stock  company  or  association,  or 
insurance  company,  now  or  hereafter  organized  for  profit  under  laws  of  any  foreign 
country  and  engaged  in  business  in  the  United  States;  in  general,  same  kinds  of 
companies  and  associations  are  included  as  in  case  of  domestic  corporations,  except 
that  to  be  taxable  they  must  be  organized  under  some  statute  or  derive  from  that 
source  some  quality  or  benefit  not  existing  at  the  common  law;  foreign  corporation 
is  engaged  m  business  in  United  States  if  it  maintains  agents  or  an  office  or  ware- 
hou.£e  here,  or,  in  case  of  insurance  company,  writes  insurance  policies  here,  or 
in  any  other  way  enters  the  United  States  for  "purpose  of  its  business.  (T.  D.  2750, 
art.  13,  Appendix  B;  Aug.  9,  1918.) 

Tax  on  foreign  corporation  is  in  all  cases  to  be  computed  on  basis  of  average 
amount  of  capital  invested  in  transaction  of  its  business  in  the  United  States  during 
the  preceding  year,  except  for  the  deduction  of  legal  reserve  funds  in  case  of  insur- 
ance companies;  basis  of  tax  is  accordingly  different  from  that  in  case  of  domestic 


CAPITAL   STOCK   TAX.  97 

Imposition  of  tax-  rontiniicd. 

— ^ —  Insurance  companies — Continued, 
rorporations.  which  pay  tax  measured  by  fair  vahio  of  their  capital  stock.     (T.  D. 
2750,  art.  14',  Appendix  B;  Aug.  9,  1918.) 

Insiirance  companies  organized  under  statute,  engaged  in  business  at  any  time 
during  preceding  year  July  1,  1917,  to  June  30,  1918,  and  not  specifically  exempt 
under  section  11,  Title  1,'  act  September  8,  1916,  must  fde  return;  mutual  and 
participating  plan  insurance  companies  are  included.  (T.  D.  2750,  Appendix  A; 
Aug.  9,  1918:) 

Every  in.^urance  company,  now  or  hereafter  organized  for  profit  under  the  laws 
of  any  foreign  countrv  and  engaged  in  business  in  the  United  States,  shall  be  liable 
to  special  excise  tax'of  50  cents  for  each  full  $1,000  (less  the  proportion  of  $99,000 
as  amount  of  capital  invested  in  United  States  bears  to  total  amount  invested  in 
transaction  of  business  in  the  United  States  or  elsewhere)  of  capital  invested  in 
transaction  of  its  business  in  the  United  States,  except  such  companies  and  asso- 
ciations as  are  specifically  exempt  under  suction  11,  Title  I,  act  September  8,  1916. 
(T.  D.  2750,  Appendix  B;  Aug.  9,  1918.) 

Joint-stock  companies  or  associations. 

Tax  imposed  by  act  September  8.  191(i,  applies  to  every  joint-stock  company  or 
association  now  or  hereafter  organized  in  the  United  States  for  profit  and  having 
capital  stock  represented  by  shares,  u-respective  of  whether  ii  is  creature  of  statute 
or  of  contract;  joint-stock  associations  not  organized  under  the  statute  and  so-called 
Massachusetts  trusts  are  subject  to  the  tax.     (T.  D.  2750,  art.  2;  Aug.  9,  1918.) 

Every  joint-stock  company  or  association  engaged  in  business  at  any  time  during 
preceding  year  July  1,  1917',  to  June  30,  1918,  and  not  specifically  exempt  under 
section  11,  Title  I,  act  September  8,  1916,  must  file  returns;  joint-stock  associations 
not  organized  under  the  statute  are  subject  to  the  tax.  (T.  D.  2750,  Appendixes 
A,  B;  Aug.  9,  1918.) 

So-called  Massachusetts  trusts  are  subject  to  tax  imposed  by  act  September  8, 
1916.     (T.  I).  2750,  art.  2,  Appendix  A;  Aug.  9,  1918.) 

Limited  partnership. 

Limited  partnerships  of  the  Pennsyh  ania  type,  which  offer  opportunity  for  limit- 
ing liability  of  all  the  "members,  provide  for  transferability  of  partnership  shares,  and 
capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are  corporations  or 
joint-stock  companies;  limited  partnerships  of  New  York  type,  which  can  not  limit 
liability  of  general  partners,  although  special  partners  enjoy  limited  liability  so  long 
as  they'observe  statutory  conditions,  and  which  are  dissolved  by  death  or  attempted 
transfer  of  interest  of  general  partner,  and  which  can  not  take  real  estate  or  sue  in 
partnership  name,  are  partnerships;  in  doubtful  cases  limited  partnerships  will  be 
treated  as  corporations  unless  they  submit  satisfactory  proof  that  they  are  not  in  effect 
so  organized.     (T.  D.  2711;  May  9,  1918.) 

Limited  partnerships  of  the  New  York  type,  having  practically  no  characteristics 
of  a  corporation  or  joint-stock  company  except  limited  liability  as  to  some  of  the 
])artners,  are  not  within  scope  of  tax  imposed  by  act  September  8,  1916.  (T.  D. 
2750,  art.  2;  Aug.  9,  1918.) 

Pennsylvania  partnerships  -with  limited  liability  and  similar  so-called  limited 
partnerships  or  partnership  associations,  having  perpetual  succession  and  capable 
cf  taking  title  to  real  estate  and  suing  in  common  name,  are  subject  to  tax  imposed 
by  act  September  8,  1916,  although  they  may  not  issue  stock  certificates  to  evidence 
tlie  shares  of  the  members.    (T.  D.  2750,  art.'2.  Appendix  A;  Aug.  9,  1918.) 

- —  Trusts. 

The  capital  stock  tax  is  imposed  only  on  such  corporations  and  associations  as  are 
organized  under  some  statute  or  derive  from  that  source  some  quality  or  benefit  not 
existing  at  the  common  law;  trusts  which  do  not  derive  any  benefit  from,  and  are 
not  organized  under,  statutory  laws,  not  having  perpetual  succession  but  ending 
with  lives  in  being  and  20  years  thereafter,  are  not  subject  to  tax.  (T.  D.2418;  Dec. 
15,  1916.) 

Nature. 

Tax  is  an  excise  tax  on  prixnlege  of  doing  business  similar  to  occupational  taxes 
imposed  on  individuals  except  that  in  case  of  a  flat  tax  the  amount  of  tax  is  measured 
by  the  average  value  of  the  stock  during  the  preceding  year.  (T.  D.  2423;  Dec. 
30,  1916.) 

70420"— 21 — -7 


93  CAPITAL   STOC'K   TAX. 

Payment    -Advance. 

The  capital  stock  tax,  being  a  privilege  or  occupational  tax,  is  payable  in  ad- 
vance for  period  from  time  act  went  into  effect  to  end  of  fiscal  year,  and  annu- 
allv  tliereafter  in  July,  the  beginning  of  the  governmental  fiscal  year;  tax  was 
payable  to  collector  at  any  time  after  Jamiary  1,  1917.     (T.  D.  2423;  Dec.  30, 191G.) 

Capital  stock  tax  imposed  by  act  September  8,  191G,  became  effective  January 
1  1917.  and  is  to  be  paid  annually  in  advance  for  eacli  year  beginning  July  1,  except 
as  to  first  payment  for  six  months  ending  June  30,  1917;  the  tax  due  July  1,  1918, 
is  an  excise  tax  payable  in  advance  for  privilege  of  doing  business  from  July  1, 
1918,  to  June  30,  1919.    (T.  D.  2750,  art.  1,  Appendixes  A,  B;  Aug.  9,  1918.) 

— —  Demand. 

Collector  shall  within  10  day.s  after  recei\'iag-  any  list  of  taxes  from  Commissioner, 
give  notice  to  each  corporation  liable  to  pay  aiiy  tax  stated  therein,  to  be  left  at 
his  place  of  business  or  to  be  sent  by  mail,  stating  the  am.ount  of  such  tax  and  de- 
manding payment  thereof;  collector  may  accept  payment  of  tax  when  return  is  filed 
as  an  "advance  collection,"  subject  to  any  adjustment  later  found  necessary,  but 
no  corporation  is  required  to  pay  tax  until  after  notice  and  demand.  (T.  D.  2750, 
art.  23,  Appendixes  A,  B:  Aug.  9,  1918.) 

—  Notice. 

Collector  shall  within  10  days  after  receiving  any  list  of  taxes  from  Commissioner, 
give  notice  to  each  corporation  liable  to  pay  any  tax  stated  therein,  to  be  left  at 
his  place  of  business  or  to  be  sent  by  mail,  stating  the  amount  of  such  tax  and  de- 
manding payment  thereof;  collector  may  accept  ]>ayment  of  tax  when  return  is  filed 
as  an  '"advance  collection,"  subject  to  any  adjustment  later  found  necessary,  but 
no  corporation  is  required  to  pay  tax  until  after  notice  and  demand.  (T.  D.  2750,  art. 
23,  Appendixes  A,  B:  Aug.  9,  1918.) 

■ Time. 

Tax  is  payable  to  collector  at  any  time  after  July  1,  1918;  if  corporation  docs 
not  pay  tax  wdthin  10  days  after  service  or  sending  by  mail  of  notice,  collector  shall 
collect  tax  with  penalty  of  5  per  cent  additional  on  amount  of  tax  and  interest  at 
rate  of  1  per  cent  a  month;  collector  has  no  authority  to  extend  time  for  payment,  and 
any  extension  gi-anted  would  l>e  at  collector's  risk;  collector  may  accept  payment 
of  tax  when  return  is  filed  as  an  '"advance  collection,"  subject  to  any  adjustment 
later  found  necessary,  but  no  corporation  is  required  to  pay  tax  until  after  notice 
and  demand.    (T.  D.  2750,  art.  23,  Appendixes  A,  B;  Aug.  9,  1918.) 

P  enalties. 

Every  company  or  association  subject  to  special  tax  under  section  407  of  the  act 
of  Septeml>er  8,  1916,  which  fails  to  make  returns  during  months  of  January,  1917, 
and  July,  1917,  and  annually  in  July  thereafter,  is  liable  to  penalties  imposed  by 
section  3176,  Revised  Statutes,  as  amended  by  section  IGOO  of  September  8,  1910; 
in  addition  to  such  penalty  a  specifi.c  i>enalty  is  pro-\-ided  by  section  408  of  the  act 
of  September  S,  1916;  upon  failure  to  jjaytax  within  10  days  after  notice  and 
demand,  penalty  of  5  per  cent  of  tax  tuipaid  and  interest  at  rate  of  1  per  cent  per 
month  until  paid  shall  be  added  to  aniount  of  such  tax.  (T.  D.  2383;  Oct.  19, 
191G.     T.  D.  2423;  Dec.  30,  1916.) 

The  50  per  cent  j>enalty  for  delinquency  in  filing  returns  as  well  as  the  specific 
penalty  imposed  by  section  4t)S  of  the  act  of  September  8,  1916,  ^>-  corporations  for 
attempting  to  do  business  Vvithout  payment  of  special  tax  will  be  strictly  enforc-cd 
against  corporations  that  fail  to  file  retarns  within  the  time  prescribed  bv  law  or 
by  the  collector.     (T.  D.  2-503;  June  25,  1917.) 

Paniskment  for  violation  of  la"W. 

Evei-y  corporation  which  does  busiiiess  without  having  paid  tax  shall  be  deemed 
guilty  of  misdemeanor  and  upon  conviction  thereof  shall  pay  fine  of  not  more  than 
5500;  in  addition  to  pimishTnent  specified  -where  corporation  fails  to  make  and  file 
return  within  time  prescribed,  there  shall  be  added  to  the  tax  50  per  cent  of  its 
amount;  in  case  of  false  or  fraudulent  return,  willfully  made,  there  shall  be  added 
to  the  tax  100  per  cent  of  its  amount;  wiiere  corpoi-atioa  does  not  pay  tax  within 
10  days  after  service  or  sending  of  notice,  penalty  of  5  per  cent  additional  upon 
amount  of  tax  and  interest  at  rate  of  1  per  cent  a  month  shall  bo  added.  (T.  D. 
2750,  arts.  17,  22,  23,  Appendix  B;  Aug.  9,  1918.) 


CAPITAL  STOCK  TAX.  99 

Rate — ^Doniestic  corporations. 

Tlio  tax  is  at  the  rate  of  uU  cents  for  each  full  $!  ,000  of  the  fair  value  of  the  cajiital 
stock  of  a  coi-poration,  iu  estimating  which  surplus  and  undivided  profits  shall  ho 
included.     (T.  D.  2750,  art.  7;  Aug.  0,  1918.) 

— —  Foreign  corporations. 

Tax  is  at  the  rate  of  50  cents  for  each  full  $1,000  of  the  capital  of  the  {oreic;u  cor- 
j)oration  actually  invested  in  transaction  of  its  business  in  the  United  Statcj. 
(T.  D.  2750,  art. "14,  Appendix  B;  Aug.  9,  1918.) 

Refund. 

No  tax  is  rciuudablo  if  corporation  ceases  to  do  biisiness  during  the  year.  (T.  I>. 
2750,  art.  1;  Aug.  9,  1918.) 

Commissioner  of  Internal  Revenue  will  estimate  fair  value  of  capital  stock  in 
cases  regarded  as  inA'olviug  any  imderstatemeut  or  imderval nation;  wheii  second 
assessment  is  made  in  case  of  any  return  which  in  opinion  of  collector  was  false  or 
fraudulent,  or  contained  any  nnderstatement  or  undervaluation,  no  tax  collected 
Tinder  such  assessment  shall  be  recovered  by  any  suit  imlessitis  proved  that  return 
was  not  false  or  fi-aitdulent  and  did  not  contain  anv  undei-statement  or  i;nder\'alu- 
ation.     (T.  D.  2750,  art.  19;  Ang.  9,  1918.) 

B.ecurns. 

Tax  which  became  cIToctive  January  1,  1917,  was  payable  in  January,  1917,  on 
returns  to  be  made  during  that  month  for  the  six  months  ending  June  39,  1917;  in 
July,  1917,  and  annuallv  in  Julv  thereafter,  returns  required  to  be  made  and  tax 
paid  foi-  ensuing  fiscal  year.     (T.  D.  2383;  Oct.  19,  191G.) 

Every  corporation,  joint-stock  comj^any  or  association,  or  bisurance  company, 
organized  in  the  Tnited  States  for  proht  and  having  a  capital  stick  iss'aed  and  out- 
standing represented  by  shares  of  market  value  of  §75,000  or  over  and  which  are 
not  exempt,  required  to  make  return,  setting  forth  specific  data,  on  Form  707, 
irrespective  of  par  value  of  the  capital  stock,  unless  such  corporation,  etc.,  was  not 
engaged  in  business  during  the  preceding  taxable  vear,  which  'for  the  return  due 
January  1,  1917.  was  the  fiscal  vear  Julv  1,  1915,  to  June  30,  1916.  (T.  D.  2383; 
Oct.  19,  1916.) 

Suggestions  as  to  estimating  fair  value  of  stock  under  Cases  II  and  HI  of  article  4, 
item "(6),  on  Form  707.     (T.  D.  2423;  Dec.  30,  191G.) 

I'^very  corporation,  joint-stock  company  or  association,  or  insurance  company 
organized  for  profit  under  the  laws  of  any  foreign  countrj-  and  engaged  in  busmcss 
in  the  United  States,  required  to  make  return,  containing  specified  data,  on  Form 
708,  irrespective  of  amount  of  capital  emploved  either  at  home  or  in  this  country  in 
the  transaction  of  its  business.     (T.  D.  2383";  Oct.  19,  1916.) 

Suggestions  made  with  regard  to  supplying  information  required  on  Form  707, 
and  errors  noted  in  printing  such  form.     (T.  D.  2417;  Dec.  16,  1918.) 

Capital  stock  that  has  once  been  issued  by  a  corporation  is  regarded  as  being 
"o\itstanding,"  even  though  it  is  afterwards  acquired  by  the  company  for  ^alue, 
and  carried  on  the  books  as  treasury-  stock.     (T.  D.  2417;  Dec.  16,  1916.) 

Provision  in  Regulations  38  requiring  ever>'  United  States  corporation  having 
capital  stock  outstanding  of  market  or  fair  value  of  $75,090  or  over  to  file  return  on 
Form  707,  even  though  lair  value  of  its  capital  stock  does  not  exceed  $99,000,  ex- 
emptioJi  allowed  by  law,  was  for  purpose  of  leaving  final  determination  of  question 
of  tax  liabilitv  of  company  for  the  collector  or  the  Commissioner  of  Internal  Re"\e- 
nue.    (T.  D.  2417;  Dec.  16,  1916.) 

Fact  that  corporation  has  a  net  income  of  a  sum  less  than  that  specified  by  section 
407  of  the  act  of  September  8,  1916,  does  not  exempt  it  from  making  return  to  the 
collector  of  the  district  in  which  the  corporation  has  its  principal  place  of  business. 
(T.  D.  2418;  Doc.  15,  1916.) 

The  fair  value  of  the  stock  of  subsidiary  companies  may  be  computed  by  ap- 
]>ortionment  of  the  fair  value  of  total  capital  stock  of  the  holding  company 
among  the  various  subsidiaries;  the  basis  of  apportionment  is  the  total  amount 
of  net  profits  earned  by  the  subsidiaries  plus  amount  of  net  ]5rofits  earned  l)y 
parent  companv  from  actual  operations  and  investments  or  holdings  of  stock  in 
other  companieis.  (T.  D.  2423;  Dec.  30,  1916.  T.  D.  2493;  May  22,"  1917.  T.  D. 
2509;  July  7,  1917.) 


]0O  t-APlTAX,   STOCK   TA:^. 

Returns-  Ponlinucd. 
■  Corporations  in  hands  of  receivers  not  reqtured  to  make  return  on  Torni  707 
inilfSP  receivership  terminates  before  close  of  taxable  period,  nor  will  corporations 
,.i)eratin"  under  their  corporate  management  but  which  were  in  hands  of  receivers 
durintr  preceding  taxa1)le  (fiscal)  year  be  required  to  file  return.  (T.  D.  2424; 
Bee.  30,  1916.) 

Any  surplus  or  iindixided  profits  of  a  foreign  corporation  that  are  invested  in 
Vnited  States  bonds  or  other  securities  having  no  connection  with  actual  busineas 
of  corporation  transacted  in  this  country  may  be  stated  on  return,  Form  708,  Under 
item  3  but  should  not  be  included  under  item  1  as  "capital  invested  in  the  Ignited 
States.'""     {T.  1).  2407;  Mar.  27,  1917.) 

Corporations  that  haAO  no  regular  earnings,  and  those  that  have  earned  no  profits 
in  past  five  years,  or  have  only  been  engaged  in  business  one  or  two  years,  are  per- 
mitted to  file  detailed  statement  attached  to  back  of  return,  showing  their  assets 
and  liabilities  outstanding  on  June  30,  1917,  or  at  end  of  their  last  fiscal  year,  and 
mav  estimate  fair  value  of  stock  from  the  book  -value.  (T.  I).  2503;  June  25, 1917.) 
-  Form  707  requires  tinder  items  4,  5,  and  6,  the  figures  shown  on  books  of  corpora- 
tion on  June  30,  1917,  but  if  corporation  prefers  it  may  state  figures  shown  on 
books  at  close  of  last  fiscal  year,  such  as  December  31,  191G.  (T.  D.  2503;  June  25, 
1917.) 

Holding  companies  and  subsidiary  corporations  are  both  rcciuired  to  file  returns 
and  j)a>-  tax,  and  no  deductions  are  allowable  on  rettirn  of  holding  corporation  for 
tax  paid  by  a  subsidiary.     (T.  D.  2503;  June  25,  1917.) 

If  corporation  has  increased  or  decreased  capital  stock  during  fiscal  year,  state- 
ment should  be  attached  to  back  of  return,  Form  707,  setting  forth  number  of  shares 
of  stock  outstanding  each  month,  with  average  fair  value  of  the  stock  for  that 
montli,  computed  under  one  of  the  three  cases.     (T.  D.  2503;  June  25,  1917.) 

D  imestic  insurance  companies  are  not  permitted  to  deduct  reserves  or  deposits 
maintained  or  held  in  the  United  States  for  the  protection  of,  or  payment  to,  or 
apportionment  among,  policy  holders,  as  such  reserves  and  deposits  are  reflected 
in  the  fair  vahie  of  the  stock  as  computed  under  Cases  I,  II,  and  III,  Form  707. 
(T.  D.  2503;  June  25,  1917.) 

Every  corporation,  joint-stock  company  or  association  liable  to  tax  and  engaged 
in  business  at  any  time  during  preceding  year  July  1,  1917,  to  June  30,  1918,  and 
not  specifically  exempt  under  section  11,  Title  I,  act  September  8,  1916,  must  file 
return.     (T.  I).  2750,  Appendix  A;  Aug.  9,  1918.) 

Every  domestic  corporation  shall  make  return  on  Form  707,  regardless  of  par  value 
of  its  capital  stock;  fair  average  value  of  capital  stock  and  tax  payable  thereon  shall 
be  determined  in  accordance  with  instructions  in  form,  which  provides  in  Exhibit 
A  for  book  value  of  capital  stock,  in  Exhibit  B  for  market  value,  and  in  Exhibit  C 
for  value  based  on  capitalizing  the  earnings;  all  information  called  for  must  be 
given  in  every  case  where  it  is  procurable.  (T.  D.  2750,  art.  18,  Appendix  A;  Aug. 
9,  1918.) 

Where  corporation  fails  to  make  and  file  return  at  time  prescribed,  collector  shall 
make  return  from  his  own  knowledge  and  from  such  information  as  he  can  obtain 
through  testimony  or  otherwise;  any  return  so  made  by  collector  shall  be  prima  facie 
good  and  sufficient  for  all  legal  purposes;  if  failure  to  file  return  is  due  to  sickness 
or  absence,  collector  may  allow  such  further  time,  not  exceeding  30  days,  for  making 
and  filing  return,  as  he  deems  proper.  (T.  D.  2750,  art.  21,  Appendixes  A,  B;  Aug. 
9,  1918.) 

AVhere  return  is  not  made  and  filed  within  time  prescribed.  Commissioner  shall 
add  to  tax  50  p?r  cent  of  its  amount,  except  that  Avhere  return  is  voluntarily  and 
without  notice  from  collector  filed  after  such  tiiue  and  it  is  shown  that  failure  to 
file  was  due  to  reasonable  cause  and  not  to  willful  neglect,  no  such  addition  shall 
be  made  to  the  tax ;  amount  so  added  shall  be  collected  at  same  time  and  in  same 
manner  and  as  part  of  the  tax,  unless  tax  has  been  paid  before  discovery  of  the  neg- 
lect, in  which  case  amount  so  added  shall  be  collected  in  same  manner  as  the  tax. 
(T.  D.  2750,  art.  22,  Appendixes  A,  B;  Aug.  9,  1918.) 

Where  false  or  fraudulent  return  is  willfuUv  made.  Commissioner  shall  add  to  tax 
100  per  cent  of  its  amount,  aiul  amount  so  added  shall  be  collected  at  same  time  and 
m  same  manner  and  as  part  of  tax,  unless  tax  has  been  paid  before  discovery  of  the 
falsity  or  fraud,  in  which  case  amount  so  added  shall  be  collected  in  same  manner 
as  the  tax.     (T.  D.  2750,  art.  22,  Appendixes  A,  B;  Aug.  9,  1918.) 

Where  corporation  willfully  or  otherwise  makes  false  or  fraudulent  return,  col- 
lector shall  make  return  from  his  own  knowledge  and  from  such  information  aa  he 


CAriTAL   STOCK   TAX.  101 

Returns — roiitinucd. 

rail  obtain  throuf^h  tpstimony  or  othorwiso,  and  any  return  so  ma<lo  sliall  lio  prima 
facie  fjood  and  snfficicul  for  all  legal  purposes.  (T.  1).  2750,  art.  21,  Appendixes 
A,  B;  Aug.  9,  1918.) 

Every  foreign  corporation  shall  mak(>  return  on  Form  708,  irrespective  of  amount 
of  capital  employed  either  at  home  or  in  this  country  in  transaction  of  its  business; 
mann(>r  of  determining  capital  actually  invested  in  tran.saction  of  business  in  United 
States  and  tax  payable  tliereon,  stated;  return  not  refpiired  where  corporation  or 
association  was  not  engaged  in  business  in  United  States  during  preceding  fiscal 
year  ,Tulv  1.  1917,  to  June  30,  191S,  or  is  specificallv  exempt  under  section  11,  Title 
I,  act  Septem.ber  8,  1916.     (T.  D.  2750,  art.  20,  Appendix  B;  Aug.  9,  1918.) 

Commissioner  of  Internal  Revenue  will  estimate  fair  value  of  capital  stock  in  cases 
regarded  as  involving  any  understatement  or  undervaluation;  when  second  assess- 
ment is  made  in  case  of  any  return  which,  in  opinion  of  collector,  was  false  or  fraud- 
ulent, or  contained  any  understatement  or  undervaluation,  no  tax  collected  under 
such  assessment  shall  be  recovered  by  any  suit  unless  it  is  proved  that  return  was 
not  false  or  fraudulent  and  did  not  contain  any  understatement  or  undervaluation. 
(T.  I).  2750,  art.  19;  Aug.  9,  1918.) 

Returns  must  be  signed  by  two  officers  of  the  corporation — that  is,  by  the  presi- 
dent, vice  president  or  other'principal  officer,  and  by  the  treasurer  or  other  financial 
officer;  iiame  of  corporation  and  names  of  officers  signing  return  should  be  plainly 
written  or  printed  on  the  return.     (T.  D.  2750,  Appendix  A;  Aug.  9,  1918.) 

So-called  subsidiary  corporations,  all  or  part  of  stock  of  which  is  owned  by  another 
corporation,  must  render  returns  in  sam.e  wav  as  other  corporations.  (T.  D.  2750, 
art.  24;  Aug.  9,  1918.) 

Every  corporation  liable  to  tax  shall  on  or  before  31st  day  of  July  in  each  year 
make  return,  verified  by  oath,  to  collector  of  district  where  located.  (T.  D.  2750, 
art.  21,  Appendixes  A,"B;  Aug.  9,  1918.) 

Returns  must  be  verified  by  two  officers  of  the  corporation — that  is,  by  the  presi- 
dent, vice  president,  or  other  principal  officer,  and  by  the  Treasurer  or  other  finan- 
cial officer,  and  must  be  sworn  to  before  an  officer  authorized  to  administer  oaths, 
and  seal  of  attesting  officer,  if  he  is  required  to  -have  a  seal,  must  be  impressed  on  the 
return.     (T.  D.  2750,  Appendix  A;  Aug.  9,  1918.) 

Returns  must  b-:^  signed  and  verified  by  agent  or  attorney  or  other  principal  officer 
in  charge  of  United  States  branch  of  foreign  corporation  and  must  })e  sworn  to  before 
an  officer  authorized  to  administer  oaths,  and  seal  of  attesting  officer,  if  he  is  re- 
quired to  have  a  seal,  must  be  impressed  on  return  in  space  provided  for  that  pur- 
pose.    (T.  D.  2750,  Appendix  B;  Aug.  9,  1918.) 

Scope. 

Tax  applies  to  every  corporation,  joint-stock  company  or  association  (except  insur- 
ance companies),  now  or  hereafter  organized  in  United  States  for  profit  and  having 
capital  stock  represented  bv  shares,  irrespective  of  whether  it  is  creature  of  statute 
or 'of  contract.     (T.  D.  2750,  art.  2;  Aug.  9,  1918.) 

Insr.rance  companies  organized  under  statute,  engaged  in  business  at  any  time 
during  preceding  year  July  1,  1917,  to  June  30,  1918,  and  not  specifically  exempt 
under  section  11,  Title  I,  act  September  8,  1916,  must  file  return;  .mutual  and  par- 
ticipating plan  insurance  companies  are  included.  (T.  D.  2750,  Appendix  A ;  Aug. 
9,  19J8.) 

Tax  imposed  by  act  September  8,  1910,  applies  to  insurance  companies  organized 
under  statute  or  "deriving  from  that  source  some  quality  or  benefit  not  existing  at 
common  law,  irrespective  oL whether  or  not  they  are  organized  for  profit  or  have 
capital  stock  represented  by  shares;  mutual  and  participating  plan  companies  are 
included,  and  mutual  protective  association  organized  under  statute,  whose  only 
source  of  revenue  is  assessments  paid  by  members  and  whose  net  income  for  each 
year  is  paid  into  reserve  fund  constituting  sole  resource  of  company,  aside  from  cur- 
rent assessments,  for  pa\Tnent  of  losses,  is  insurance  company  within  meaning  of 
statute.     (T.  D.  2750,  art.  3;  Aug.  9,  1918.) 

Tax  is  payable  by  every  corporation,  joint-stock  companv  or  association,  or  insur- 
ance company,  now  or  hereafter  organized  for  profit  under  laws  of  any  foreign  coun- 
try and  engaged  in  business  in  the  United  States;  in  general,  same  kinds  of  com- 
panies and  associations  are  included  as  in  case  of  domestic  corporations,  except 
that  to  be  taxable  they  must  be  organized  under  some  statute  or  derive  from  that 
source  some  quality  or  benefit  not  existing  at  the  common  law;  foreign  corporation 
is  engaged  in  business  in  United  States  if  it  maintains  agents  or  an  office  or  ^vare- 


102      CARBONATED  BEVERAGES  AND  WATERS— CEMETERY   COMPANIES. 

Scope— Continued, 
house  here   or  in  case  of  insurance  company,  writes  insurance  policies  here,  or  in 
any  other  way  enters  the  United  States  for  purpose  of  its  business.     (T.  D.  2750.  art. 
13,  Appendix  B;  Aug.  9,  1918.) 

Subsidiary  corj^orations. 

So-called  subsidiary  corporations,  all  or  part  of  stock  of  which  is  owned  by  another 
corporation,  must  render  returns  in  same  way  as  other  corporations;  no  deduction 
is  allowed  in  return  of  holding  corporation  for  tax  i>aid  by  a  subsidiary.  (T.  D. 
2750,  art.  24;  A'ag.  9,  191S.) 

CARBONATED   BEVEBAGES   AND    WATBilS. 

See  'Beverages." 


CARBONATED   WINES. 


See  ' '  Wines. 


CARBONIC    ACID    GAS. 
See  '-Carbonated  Beverages  and  Waters." 

CARDS. 


Playing  cards. 

See  '-Playing  Cards." 

Admissions. 

See  ••  Admissions." 


CARNIVALS. 


CARRIERS. 

See  "Railroads";  "Transportation";  '-Transportation  Tax." 

Definition. 

The  word  "carrier,"  as  used  in  Title  Vof  the  act  of  Octobers,  1917,  means  every 
person,  corporation,  partnership,  or  association  who  or  v/hich,  for  hire,  furriishcs 
any  of  the  transportation  services  or  facilities  described  or  referred  to  in  subdivisions 
(a),  (b),  (c),  and  _(d)  of  section  500;  person,  corporation,  etc.,  engaged  in  logging, 
manufacturing,  mining,  or  any  other  business,  furnishing  any  of  the  ser\'ice3  referred 
to  in  such  subdivisions,  for  hire,  for  account  of  any  other  person,  corporation,  etc., 
is  a  carrier  within  the  meaning  of  Title  V.     (T.  D.  2676;  Mar.  18.  1918.) 

Excise  tax  on  boats. 

Imposition  of  transiwrtation  tax  for  persons  transported  by  boat  is  not  coaclu.sive 
that  the  boat  is  used  for  trade :  if  boat  is  used  to  carry  freight  for  hire,  it  is  not  subject 
to  the  tax;  if  used  to  carry  passengers,  the  distinction  is  between  its  operation  in 
general  commerce,  as  from  New  York  to  Boston,  and  it5  operation  for  plainly  pleasure 
purposes,  as  from  New  York  to  Coney  Island.     (T.  D.  2753;  Aug.  23,  1918.) 

Boats  used  for  pleasure,  whether  of  the  owner  or  of  paying  patron,  or  for  serious 
activities  not  constituting  trade,  are  subject  to  tax  imposed  by  section  603  of  act 
October  3, 191 7;  boats  operated  for  profit  to  carry  passengers  on  pleasure  trips  to  and 
from  certain  fishing  grounds  are  not  used  lor  trade,  but  for  pleasure,  and  are  subject 
to  the  tax.     (T.  I) .'  2753 ;  Aug.  23, 1 918. ) 


See  "Insurance. 


Capital  stock  tax. 


CASUALTY  INSURANCE. 
CEMETERY  COMPANIES. 


Cemetery  companies  owned  and  operated  exclusivelv  for  benefit  of  its  members 
are  exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8,  191G.  (T.  1 ) . 
2383;  Oct.  19,  1916.     T.  D.  2750.  art.  12;  Aug.  9.  1918.) 


CEllEALS — ^^CIiri.TIXi^c'AaiES   Oi'   INDEBTEDNESS.  103 

Income  tax    Exemption. 

C'emotery  companies  arc  not,  as  wuch,  cxempL  from  tax;  exemption  ie;  conditional 
on  tiling  with  collector  affidavit  yetting  out  character  and  purpose  of  organization 
and  showing  (hat  no  part  of  any  income  inures  to  benefit  of  any  private  stockliolder 
or  individual  and  that  such  income  is  used  exclusively  to  promote  purposes  for 
which  organized  as  indicated  in  particular  paragraph  undcn-  which  exemption  is 
claimed.     (T.  D.  2G90;  art.  G7.) 

Cemotory  company  having  capital  stock  representeil  by  shares,  or  which  is 
operated  for  profit  or  for  benetit  of  others  than  its  members,  is  not  exempt.  (T.  1). 
2G90;ai-t.  71.) 

In  case  of  cemetery  company  having  capital  stock  represented  by  shares,  or  which 
is  operated  for  profit  or  for  benefit  of  others  thanit?  meiilberp,  reserve  setasidc  out  of 
profits  as  "maintenance  fund' '  is  not  deductible  from  gross  income,  and  any  accre- 
tions to  such  fund  will  be  held  to  be  income,  and,  as  such,  must  be  returned  by  the 
corporation;  expenses  ef  Tnaiatenanoe  will  be  deductible  as  paid.  (T.  D.  '2G90; 
:art.  71.) 

Exemption  from  filing  returns  and  ])aying  income  tax  of  cemetery  companies  is 
conditional  upon  such  an  organization  tiling  affida^dt  showing  character  and  pur- 
pose of  organization,  source  of  income  and  disposition  of  same,  whether  or  not  any 
of  its  income  is  credited  to  surplus  or  inures  to  benefit  of  any  private  stockholder  or 
individual,  to  wliich  affida\-it  should  be  attached  copy  of  charter  or  articles  of 
incorporation  and  by-laws;  where  collector  is  in  doubt  as  to  taxable  status  of  organiza- 
tion, upoji  receipt  of  affidavit,  etc..  he  willreier  affi^davit  and  accompanying  papers 
to  Commissioner  of  Internal  Revenue  for  decision ;  if  it  is  held  that  corporation  itself 
isexempt  from  income  and  excess  profits  taxes  it  is  not,  however,  exempt  from^the 
withholding  requirements  nor  from  furnishing  information  in  accordance  with 
provisions  of  act  of  October  a,  1917.     (T.  D.  2093;  Apr.  8,  1918.) 

- —  Gross  income. 

Any  accretions  to  reserve  sot  aside  out  of  profits  of  cemetery  company  as  a  "main- 
tenance fund"  will  be  held  to  be  income,  and,  a.s  such,  must  be  returned  by  the 
corporation.     (T.  D.  2690;  art.  71.) 

CEREALS. 

See  '"Bistilled  .Spirits'';  "Fermented  Liquors";  "Wines.'' 

CERTIFICATES  OF  DEPOSIT. 
Stamp  tax. 

Certificates  of  deposit  are  not  taxed  bv  Schedule  A  of  Title  VIII  of  the  act  of 
Octobers,  1917.     (T.  D.  2713;  ilay  14, 'l918.) 

CERTIFICATES  OF  INDEBTEDNESS. 

Acceptance  for  income  and  excess  profits  taxes. 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  matur- 
ing June  25,  1918,  at  par  and  accrued  interest,  in  payTcnent  of  income  and  excess 
profits  taxes,  when  payable  at  or  before  maturity  of  certificates;  amount  of  such 
certificates  must  not  exceed  amoimt  of  taxes  due;  deposits  of  such  certificates  to 
1)0  made  in  Federal  reserve  banks  of  districts  in  which  collectors'  offices  are  located; 
insurance,  where  amounts  are  transmitted  by  registered  mail;  until  certificates  of 
deposits  are  I'eceived  from  banks  amounts  must  be  carried  as  "cash  on  band"; 
sch.edule  showing  amount  of  accrued  interest  }>ayable  per  coi'tificate  of  each  issue 
on.any  date  fiW  January  2  to  June  25,  1918.     (f .  D.  2639;  Jan.  28,  1918.) 

Schedule  showing  exact  amount  of  accrued  interest  payable  on  any  dav  from 
.February  15,  1918,  toJune  25,  1918.     (T.  D.  2656;  Feb.  15,  1918.) 

^Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
March  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interestpayableonany  davfrom  March 
15  to  June  25, 1918.     (T.  D. 2680,  JMar.  23, 1913.) 

Collectors  directed  'to  receive  .United  States  certificates  of  indebtedness,  dated 
April  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  pa.ymenit  of 


1Q4  rERTlFKATEl5    OF    OWNERSHJP. 

Acceptance  for  income  and  excess  profits  taxes— Continued. 

income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showinR  exact  amount  of  accrued  interest  on  any  day  from  April  15  to 
June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

<'ollectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
May  15,  1918,  and  maturing  June  25,  1918,  at  par  and  accrued  interest  in  payment 
of  income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
whedules  showing  the  exact  amount  of  accrued  interest  payable  on  any  day  from 
May  15  to  June  25,  1918.     (T.  D.  2718;  May  28,  1918.) 

Collectors  directed  to  receive  at  par  United  States  Treasury  certificates  of 
indebtedness  of  tax  series  of  1919.  dated  August  20.  1918.  and  maturing  July  15, 
1919.  and  of  series  T,  dated  November  7.  1918.  and  maturing  March  15.  1919.  in 
payment  of  income  and  profits  taxes  when  payable  at  or  before  maturity  of  cer- 
tificates: deposits  of  certificates  must  be  made  ^nth  Federal  reserve  banks  of  dis- 
trict* in  which  respective  collectors'  offices  are  located,  and  must  be  forwarded  by 
registered  mail;  until  certificates  of  deposit  are  received  from  banks,  amounts 
must  be  carried  as  cash  on  hand;  schedules  of  certificates  required  to  be  kept  by 
collectors;  deposit  of  certificates  in  banks  by  taxpayers  permitted  under  stated 
conditions.     (T.  D.  2778;  Dec.  11,  1918.) 

Unmatured  coupons  attached  to  certificates  of  indebtedness  of  tax  series  of 
1919.  dated  August  20.  1918.  and  maturing  July  15.  1919.  and  of  series  T.  dated 
November  7,  1918.  and  maturing  March  15.  1919.  must  be  stamped  "'Paid";  cou- 
pons maturing  on  or  before  date  tax  is  due  must  be  detached  by  taxpayer  and  col- 
lected, but  all  other  coupons  must  be  attached  to  certificate  and  forwarded  to 
Federal  reserve  banks:  accrued  interest  to  date  income  or  profits  taxes  are  due  not 
covered  by  coupons  attached  will  be  remitted  to  taxpayer;  collectors  must  not  ]>ay 
interest  on  such  certificates  nor  accept  them  for  an  amount  other  or  gi'eater  than 
their  face  value.     iT.  D.  2778;  Dec.  11,  1918.) 

Definition. 

Certificates  of  indebtedness  is  ordinarily  any  instrument  acknoMledging  liability 
for  payment  of  monev  not  in  recognized  foi-m  of  a  promissory  note  or  bill  of  exchange. 
(T.  D.  2713;  May  14",  1918.) 

Exemptions  from  taxes. 

Holders  of  Liberty  bonds,  Treasury  certificates  of  indebtedness,  and  war  savings 
certificates,  authorized  by  act  of  September  24,  1917,  are  entitled  to  exemption  from 
all  income  and  war  excess  profits  taxes  upon  interest  received  on  principal  amount, 
not  to  exceed  $5,000  face  value  of  such  obligations;  immaterial  whether  4  per  cent 
Liberty  bonds  were  issued  to  holder  in  exchange  for  Liberty  bonds  of  first  series,  or 
Treasury  certificates  of  indebtedness,  or  whether  issued  upon  new  subscription, 
exemption  is  upon  income  from  |5,000  face  value  of  obligations  issued  bv  authority 
of  said  act  of  September  24,  1917.     (T.  D.  2585;  Nov.  8,  19T7.) 

CEilTIFICATES  OF  OWNERSHIP. 

Income  taxes — Forms. 

Banks  and  collecting  agents,  debtor  corporations,  and  withholding  agents,  au- 
thorized to  accept,  until  June  1,  1918,  certificates  of  ownership  on  old  forms  when 
properly  executed.     (T.  D.  2702;  Apr.  18,  1918.) 

Inf  onrtiation  at  source. 

Owners  of  bonds  of  domestic  and  resident  corporations  shall,  when  presenting 
interest  coupons  for  payment,  file  certificate  of  ownership  for  each  issue  of  bonds 
showing  name  and  address  of  debtor  corporation,  name  and  address  of  owner  of 
bonds,  whether  payee  is  married  or  head  of  a  family,  and  amount  of  interest.  (T.  D. 
2090:  art.  43.) 

(Jriginal  ownership  certificates  accompanied  by  monthly  list  returns,  in  case  of 
interest  on  bonds  of  domestic  or  resident  corporations,  when  filed  with  Commis- 
sioner of  Internal  Revenue,  shall  constitute  and  be  treated  as  returns  of  informa- 
tion.    (T.  D.  2690;  art.  35.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  nonresident  alien  indi^^dualg,  or  foreign  corporations,  associations,  or 
partnerships,  ownership  certificate.  Form  1071,  revised,  shall  be  used  for  and  on 
behalf  of  such  owners  by  any  responsible  bank  or  banker,  either  foreign  or  domestic. 
(T.  D.  2759;  Oct,  2,  1918.)  "^ 


rERTJFlCATES   OF   OWNERSHIP.  105 

Income  taxes-  routiiiuod. 

Information  at  source — ('oiuinuod. 

Where  bonds  ol  forei<;n  countries,  or  bonds  or  stocks  of  forei<j;n  corporations,  arc 
owned  by  citizens  or  residents  of  United  .States,  individual  or  fiduciary,  or  by 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  insurance 
companies,  or  {)artnerships,  ownership  certilicate  lOOlA  shall  be  executed  by 
a<tual  owner,  or  )>y  his  duly  authorized  a^ent,  when  i)resenting  item  for  collection, 
whether  item  is  dividend  or  interest  payment,  except  in  case  of  foreign  country  or 
forei.gn  corporation  having  paying  agent  in  this  country  and  issuing  bonds  contain- 
ing "tax-free"  covenant  clause;  in  such  cases  paying  agent  will  withhold  normal 
tax  upon  interest  on  such  bonds,  and  ownership  certificate,  P^orm  1000,  ])r()perly 
modified  to  show  that  debtor  has  paying  agent  in  this  country,  shoidd  be  used, 
unless  owner  desires  to  claim  exemption,  when  Form  lOOlA  should  be  used.  (T,  D. 
2759;  Oct.  2,  1918.) 

- —  Transmittal. 

Where  debtor  corporation  or  its  duly  authorized  withholding  agent  has  made  no 
]iayments  of  interest  to  nonresident  alien  individuals  of  foreign  corporations,  having 
no  office  or  place  of  business  in  the  United  States,  or  has  withheld  no  tax  from  citi- 
zens or  residents  of  United  States,  whether  or  not  bonds  upon  which  such  interest 
accrued  contain  tax-free  covenant  clause,  exem})tion  certilicates  tiled  in  connection 
with  such  interest  payments  shall  be  transmitted  direct  to  Commissioner  of  Internal 
llevenue  (Sorting  Division),  Wa.shington,  I).  C,  accompanied  by  i-eturn  on  Form 
1096,  which  form  .shall  be  filed  monthly,  and  need  not  be  sworn  to;  if  a  corporation 
or  witliholding  agent  has  withheld  tax  and  is  therefore  required  to  render  return 
on  Form  1012,  revised,  all  certificates  received  shall  be  accounted  for  on  such  monthly 
return,  as  directed  by  instructions  thereon.     (T.  D.  2687;  Apr.  1,  1918.) 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed  or  accompanied  by  proper  ownership  certiiicates, 
giving  all  information  called  for  by  such  certificate;  where  first  licensed  bank  or 
collecting  agent  is  source  of  information,  licensee  shall  attach  ownership  certificate 
and  indorse  on  item  the  v,'ords  "Certificate  attached  and  information  furnished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue 
(Sorting  Division),  \\'ashington,  D.  C,  on  or  before  20th  day  of  month  following 
that  during  which  items  were  accepted,  accompanied  by  letter  of  transmittal, 
showing  number  of  certilicates  and  aggregate  amount  of  foreign  items  disclosed 
thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  interest  coupon  is  receiA'ed  for  collection,  ownership  certificate  shall 
accompany  coupon  to  paying  agent  in  this  countrv',  or  if  there  is  no  such  agent, 
then  to  last  l>ank  or  collecting  agent  handling  item  in  this  country;  when  more 
than  one  coupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from 
same  issue  of  bonds,  single  certificate  may  be  used;  when  foreign  items  haA"e  been 
properly  indorsed,  certiiicates  shall  be  attached  and  forwarded  to  Commissioner 
of  Internal  Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day 
of  month  following  that  during  which  items  were  accepted,  accompanied  by  letter 
of  transmittal,  showing  number  of  certificates  and  aggregate  amount  of  foreign 
items  disclosed  thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of 
information,  ownership  certificate  shall  accompany  coupon  to  such  agent  or  source 
of  information,  who  shall  forward  ownership  certificate  to  Commiasioner  of  Internal 
Revenue,  in  manner  provided  where  duty  is  placed  upon  licensee,  provided  that 
in  case  ownership  certificate,  Form  1000,  is  used,  paying  agent  shall  make  return 
on  Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

■ Withholding. 

Form  1000,  revised,  shall  be  used  when  no  personal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  the  United 
States;  by  nonresident  alien  indi\iduals,  foreign  corporations  having  no  office 
or  place  of  business  in  the  United  States,  whether  or  not  such  bonds  contain  a  tax- 
free  covenant;  and  in  case  where  coupons  are  received  not  accompanied  by  certifi- 
cates of  ownership.  First  bank  receiving  coupons  not  accompanied  by  ownership 
certificates  will  make  <'ertificftte,  crossing  out  "owner"'  and  inserting  "payee," 
and  will  enter  amount  of  interest  on  line  4.     (T.  D.  2690;  ail.  43.) 


106  CERTiriCATEH   OF   STOCK — CHAMBEES   OF   COMMERCE. 

CERTIFICATES  OF  STOCK. 

Stamp  taxes. 

Tax  iinpased  by  act  October  3,  1917,  on_ issue  of  capital  stock,  does  not  apply  to 
ig-;Tie  of  voting-trust  certificates,  representing  stock  certificates  already  issued,  nor 
to  mere  issue  of  new  certi'Scates  in  place  of  old  certificates  for  stock  previously  out- 
standing.    (T.  D.  2752;  Ang.  14,  1918.) 

Taximposed  by  act  October  3, 1917,  on  issue  of  captial  stock  applies  to  issue  of  cer- 
tificates of  eliares  in  so-called  Massachusetts  trusts  and  other  unincorporated  associa- 
tions.    (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock. attaches  to  issue  of 
certificates  representing  stock  never  before  issued,  no  matter  when  authorized. 
(T.  D.. 2752;  Aug.  14,  1918.) 

Taximposedby  act  Octoljer  3, 1917,  on  transfers  of  capital  stock,  does  not  apply  to 
surrender  of  certificates  in  exchange  for  other  certificates  representing  same  or  new 
stock,  provided  they  are  issued  to  same  holder,  nor  does  it  apply  to  surrender  of  stock 
certificates  for  retu'ement  and  redemption  for  cash;  if,  however,  corporation  buys 
some  of  its-own  stock  and  transfers  it  to  itself ,  whether  or  not  it  intends  eventually 
to  cancel  it,  trixusfer  is  subject  to  tax.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capitalstnck  attaclies  tf)  sales 
ortransfei's  of  stock,  whether  or  not  represented  by  certificates.  (T.  D.  2752;  Aug. 
.14,  1918.) 

Taximposed  bv  act  October  3,  1917,  on  transfer  of  capital  stock  applies  to  transfer 
of  voting-ti-ust  certificates.     (T.  D.  2752;  Aug.  14,  1918.) 

A  stock  certificate  is  a  document  which  is  c\adence  of  the  number  of  siiaros  of 
stock  which  the  holder  of  it  owns,  and  the  stamp  tax  is  laid  not  on  eacli  stock  certi- 
ficate thatis  issued  but  on  each  original  issue  of  certificates.  (T.  D.  3002;  Apr.  20, 
1920.     Ct.  Dec.) 

A  corporation  engaged  in  organization  is  deemed  to  issue  stock  when  it  obtains 
subscription  for  it.     (T.  I).  3002;  Apr.  20,  1920.     Ct.  Doc.) 

Issue  of  certificates  of  iprelerred  or  no  par  value  stock  in  lieu  of  outstanding  cer- 
tificates of  common  stock,  or  vice  versa,  is  not  an  original  issue  of  stock.  (T.  D. 
3002;  Apr.  20,  1920.     Ct.  Dec.) 

So-called  business  property  iuA-estment  bond,  wherein  it  is  certified  that  the 
holder  thereof  is  the  owner  of  interest  in  certain  specified  real  property,  legal  title 
to  which  was  previously  conveyed  to  a  trustee,  and  whereby  corporation  issuing 
same  agrees  to  manage  the  property  and  distribute  proceeds  in  certain  manner,  is 
not  subject  to  tax  as  a  certificate  of" stock.     (T.  D.  2795;  Feb.  26,  1919.) 

Sale  by  Alien  Property  Custodian  of  shares  or  certificates  of  stock,  under  authority 
of  section  12  of  the  trading  with  the  enemy  act  of  October  G,  1917,  as  amended,  his 
agreement  BO  to  sell,  and  his  transfer  of  legal  title  to  certificates  or  shares  eo  told, 
are  not  subject  to  stamp  tax  imposed  bv  Schedule  A  of  Title  VIII  of  the  act  of 
October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Transfer  to  Alien  -Property  Custodian  of  shares  or  certificates  of  stock  in  compli- 
ance with  demand  made  by  him  under  the  trading  with  the  enemy  act  of  October 
G,  1917,  as  amended,  is  not  su]>ject  to  stamp  tax  imposed  bv  Schedule  A  of  Title  VIII 
of  act  of  October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

CHAMBERS  OF  COMMERCE. 

See  "Boards  of  Trade." 

Capital  stock  tax. 

Chamber  of  commerce  not  organized  for  profit  and  no  part  of  net  income  of  which 
inures  to  benefit  of  any  pri^■'ate  stockholder  or  individual  is  exempt  from  tax 
imposed  by  section  407  of  the  act  of  September  8,  191G.  (T.  D.  2383,  Oct.  19, 19'16. 
T.  D.  2759,  art.  12;  Aug.  %  1918.) 

TDues. 

Tax  imposed  by  section  701  of  act  of  October  3,  1917,  does  not  attach  to  dues  paid 
±0  chambers  of  commerce  or  other  primarily  business  organizations.  (T.  D.  2681; 
Mar.  26,  1918.)  i  -  o  v  . 

Dues  paid  for  meml^ership  privileges  in  chamber  of  commerce;or  other  primarily 
commercial  organization  are  taxable  if  privileges  include  clubhouse  facilities  .such 
as  are  afiorded  by  ordinary  city  .social  club.     (T.  D.  2795;  Feb.  26,  1919.) 


C'i£AMPAGNE — CKARITABLK    OllGANIZATION.S.  107 

Income  tax  —Exemption. 

(  hambers  of  commerce  arc  nof,  as  such,  cxfiniit  from  tax;  exemption  is  comli- 
tional  on  filing  with  collector  aflidavit  setting  out  character  aud  purpose  of  organiza- 
tion, and  showing  that  no  part  of  any  income  inures  to  benefit  of  any  private  3to<k- 
liolder  or  indi\ddual,  aud  that  such  income  is  used  exclusively  to  promote  purposes 
for  which  organized  as  indicated  in  particular  paragraph  under  which  exemption  is 
claimed,     (t.  D.  2690;  art.  67.)     ' 

Exemption  from  filing  returns  and  paying  income  tax  of  chambers  of  commerce  is 
conditional  upon  such  an  organization  filing  aflidavit  showing  character  and  purpose 
of  organization,  source  of  income  aud  disposition  of  same,  whether  or  not  any  of  its 
income  is  credited  to  surplus  or  inures  to  benefit  of  any  private  stockliolder  or  indi- 
\idual,  to  v,-hich  affidavit  shovdd  be  tittached  copy  of  charter  or  articles  of  incorpora- 
tion and  l)y-laws;  where  collector  is  in  doul)t  as  to  taxable  status  of  organization, 
upon  receipt  of  affidavit,  etc. ,  he  will  refer  affida\-it  and  accompanying  papers  to  Com- 
missioner of  Internal  Eevenue  for  decision;  if  it  is  held  that  corporation  itself  is 
exempt  from  income  and  excess-profits  taxes  it  is  not,  however,  exempt  from  the 
v>'itbliolding  requirements  nor  from  furnishing  information  in  accordance  v/ith  pro- 
visions of  act  of  October  3,  1917.     (T.  D.  2693;  Apr.  8,  1918.) 

CHAMPAGNE. 

(See  ■■  Wines.'' 

CHARGED   OFF. 

Definition. 

The  phrase  "charged  off,"  as  used  in  the  second  paragraph  under  section  12  of 
Title  I,  of  act  of  September  8, 1916,  contemplates  that  the  reasonable  allowance  de- 
ducted from  gross  incomes  on  account  of  depreciation  or  depletion  shall  be  credited 
to  proper  reserve  accounts  and  carried  as  a  liability  against  the  assets,  to  the  end  that 
when  the  total  of  these  credits  equals  the  capital  investment  account,  no  further 
deductions  on  these  accounts  will  be  allowed.     (T.  I).  2481;   Apr.  10,  1917.) 

CHARITABLE  ORGANIZATIONS. 

Adinissions  ta  entertainments. 

Where  proceeds  of  admissions  inure  exclusively  to  benefit  of  charitable  institu- 
tions, societies,  or  organizations,  admissions  are  not  taxable;  character  of  organiza- 
tion for  which  benefit  is  given  and  not  purpose  of  particular  benefit  is  controlling; 
admissions  to  any  entertainment  for  charity  are  taxable  if  funds  are  administered 
by  any  persons  or  organization  other  thaii  religious,  educational,  or  charitable 
institutions,  societies,  or  organizations.     (T.  D.  2681;  Mar.  26,  1918.) 

Every  institution,  society,  or  organization,  claiming  exemption  from  collecting 
tax  on  admissions  by  reason  of  being  charitable,  required  to  file  with  collector  of 
district  affidavit  upon  stated  form,  prior  to  conducting  any  entertainment  or  amuse- 
ment or  permieting  either  to  be  conducted  for  its  benefit;  unless  affidavit  shall  1)0 
filed  sufficiently  before  date  of  entertainment  to  permit  of  full  advance  investiga- 
tion of  circumstances  and  a  decision  thereon,  managers  of  entertainment  shall  keep 
and  exhibit  to  internal  revenue  officers  complete  record  of  admissions  to  each  jier- 
formance,  and  will  be  held  responsi1)le  for  collection  of  tax  in  case  claim  for  exemp- 
tion is  not  allowed.     (T.  D.  2681;  Mar.  26,  1918.) 

Payments  for  admissions  to  dances  given  by  home  guard  to  raise  money  for  uni- 
forms and  other  expenses  are  not  exempt  from  admissions  tax.  (T.  D.  2782;  Dec. 
21,  1918.) 

Capital  stock  tax. 

Corporation  or  association  organized  and  operated  exclusively  for  charitable 
purposes,  no  part  of  net  income  of  wliich  inures  to  benefit  of  any  private  stockholder 
or  individual,  is  exempt  from  tax  imposed  bv  section  407  of  the  act  of  Septemi>er 
8,  1916.     (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Excess  profits  tax — Gifts. 

Contributions  or  gifts  for  religioits.  charitable^  etc.,  purposes  allowed  as  deduction 
for  purposes  of  income  tax  under  ])aragraph  ninth  of  subdivision  (a)  of  section  5  of 
the  act  of  September  8,  1916,  as  amended,  may.  subject  to  limitations  therein  con- 
tained, be  deducted  in  computing  net  income  of  trade  or  business  only  when  shown 


108  CHARITABLE   rURPOSlvS^CHAUTAUQUAS. 

Excess  profits  tax     Gifts— Continued. 

to  .salisiaction  of  Commissioner  of  Internal  Reveiine  that  sii«  h  oontributions  or 
pfts  are  made  from  trade  or  business,  and  not  by  individual  in  his  personal  capacity. 
(T.  1).  2094;  art.  37.) 

Income  tax— Exemptions. 

Corporations  or  associations  organized  and  operated  exclusively  for  charitable 
purposes  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on  filing 
witli  collector  affidavit  .setting  out  character  and  purpose  of  organization,  and  show- 
ing that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  indi- 
vidual, and  lliat  such  income  is  used  exclusively  to  promote  purposes  for  which 
organized  as  indicated  in  particular  paragraph  under  which  exemption  is  claimed. 
(T.  D.  2090;  art.  67.) 

Exemption  from  filing  returns  and  paying  income  tax  of  corporations  or  associa- 
tions organized  and  operating  exclusively  for  charitable  p'arposes  is  conditional 
upon  su.ch  an  organization  filing  affidavit  showing  character  and  purpose  of  organiza- 
tion, source  of  income  and  disposition  of  same,  whether  or  not  any  of  its  income  is 
(  redited  to  stU'pli'.s  or  inures  to  benefit  of  any  private  stockholder  or  individual,  to 
whii  h  affidavit  should  be  attached  copy  of  charter  or  articles  of  incorporation  and 
by-laws;  where  collector  is  in  doubt  as  to  taxable  status  of  organization,  upon 
receipt  of  affidavit,  etc.,  be  will  refer  affidavit  and  accompanying  papeis  to  Com- 
missioner of  Internal  Revenue  for  decision;  if  it  is  held  that  corporation  itself  ia 
exempt  from  income  and  excess  profits  taxes  it  is  not,  however,  exempt  from  the 
withlinlding  requirements  nor  from  furnishing  information  in  accordance  with  pro- 
visions of  act  of  October  3,  1917.     (T.  D.  2093;  Apr.  8,  1918.) 

■ — —  Net  income. 

Donations  made  for  purposes  connected  with  operation  of  property  when  limited 
to  charitable  institutions,  hospitals,  or  edui'ational  institutions,  conducted  for 
benefit  of  employees  or  their  flependents,  may  bo  deducted  as  ordinary  and  neces- 
sary expense;  such  deduction  should,  however,  be  reduced  by  any  amount  repaid 
to  corporation  by  the  employees.     (T.  U.  2690;  art.  134.) 

Special  taxes — Billiard  tables,  etc. 

Occupation  tax  levied  by  act  of  September  8,  191(),  is  applicable  to  pool  or  bil- 
liard tables  and  bowling  allevs  in  charitable  institutions.  (T.  D.  2462;  Feb.  16, 
1917. j 

CHARITABLE  PURPOSES. 

Income  taxes — Deduction  of  contributions  to  charity. 

In  determining  amount  of  net  income  of  taxable  year  "'remaining  undistributed  " 
f-ix  months  after  its  close,  and  not  "invested  and  employed  in  the  business,"  there 
rnay  be  subtracted  the  amount  of  contributions  properly  made  for  charitable  or 
war  purpo.ses.     (T.  D.  2763;  Oct.  21,  1918.) 

Moving-picture  films — Excise  taxes. 

Tliere  is  not  exemption  from  tax  imposed  by  section  600  of  tJie  act  of  October  3, 
1917,  in  the  case  of  films  used  exclusively  for  educational,  charitable,  or  religioua 
purposes.     (T.  D.  2719;  Art.  XII.) 

CHATJTATJQUAS. 

Admissions  tax. 

A\  hen  a  Chautauqua  bureau  presents  a  Chautauqua  under  the  usual  form  of  agree- 
ment witJi  a  local  body  by  Avhich  latter  subscribes  for  sea.«on  tickets  and  receives 
them  to  resell  to  the  public',  the  admissions  tax  is  payable  on  (1)  amount  paid  by  local 
body  to  the  bureau,  regardless  of  number  of  tickets'not  resold  or  not  used,  on  (2)  any 
excess  received  by  local  body  from  resale  of  tickets  over  the  amounts  so  paid  by  it, 
and  also  on  (3)  all  admissions  other  than  by  tickets  so  sold  to  the  local  bodv.  (T.  D. 
2782;  Dec.  24,  1918.) 

Special  tax. 

Statement  of  matters  involved  in  case  of  Redpath  Lyceum  Bureau  i.  Tickering, 
in  f.rder  that  decision  holding  that  the  Redpath  Co.  is  not  a  lecture  lyceum  within 
eighth  subdivision  of  section  3,  of  the  act  of  October  22,  1914,  may  be  properly 
understood.     (T.  D.  2448;  Feb.  14,  1917.)  .  i     i      j 

Exemption  of  lecture  lyceiims  under  clause  8,  of  section  3,  of  the  act  of  October 
/•^  1.(14,  does  not  apply  to  lecture  lyceum  bureau  which  is  proprietor  of  shows  or 
exhibitions.     (T.  D.  2684;  Mar.  28,  1918.     Ct.  Dec.) 


CHECKS.  109 

CHECKS. 

Income  taxes-Information  at  source. 

Returns  of  itiformation  rcqiiinMl  regardless  of  amount,  in  ease  of  paynienia  of 
interest  upon  bonds,  niort<?ao;e9,  or  deeds  of  trust,  or  other  similar  obli^^ations  of 
corporations,  joint-stock  companies  or  associations,  and  insurance  companies;  and 
in  case  of  collection  of  items  (not  payable  in  the  Fnited  States)  of  interest  upon 
bonds  of  foreif^n  countries  and  interest  tipon*the  bonds  and  dividends  on  stock  of 
forei,!^n  corporations,  by  persons,  corporations,  etc.,  xinderlaking  as  matter  of  lousi- 
ness or  /or  profit  collection  of  foreii;ii  payments  of  sUcli  interest  or  dividei'.ds  by 
mea'is  of  coupons,  checks,  or  bills  of  exchange.     (T.  D.  2G9-);  art.  35.) 

— —  Licenses  of  collecting  agents. 

All  persjns,  corporations,  etc.,  undertaking  as  matter  of  business  or  for  profit, 
collection  of  foreign  payments  of  interest  on  dividends  by  means  of  coupons,  checKS, 
f)r  bills  of  exchange,  shall  obtain  license  from  ('ommis:5iuner  of  Internal  Revenue, 
as  prescribed  by  section  9  (b)  of  the  act  of  September  8,  1910,  as  amended;  such 
licensee  shall  write  or  stamp  on  the  face  of  the  item:  ''Information  obtained  and 

furnished  by (name  of  collecting  agent)."     (T.  I).  269;j;  art.    48. 

See  T.  1).  2759:  Oct.  2,  1919.) 

— —  Payment — Bad  checks. 

Taxpayers  who.se  checks  have  been  reti  rned  Uncollected  by  depositary  bank 
shoull  be  immediately  notified  to  make  checks  good;  if  taxpayer  fails  to  do  so, 
collector  should  proceed  to  collect  taxes  by  usual  methods,  as  thongh  no  check 
had  been  given.     (T.  D.  2666;  Mar.  8,  1918.) 

In  cases  where  checks  have  been  returned  uncollected  l)y  depositary  banks, 
if  recapitulation  of  assessment  list  for  the  month  has  not  yet  been  sent  to  the 
Commissioner,  original  entry  of  payment  should  be  canceled,  and  at  the  same  time 
there  should  be  noted  in  the  "Remarks''  column  "Check  returned  unpaid; 
transferred  to  p.  — ,  1  — ,"  with  the  date,  and  the  item  should  be  reentered  in  the 
unjjaid  section  of  the  list,  with  the  notation  "Transferred  from  p.  — ,  1  — ."  Theve 
should  t)e  submitted  in  support  of  the  uew  entry  a  copy  of  the  collector's  letter  to 
the  taxpayer  \\'ith  regard  to  the  nonpayment  of  the  cl\eck;  if  monthly  recapitula- 
tion has  gone  forward,  note  should  be  made  iu  the  "Remarks''  column,  opposite 
the  original  entry,  "Check  returned  unpaid,"  with  the  date.  (T.  D.  2666;  Mar. 
8,  19180 

Where  check  for  which  certificate  of  deposit  to  credit  of  Treasurer  of  the  United 
States  has  been  issued  is  returned  to  depositary  bank  unpaid,  collector  will  be 
prom})tly  notified  and  check  held  for  few  days,  during  which  time  collector  should 
make  effort  to  recover  amount  from  taxpayer;  if  amount  is  recovered,  collector 
should  immediately  turn  it  over  to  depositaiy  in  exchange  for  bad  check,  which 
should  be  returned  to  the  drawer,  but  if  amount  is  not  recovered  within  reasonable 
time  depositary  will  return  check  with  letter  of  transmittal  and  ask  receipt  from  col- 
lector, which  receipt  should  be  given  in  duplicate,  and  depositary  will  charge 
amoimt  to  Treasurer's  account  in  next  daily  transcript.     (T.  D.  2666;  Mar.  8,  1918.) 

Where  check  deposited  in  collection  account  is  returned  unpaid,  and  no  certificate 
of  deposit  on  P'orm  15  covering  the  amount  thereof  has  been  issued,  amount  of  check 
will  be  charged  by  depositary  to  the  collection  account,  after  being  held  in  a 
suspense  account  for  a  few  days  while  an  effort  is  made  to  recover  amount  from 
taxpayer.     (T.  D.  2666;  Mar.  8,  1918.) 

Collection  at  par. 

All  checks  in  payment  of  income  taxes  must  be  collectible  at  par  (withoot  any 
deduction);  taxpayers  who  are  not  sure  that  their  checks  will  be  paid  at  par  should 
be  advised  to  write  beneath  the  amount  "without  deduction  for  exchange,"  or 
"with  exchange'' ;  collector  not  required  to  examine  all  checks  to  see  whether  they 
are  collectible  at  par;  if  bank  on  which  check  is  drawn  refuses  to  pay  it  at  i)ar,  it 
will  be  returned  through  depositary  bank,  and  should  be  treated  in  same  manner 
as  a  bad  check.     (T.  D.  2666;  Mar.  8,  1918.) 

Monthly  and  quarterly  accounts. 

Jnstnictions  with  reference  to  preparation  of  monthly  and  quarterly  accounts  in 
cases  where  checks  have  been  returned  uncollected  by  depositary  bank.  (T.  D. 
2666:  Mar.  8,  1918.) 


J^JO  CHECKERS CHILDREN. 

Income  tax  -Coutiuued. 

Payment — Coutiauocl. 

Out-of-town  checks^ 

All  out-of-town  checks  for  which  depositary  bank  is  unwilling  to  issue  immediate 
certiiiea-te  of  deposit  to  credit  of  Treasiirer  of  United  States,  should  be  deposited 
ae!>arately  in  collection  account,  as  provided  in  T.  D.  2627;  collection  accoiiut  will 
?)e'  oha.i's;cd  and  Treasurer's  geueAt  account  credited  by  issuance  of  certificate  of 
deposit  on  Form  15.     (T.  D.  2666;  Mar.  8,  1918.) 

Posting  recoi^ds. 

Instructions  with  reference  to  posting  records  1  and  9  in  cases  where  checks  have 
been  returned  uncollected  by  depositary  bank.     (T.  D.  2666;   Mar.  8,  1918.) 

—  ITncertified  checks.^ 

If  inicertined  check,  accepted  by  collector,  is  not  paid,  person  by  v/hom  it  lias 
been  tendered  remains  liable  for  tax;  such  uncertified  checks  as  depositary  bank  is 
willing  to  accept  shoidd  be  included  in  certificate  of  deposit  issued  to  collector;  all 
other  certitlcates  Avill  be  carried  by  collector  as  '  'cash  on  hand  " ;  date  on  which  col- 
lector receives  check  considered  date  on  which  payment  is  made  luiless  check  is  re- 
turned dishonored;  such  uncertified  checks  as  bank  is  not  willing  to  accept  for  im- 
mediate credit  may  be  deposited  for  collection,  and  when  collection  is  made 
proceeds  should  be  immediately  deposited  with  other  collections  for  the  day,  col- 
lector cliara;ing  his  account  '"cash  on  hand,*^'  and  crediting  taxpaver  from  whom 
cheek  ^ms  received.     (T.  D.  2627;   Dec.  28,  1917.) 

Payment  of  taxes — CoUection  and  deposit. 

Department  Circular  No.  144,  issued  under  date  of  May  20,  1919,  with  reference 
to  collection  and  deposit  of  checks  received  in  payment  of  internal-revenue  taxes, 
published  for  information  of  internal-revenue  ofhcers  and  others  concerned.  t^T.  D. 
2846;  May  24,  1919.; 

Sta-nap  tax. 

The  stamp  tax  on  checks  imposed  by  Schedule  A,  of  Title  VIII,  of  the  act  of 
October  3,  1917,  attaches  to  checks  at  the  time  of  delivery,  if  delivered  within  t^he 
territorial  jurisdiction  of  the  United  States  and  expressed  to  be  payable  otherwise 
than  at  sight  or  on  demand,  but  not  to  checks  not  yet  delivered  or  delivered  in  a 
foreign  eoimtrj' or  expressed  to  ]>e  pavable  at  sight  or  on  demand.  (T.  D.  2682; 
Mar.^26,  1918.) 

CHECKEES. 
Excise  taxes. 

See  "Excise  Taxes." 

CHEMICAL  LABORATORIES. 
Definitioii. 

The  term  '"chemical  laboratoi'y,"  as  I'^sed  in  section  3297,  Revised  Statutes,  in- 
cludes anj-^  allied  laboratory,  such  as  physical  or  electrical  laboratory,  belonging  to 
such  institution  or  college  in  which  the  alcohol  withdrawn  fi-om  bond  is  used  ptirel  v 
for  scientmc  purposes.     (T.  D.  1971;   Apr.  20,  1914.     T.  D.  2496;  May  31,  1917.)  " 


See  "Pharmacists." 

Excise  taxes. 

See  "Excise  Taxes.'' 

Excise  taxes. 

See  "Excise  Taxes." 

Admissions. 


CHEMISTS. 
CHESS. 

CHEWING   GUM. 

CHILDBEN. 


Tax  imposed  by  section  70O  of  the  act  of  October  3,  1917.  on  the  admission  of 
children  imder  12  years  of  age,  must  be  collected  in  all  cases  at  the  full  rate  of  1  cent 
for  each  10  cents  or  fraction  thereof,  except  where  distinctive  tickets  are  issued  for 


CIDER — CIGARS.  Ill 

Admissions — Coat  iuiiod . 

children  under  12  years,  or  tickets  for  their  use  arc  indelibly  stamped  to  show  that 
they  are  good  only  for  the  admission  of  cliildren  under  12  years,  or  wliere,  in  absence 
of  tickets,  tax  is  paid  at  time  of  admission  of  cliildren  under  12  years;  children  under 
12  years  of  age  when  admitted  free  are  not  taxable.     (T.  D.  2681;  Mar.  26,  1918. ) 

Children  under  12  years  of  age  when  admitted  free  are  not  taxable  under  section 
700  of  tlie  act  of  October  3,  1917.     (T.  D.  2681:  Mar.  20,  1918.) 

Excise  taxes — Toys  and  games. 

Tax  imposed  by  88<"tion  GOO  (f )  of  the  act  of  October  o,  1917,  is  3  per  cent  of  the  price 
for  which  the  sporting  goods  and  games  enumerated,  except  children's  toys  and 
games,  are  sold  by  the  manufacturer.     (T.  D.  2719;  Art.  XV'II.) 

Income  taxes — Deduction  of  allowances. 

As  a  rule,  allowances  which  father  gives  to  his  minor  cliildren,  wliether  said  to  be 
in  consideration  of  service  or  otherwise,  are  not  allowable  deductions  in  return  of 
income,  nor  are  they  income  to  the  children.     (T.  D.  2690;  art.  8.) 

Exemptions. 

Exemption  of  $200  for  each  dependent  child  provided  by  section  7  of  act  of  Sep- 
tember 8,  1916,  as  amended,  is  given  in  respect  of  income  tax,  and  is,  therefore,  appli- 
cable under  both  the  act  of  September  8,  19 IG,  as  amended,  and  the  act  of  October  3, 
1917,  under  same  conditions  of  fact.     (T.  D.  2690;   art.  14.) 

Returiis. 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returns,  in 
cases  arising  under  section  2  (b)  of  the  act  of  Septembei'  8,  191G,  as  amended,  when 
income  of  estate  or  trust,  as  an  entity,  is  $1,000  or  over,  return  to  be  made  on  Foma 
1040  or  1040A;  fiduciaries  must  make  returns  on  P'crm  1041  wdienever  interest  of 
beneficiary  in  net  income  of  estate  or  trust  is  $1 ,000  or  OA'er  for  an  unmarried  bene- 
ficiary, and  whenever  interest  of  married  beneticiarv  is  $2,(K)0  or  over.  (T.  D.  2690; 
art.  27.) 

Fiduciaries  acting  for  minors  or  other  incomijetents,  reqitired  to  make  returns 
according  to  marital  status  of  beneficiary;  whenever  interest  of  beneficiary  in  net 
income  of  estate  or  trust  is  $1,000  or  over,  for  an  Tinmarried  beneficiary,  or  in  case 
of  married  beneficiarv,  whenever  interest  is  $2,000  or  over,  fiduciaries  are  required 
to  make  return.     (T.'D.  2690;  art.  27.) 

Income  received  by  minor  child  from  sources  other  than  parent  should  be  in- 
cluded by  parent  in  his  return;  fact  that  such  income  is  not  appropriated  by  parent 
is  immaterial;  where  income  is  from  separate  estate  and  parent  has  been  appointed 
guardian,  and  conditions  are  such  that  income  so  received  is  to  be  held  for  use  of 
child,  it  shall  not  be  included  in  parent's  return,  but  shall  be  accounted  for  otlier- 
wise  for  purposes  of  tax,  in  manner  and  form  as  called  for  bv  facts  of  particular 
case.     (T.  D.  2690;  art.  20.)      • 

CIDEB. 

Beverage  tax. 

Sweet  apple  cider  is  taxed  under  section  313  (b)  of  act  of  October  3,  1917,  if  it 
contains  less  than  one-half  per  cent  of  alcohol  and  no  added  sugai\  (T.  D.  2719; 
Art.  XXXI.) 

Wine. 

Apple  cider  or  other  fruit  juice,  fermented  naturallv  or  artificialh',  if  sold  as 
wine,  is  taxable  as  wine.     (T.  D.  2387;  Oct.  30,  1916.) 

CIGARS. 

Boxes — Labels. 

Labels  proiided  for  by  section  400  of  act  of  Oc-tober  3,  1917,  to  be  affixed  to  earli 
box  of  cigars  weighing  more  than  3  jKiunds  per  thousand,  shall  not  be  less  than  1  incli 
long  nor  less  than  throe-fourths  of  aii  inch  wide  and  shall  bo  affixed  to  front  of  box  or 
container,  and  contain  following  legend:  ''Thecontents  of  this  box  have  been  tax  paid 

as  cigars  of  Class ,  as  indicated  by  the  internal-revenue  stamp  affixed."     In 

each  such  label  class  shall  be  indicated  by  letter,  corresponding  \vith  approved 
class  as  shown  bv  table.  Provision  effective  on  and  after  November  2,  1917.  ('!. 
D.  2569;  Oct.  17',  1917.J 


2J2  CIGARS. 

Boxes     Labels-  rontiiniod. 

T>e«'end  may  bo  printed  or  plamppd  directly  on  front  of  box,  but  must  be  clear 
and  distinct;  dimension?  of  label  may  be  reduced  in  case  of  wooden  boxes  con- 
taining 25  or  le8p  cifjar?.  and  also  pniall  packages  not  made  from  wood,  on  which  it 
inav  be  printed  as  part  of  other  printing  thereon;  each  such  label  on  small  pack- 
ages not  made  from  wood,  known  as  package  goods,  should  be  perfectly  legible 
and  should  appear  in  conspicuous  place.     (T.  D.  2595;  Nov.  22,  1917.) 

Cases — Excise  taxes. 

('i"ar  cases,  when  intended  to  be  carried  on  the  person,  and  made  wholly  or  in 
partlrom  gold,  silver,  or  platinum,  or  having  the  appearance  thereof,  are  deemed 
to  be  jewelry  within  section  600  (e)  of  the  act  of  October  3,  1917.  (T.  D.  2719; 
Art,  XIV.) 

Cutters — Excise  taxes. 

Cigar  cutters,  when  intended  to  be  carried  on  the  person  and  made  wholly  or 
in  T)art  from  gold,  silver,  or  platinum,  or  having  the  appearance  thereof,  are  deemed 
tr,  he  jewelry  Anthin  section  600  (e)  of  the  act  of  October  3,  1917.  (,T.  D.  2719: 
Art,  XIV.) 

Floor  tax. 

Tax-paid  manufactured  cigars  in  excess  of  specified  quantity  held  for  sale  on 
October  4.  1917,  as  well  as  contents  of  broken  packages  and  goods  in  transit  on 
such  date,  required  to  be  inventoried  and  returned  for  assessment  of  tax  provided 
for  by  section  403  of  the  act  of  October  3,  1917;  dealers  and  others  required  to  pay 
tax  liiust  make  return  on  Form  416C.  in  duplicate,  under  oath,  on  or  before  Xo- 
vembcr  2,  1917;  payment  of  tax  required  at  time  of  tiling  return,  but  may,  upon 
tiling  (>f  bond,  be  extended  to  date  not  exceeding  seven  months  from  passage  of 
act  of  October  3,  1917;  principal  office  or  place  of  business  to  make  return  where 
two  or  more  stores  are  operated  by  same  dealer.     (T.  D.  2556;  Oct.  16,  1917.) 

Stocks  of  cigars,  tobacco,  and  cigarettes  held  for  sale  at  close  of  business,  October 
3,  1917,  at  post  exchanges  at  Army  camps  are  not  subject  to  floor-stock  taxes  im- 
posed by  section  403  of  act  of  October  3,  1917.     (T.  D.  2584;  Nov.  20,  1917.) 

Manufacturers — Books  and  returns. 

Instruction  requiring  Form  277,  rcAised,  to  be  used  exclusively  for  return  for 
registry  of  manufacturers  of  cigars,  Avhen  such  occupation  is  not  subject  to  special 
taxes.'  (T.  D.  2485;  Apr.  24,  1917.) 

Instructions  with  reference  to  entries  to  be  made  in  books  and  monthly  returns 
on  November  2,  1917,  when  full  increased  taxes  became  effective.  (T.  D.  2569; 
Oct.  17,  1917.) 

Inventories. 

Instructions  with  reference  to  making  inventory  required  by  sections  3358,  3390, 
Revised  Statutes;  no  claim  of  failure  to  make  true  inventory — in  which  certain 
tobacco  was  not  included — submitted  in  response  to  notice  to  show  cause  against 
assessment  for  omitted  tax  on  apparent  deficiencies  shown  in  examination  of  man- 
ufacturer's account,  will  be  entertained;  verification  of  inventories  by  deputy 
collectors.     (T.  D.  2390;  Nov.  4,  1916.) 

Instrvictions  with  reference  to  inventories  required  to  be  filed  January  1,  1918, 
and  verification  thereof  by  collectors  of  internal  revenue  or  their  deputies;  further 
duties  of  deputy  collectors  stated.     (T.  D.  2583;  Nov.  17,  1917.) 

Manufacturers  of  tobacco,  snuff,  cigars,  and  cigarettes  required  to  make  inventories 
in  accordance  with  sections  3358,  3390,  Revised  Statutes,  such  inventoiy  to  be  made 
before  commencement  of  business  of  January  1,  1919;  tobacco  of  each  class,  and 
stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine-cut,  and  smoking 
tobacco,  snuff,  cigars,  and  cigarettes,  of  the  several  classes,  should  be  weighed 
separately;  inventory  must  include  unstemmed  tobacco  stored  off  bonded  factory 
premises  and  also  the  attached  and  unattached  stamps;  tobacco  material  in  factoiy 
required  to  be  segregated  according  to  classification;  tobacco  dust,  sweepings,  etc., 
must  be  inventoried  as  "waste";  weight  and  marks  of  each  unopened  package, 
etc.  required  tp  be  listed  on  back  of  inventorv  form:  record  of  quantitv  of  tobacco 
used  from  date  of  inventory  to  date  of  deputy  collector's  visit  required  to  be  kept; 
inventory  must  be  verified  early  as  practicable  after  January  1,  1919;  duties  of 
deputy  collectors  enumerated.     (T,  L).  2777;  Dec    11    1918) 


CIGARS.  113 

Manufacturers — Continued. 
Inventories — Continued. 

Inventories  prepared  in  accordance  with  sections  3358  and  3390,  Revised  Statutes, 
required  to  be  filed  before  commencement  of  business  on  January  1,  1920;  weifjhing; 
inventory  of  attached  and  unattached  stamps  required;  segregation  of  tobacco 
material  in  factory;  tobacco  dust,  sweepings,  etc.,  to  be  inventoried  as  "waste"; 
listing  of  weight  and  marks  of  vmopened  packages,  etc.;  verification;  duties  of 
deputy  collectors.     (T.  D.  2955;  Nov.  29,  1919.) 

A  corporation  carrying  on  business  as  a  manufacturer  of  tobacco,  snuff,  cigars,  or 
cigarettes,  or  as  a  dealer  in  leaf  tobacco,  will  be  required  to  have  the  monthly  reports 
and  inventories  signed  and  sworn  to  by  a  duly  authorized  officer  or  agent  of  the  cor- 
poration and  to  file  the  monthly  reports  within  the  prescribed  time  with  the  collector 
of  the  district  in  which  the  factory  or  dealer's  place  of  business  is  located.  (T.  D. 
3073;  Sept.  27,  1920.) 

An  officer's  authority  to  sign  and  make  oath  to  a  corporal  ion's  monthly  reports  and 
inventories,  unless  specifically  given  in  the  charter  or  by-laws,  must  be  confen-ed 
by  a  resolution  in  due  course  of  the  board  of  directors.  In  case  of  such  resolution,  a 
certificate  thereof  in  duplicate,  executed  by  the  president  and  attested  by  the  secre- 
tary, should  be  filed  with  the  collector  of  the  district  in  which  the  monthly  reports 
and  inventories  are  to  be  filed ;  one  copy  should  be  retained  by  the  collector  and  one 
forwarded  by  him  to  the  commissioner.     (T.  D.  3073;  Sept.  27,  1920.) 

Whenever  it  is  not  possible  or  convenient  for  an  officer  of  a  corporation  to  sign  and 
ewear  to  its  monthly  reports  and  inventories  as  a  manufacturer  of  tobacco,  snuff, 
cigars,  or  cigarettes,  or  as  a  dealer  in  leaf  tobacco,  an  agent  may  be  authorized  to 
execute  them  and  may  bind  the  corporation  as  fully  as  an  officer,  under  the  follow- 
ing conditions: 

A  resolution  in  due  course  of  the  board  of  directors  should  appoint  and  authorize 
the  superintendent  or  manager  of  the  factory  or  leaf  establishment,  identifying  both 
the  individual  and  the  factory  or  leaf  establishment,  to  execute  the  monthly  reports 
and  inventories  requu'ed  of  the  corporation,  and  provide  further  that  the  power  of 
attorney  so  created  shall  continue  in  full  force  until  written  notice  of  the  revocation 
thereof  is  given  to  the  collector  of  the  district  thereby  affected.  A  certificate  in  du- 
plicate of  such  resolution,  executed  by  the  president  and  attested  by  the  secretary, 
should  then  be  filed  with  the  collector  of  the  district  in  which  the  monthly  reports 
and  inventories  are  to  be  filed ;  one  copy  should  be  retained  by  the  collector  and  one 
forwarded  by  him  to  the  Commissioner.  Such  certificate  will  constitute  authority 
for  the  collector,  until  he  has  actual  notice  of  the  recall  of  the  power,  to  accept 
monthly  reports  and  inventories  executed  by  such  agent.  (T.  D.  3073;  Sept.  27, 
1920.) 

Actual  and  accurate  inventories  as  required  by  law  must  be  made  by  manufac- 
turers of  tobacco,  snuff,  cigars,  and  cigarettes  on  January  1,  1921.  Each  manufac- 
turer should  observe  carefully  the  following  instructions: 

(1)  The  inventory  must  be  made  before  the  commencement  of  business  .on  Janu- 
ary 1,  1921.  After  it  is  completed  the  correct  totals  should  be  immediately  entered 
on  the  blank  form  which  will  be  furnished  to  each  manufacturer  by  the  collector 
of  the  district  in  which  his  factory  is  located. 

(2)  All  stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine  cut.  and 
smoking  tobacco,  snuff,  cigars,  and  cigarettes  of  the  several  classes  must  be  sepa- 
rately weighed  or  counted,  as  the  case  may  be.  An  accurate  inventory  of  attached 
and  imattached  stamps  must  also  be  made. 

(3)  All  tobacco  material  in  the  factory  should  be  segregated  according  to  the 
classification  provided  in  the  prescribed  inA'entory  form,  and  weighed  separately. 

(4)  The  weight  and  marks  of  each  unopened  hogshead,  case,  or  bale,  or  other 
package  of  tobacco,  and  all  broken  packages  of  tobacco  and  loose  tobacco  within 
the  factory  and  inventoried  by  the  manufacturer,  should  be  listed  and  each  item 
should  be  sufficiently  described  to  aid  the  deputy  collector  in  verifying  the  in- 
ventory. Such  list  should  be  made  on  the  back  of  the  inventory  form  or  on  se]iarate 
sheets  of  the  same  size  attached  thereto. 

(5)  Tobacco  dust,  siftings,  sweepings,  and  waste  shall  be  inventoried  by  cigar 
manufacturers  under  the  head  of  "waste"  only,  and  by  quasi  manufacturers  of 
tobacco  under  separate  heads,  each  properly  described. 

((3)  An  accurate  record  of  the  quantity  of  tobacco  of  each  class  used  during  the 
period  from  the  date  of  inventory  to  the  date  of  the  visit  of  the  deputy  should  be 
kept  for  the  purpose  of  enabling  him  to  arrive  at  the  actual  quantity  of  tobacco  of 
each  class  which  was  on  hand  on  the  inventory  date.     ;,T.  D.  3099;  Dec.  10,  1920.) 

70420°— 21 8 


114 


CICwVES. 


Manufacturers  -  Continued. 
Inventories—Continued. 

Each  inventory  shall  be  verified  ]:)y  a  deputy  collector  at  the  earliest  practicable 
date  after  January  1,  1921.  Each  deputy  should  be  directed,  in  determining  the 
correctness  of  the  figures  shown  in  the  inventory,  to  take  into  account  the  quantity 
of  tobacco  of  each  different  kind  sold  and  used  on  the  one  hand  and  purchased  on  iiu; 
other  hand  between  the  time  of  his  ^^isit  and  the  taking  of  the  inventory.  The 
deputy  should  require  any  necessary  amendment  to  be  made  before  permittiii;:? 
oath  to  be  taken  and  should  observe  the  instructions  in  Regulations  No.  8  (revi-ed 
Julv  1,  1910),  page  60,  under  the  head  of  ''Deficiences  found  by  examining  officers.  " 
Any  deficiencies  which  mav  be  discovered  should  be  reported  immediately.  ^^T. 
D.  3099;  Dec.  10,  1920.) 
. Beraoval  or  withdrawal  of  tobacco. 

See  "Withdrawal  for  use  of  United  States,"  post. 

New  form  of  special  permit.  Form  688,  adopted  to  take  place  of  Record  100  for 
issue  to  manufacturers  of  cigars  and  tobacco  applying  therefor,  authorizing  remo\'al 
of  certain  kinds  of  tobacco  from  bonded  factory  premises  for  sale  or  transfer  to  another 
factory  or  for  return  to  leaf  dealer;  instructions  as  to  contents  of  application  for  per- 
mit, filing  of  application,  etc.  (T.  D.  2422;  Dec.  28,  1916.)  See  T.  D.  2957;  Dec. 
16,  1919. 

Printed  Form  712,  application  of  manufacturers  of  cigars  and  tobacco  for  permits 
to  remove  tobacco,  etc.,  from  factories  for  transfer  to  another  manufacturer  or 
return  to  dealer  in  leaf  tobacco,  adopted;  manufacturer  of  tobacco  and  cigars 
required  to  be  instructed  that  applications  for  permits  to  remove  tobacco,  etc., 
must  be  made  on  such  form,  and  that  it  must  be  legibly  and  accurately  filled  in, 
and  that  in  case  unstemmed  or  stemmed  leaf  tobacco  or  stems  are  shipped  or  deliv- 
ered to  dealer  in  leaf  tobacco,  the  abbreviation  "D.  L.  T."  should  be  indicated  in 
proper  place  in  the  application.  (T.  D.  2478;  Apr.  9,  1917.)  See  T.  D.  2957; 
Dec.  16,  1919. 

Instructions  v/ith  reference  to  supplying  manufacturers  of  cigars  with  re^'ised 
Form  550,  application  for  withdrawal  for  export.     (T.  D.  2521;  Sept.  1,  1917.) 

Bates  of  tax. 

Taxes  imposed  by  sections  400  to  403  of  the  act  of  October  3,  1917,  removed  from 
factory  or  customhouse  for  consumption  or  use  on  and  after  October  4,  1917,  and 
November  2, 1917,  according  to  their  several  classifications,  shown  hy  table.  (T.  D. 
2569;  Oct.  17,  1917.) 

Retail  price — Determinatioxi  of  tax. 

The  ordinary  retail  price  of  a  single  cigar  is  the  actual  retail  price  in  all  cases  at 
which  cigars  are  sold  singly;  manner  of  determining  the  ordinary  retail  price  of  a 
single  cigar  in  case  of  cigars  Avhich  are  manufactured  or  imported  to  retail  at  the 
rate  of  3  for  10  cents  or  10  for  35  cents,  and  which  are  practically  never  sold  in  any 
other  manner  stated.  (T.  D.  2645;  Jan.  17,  1918.)  Determination  of  price  where 
the  box  in  which  the  cigars  come  is  the  unit  of  sale.     (T.  D.  2569;   Oct.  17,  1917.) 

"Where  retail  price  of  cigars  is  different  in  different  parts  of  the  country,  tax  im- 
posed by  subdivisions  (b),  (c),  (d),  and  (e)  of  section  400  of  the  act  of  October  3, 
1917,  is  to  be  based  on  the  retail  price  at  which  the  cigars  are  retailed  in  the  section 
of  the  country  where  the  principal  market  for  them  is  at  the  time  of  sale.  (T.  D. 
2577;  Nov.  13,  1917.) 

Stamps — Cancellation. 

Stamps  required  by  section  400  of  the  act  of  October  3,  1917,  must  be  affixed  in 
Buch  manner  as  to  seal  the  package  and  shall  be  canceled  by  the  manufacturer 
va-iting  or  imprinting  on  each  stamp  his  factory  number,  the  number  of  the  district 
and  state,  and  date  of  cancellation  to  include  month  and  year;  in  case  of  importer 
of  email  cigars  or  cigarettes  the  stamps  shall  be  canceled  by  the  owner  or  importer 
writing  or  imprinting  upon  same  his  name  and  date  of  cancellation  to  include 
month  and  year.     (T.  D.  2569;  Oct.  17,  1917.) 

■ Inventory  and  return. 

All  attached  and  unattached  stamps  for  payment  of  tax  on  cigars  held  by  manu- 
facturers in  their  factories  on  October  4,  1917,  and  November  2,  1917,  before  com- 
mencement of  biLsiness  on  said  days,  required  to  be  inventoried  and  returns  filed 
for  additional  tax,  as  pro^'ided  in  section  1006  of  act  of  October  3,  1917;  stamps  in 


CIGAPvS.  115 

Stamps— Coutiiiued . 

Inventory  and  return— Continued. 

transit  on  date  inventory  is  required  purchased  at  old  rates  must  be  included  in 
inventory;  forms  for  returns  and  inventories;  m-anufacturere  required  to  render 
return  and  inventory  notwithstanding  he  may  have  no  stamps  on  hand  on  datea 
mentioned,     (T.  D.  25(;9;  Oct.  17,  1917.) 

Orders. 

Forms  of  orders  for  stamps,  revised,  standardized  as  to  size,  printed  in  different 
colors,  required  to  be  used  as  soon  as  supply  is  forwarded  to  collectors  and  distrib- 
uted by  them  to  manufacturers.     (T.  D.  2411;  Dec.  12,  1916.) 

Instructions  with  reference  to  use  bv  manufacturer  of  revised  Form  ItiS,  orderj 
for  stamps  for  cigars.     (T.  D.  2604;  Doc.  12,  1917.) 

Sale. 

Stamps  for  tax  payment  on  imported  cigars  to  be  sold  only  to  owners,  consignees, 
or  importers  on  requisition  of  proper  customhouse  officer;  stamp  order  Forms  168, 
172,  173,  and  485  restricted  to  use  of  manufacturers  in  the  United  States;  Regula- 
tions No.  8,  revised  July  1,  1910,  page  62,  amended  to  provide  that  when  cigars 
imi)orted  in  the  mails  are  for  delivery  at  places  other  than  where  examined  by 
customs  officers  and  are  forwarded  to  the  postmaster  who  notifies  the  addressee, 
furnishing  him  with  Customs  Catalogue  No.  3493,  which  is  forwarded  to  postmaster 
with  the  package,  necessary  stamps  shall  be  procured  from  and  sold  by  the  nearest 
collector  of  internal  revenue.     (T.  D.  2500;  June  15,  1917.) 

Time  when  act  effective. 

Section  400  of  the  act  of  October  3,  1917,  levying  a  tax  upon  cigars,  took  effect 
on  November  2,  1917.     (T.  D.  2547;  Oct.  22,  1917.) 

Witlidrawal  for  use  of  United  States — Application. 

Manufacturer  must  file  application  in  duplicate  on  Form  664  for  permit  to  make 
withdrawal  of  product  in  specific  lots  from  liis  factory,  and  in  addition  to  giving 
number  of  factory,  district,  and  State,  the  number  of  original  or  statutory  packages 
and  contents  of  each  shall  be  set  forth  in  each  application,  as  well  as  the  total  quan- 
tity covered,  rate  of  tax  applicable,  amount  of  tax  to  be  remitted,  and  the  institu- 
tion or  name  of  the  person  or  officer  to  whom,  and  the  address  to  which,  shipment 
or  delivery  is  to  be  made;  these  applications  may  be  forwarded  direct  to  the  Com- 
missioner of  Internal  Revenue,  in  which  case  the  duplicate  application  will  be 
forwarded  by  the  Commissioner  to  the  collector,  or  filed  with  tlie  collector  for  the 
district,  in  which  case  the  collector  must  forv.^ard  the  original  application  im- 
mediately to  the  Commissioner;  application  should  be  filed  sufficient  time  in 
advance  of  date  upon  which  withdrawal  is  contemplated  to  be  made  to  allow  of 
receipt  and  issuance  of  permit  by  the  Commissioner  and  receipt  thereof  by  the 
manufacturer  prior  to  that  date.    *(T.  D.  2982;  Jan.  22,  1920.) 

• Bills  of  lading. 

Where  product  withdrawn  is  transported  by  common  carrier,  the  manufacturer 
must  fide  with  the  collector  of  the  district  in  which  the  factor}^  making  withdrawal 
is  located,  bills  of  lading  in  duplicate  covering  each-shipment  from  the  factory  to 
the  point  of  final  dcstttratiou;  one  of  these  bills  of  lading,  wliich  must  be  filed 
promptly  after  withdraAval  is  made,  will  be  filed  with  the  copy  of  the  application 
and  permit  which  it  covers  in  the  collector's  office,  and  the  other  shall  be  forwarded 
immediatelv  with  letter  of  transmittal  to  the  Commissioner.  (T.  D.  29S2;  Jan.  22, 
1920.) 

Bond  for  transporiiation  and  delivery. 

The  manufacturer  is  required  to  furnish  transportation  and  delivery  bond  iti 
duplicate  on  Form  665  with  satisfactory  sureties  and  in  penal  sum  of  not  less  than 
the  tax  on  the  total  quantity  specified  in  the  requisition;  this  bond,  which  shall 
state  quantity  of  product  requisitioned,  number  of  factory,  and  its  location,  includ- 
ing the  district  and  State,  from  which  withdrawal  is  to  be  made,  and  tlie  institution 
or  name  of  the  person  or  officer  to  \\hom,  and  address  to  which,  shipment  or  delivery 
is  to  be  made,  may  be  executed  by  corporate  surety  or  individual  sureties,  in  the 
latter  case  each  individual  surety  being  required  to  show  qualification  on  Form  33 
executed  in  duplicate,  and  the  duplicate  form  to  be  attached  to  the  duplicate  bond; 


116  CIGARS. 

Withdrawal  for  use  of  United  States— Continued. 

. Bond  for  transportation  and  delivery — Continued. 

the  ori^nal  and  duplicate  bond  muet  be  filed  with  the  collector  for  the  district  in 
which  the  factory  is  located,  who  will,  if  the  bond  meets  his  approval,  enter  an 
indorsement  to  that  effect  on  both  the  original  and  duplicate,  and  forward  the 
duplicate  immediately  to  the  Commissioner  of  Internal  Revenue.  (T.  D.  2982; 
Jan.  22,  1920.) 

Certificate  of  receipt  by  Government  officer. 

The  Government  receiving  officer  at  the  place  of  delivery  should  inspect  each 
shipment,  in  order  that  he  may  certify  as  to  the  quantity  received  and  the  date  of 
receipt,  his  certificate  to  be  made  on  Form  667  in  duplicate  and  forwarded  promptly 
to  the  manufacturer,  who  must  file  both  copies  of  the  certificate  of  receipt  with  the 
collector  of  internal  revenue  for  the  district  within  thirty  days  of  date  of  withdrawal; 
where  there  is  loss  of  goods  in  transit,  the  receipt  should  specify  the  number  of 
statutory  packages,  the  number  of  inner  packages,  if  any,  and  the  total  quantity  so 
lost,  and  the  amount  reported  lost  or  any  difference  between  the  quantity  withdrawn 
under  permit  and  that  certified  to  by  the  receiving  officer  will  remain  as  charged 
against  the  transportation  bond,  and  assessment  of  tax  thereon  will  be  made  against 
the  manufacturer  in  the  absence  of  evidence  showing  that  the  goods  not  covered  by 
the  receiving  oflicer's  certificate  were  actually  destroyed.  (T.  D.  2982;  Jan.  22, 
1920.) 

. Collector's  account;  credit  on  bond. 

The  bond  covering  the  total  quantity  of  product  requisitioned  will  be  credited 
in  the  office  of  the  Commissioner,  to  whom  the  collector  will  forward  the  original 
certificate  of  receipt  immediately  after  it  is  received  by  him.     (T.  D.  2982;  Jan.  22, 
1920.) 
— —  Departmental  requisition. 

V/henever  cigars  are  purchased  for  use  of  the  United  States  arid  it  is  proposed  to 
make  withdrawals,  tax  free,  from  the  place  of  manufacture,  requisition  in  duplicate 
on  Form  663,  approved  by  head  of  department  or  head  of  bureau,  or  other  organiza- 
tion, if  independent  of  a  department,  must  be  filed  with  the  Commissioner  of 
Internal  Revenue;  this  requisition  must  specify  the  total  quantity  of  the  product 
contracted  for  at  a  price  not  including  the  tax  thereon,  the  name  of  the  manufac- 
turer, his  factory  number,  district  and  State,  the  location  of  the  factory  and  the  insti- 
tution and  name  of  the  person  or  officer  to  whom,  and  address  to  which,  shipment 
or  delivery  is  to  be  made;  one  copy  of  the  requisition  will  be  forwarded  by  the 
Commissioner  to  the  collector  of  internal  revenue  for  the  district  in  which  is  located 
the  factory  designated  to  furnish  the  product.     (T.  D.  2982;  Jan.  22,  1920.) 

Entries  in  manufacturer's  records  and  reports. 

Each  withdrawal  of  a  product  from  the  factory  shall  be  entered  by  the  manufac- 
turer in  his  revenue  book  on  the  day  withdrawal  is  made  and  shall  be  included 
in  his  monthly  or  annual  report  under  an  appropriate  heading  and  carried  in  the 
recapitulation  as  a  special  credit.     (T.  D.  2982;  Jan.  22,  1920.) 

Labeling  or  branding. 

Each  individual  package  of  tobacco  manufacture  shall  be  labeled  or  branded 
"For  the  use  of  U.  S.  Government,"  together  with  number  of  permit  and  the  date 
thereof,  the  letters  and  figures  of  such  printing  to  be  conspicuous,  in  bold-face  type, 
of  not  less  than  one-fourth  of  an  inch  in  height.     (T.  D.  2982;  Jan.  22,  1920.) 

■ Permit. 

Requisition  and  bond  having  been  filed,  permit  in  duplicate  on  Form  666  for  each 
withdrawal,  for  which  application  is  made  and  approved,  will  be  issued  by  the  Com- 
missioner and  forwarded  to  the  collector,  and  the  original  permit  will  be  delivered 
by  the  collector  to  the  manufacturer  to  be  retained  as  authority  for  making  the 
withdrawal;  no  more  than  the  quantity  named  in  the  permit  may  be  withdrawn 
thereunder  and  no  withdrawal  shall  be  made  in  advance  of  the  issue  of  a  permit; 
withdrawals  must  be  made  within  a  reasonable  time  after  receipt  of  permit  or  else 
request  should  be  made  for  cancellation  of  such  permit;  all  products  withdrawn  in 
advance  of  issue  of  permit  will  be  held  subject  to  tax,  and  a  manufacturer  who 
violates  the  law  by  withdrawing  products  on  which  tax  has  not  been  paid,  without 
permit,  will  be  liable  also  to  statutory  penalties.     (T.  D.  2982;  Jan.  22,  1920.) 


CIGARETTES.  117 

CIGARETTES. 

Cases — Excise  tax. 

Cigarette  case?,  when  intcndefl  to  be  carried  on  the  person,  and  made  wholly 
or  in  part  from  gold,  silver,  or  platinum,  or  having  the  appearance  thereof,  are 
deemed  to  be  jewelry  within  section  600  (e)  of  the  act  of  October  3,  1917.  (T,  D. 
2719;  Art.  XIV.) 

Floor  tax. 

Tax-paid  manufactured  cigarettes  in  excess  of  specified  quantity  held  for  sale 
on  October  4,  1917,  as  well  as  contents  of  broken  packages  and  goods  in  transit  on 
such  date,  required  to  be  inventoried  and  returned  for  assessment  of  tax  provided 
■for  by  section  403  of  the  act  of  October  3,  1917;  dealers  and/jthers  required  to  pay 
tax  must  make  return  on  Form  41CC,  in  duplicate,  under  oath,  on  or  before  Novem- 
ber 2,  1917;  payment  of  (ax  required  at  time  of  filing  return,  but  may  upon  filing  of 
bond  be  extended  to  dale  not  exceeding  seven  months  from  passage  of  act  of  Octo- 
ber 3,  1917;  principal  office  or  place  of  business  to  make  return  where  two  or  more 
stores  are  operated  by  same  dealer.     (T.  D.  255G;  Oct.  16,  1917.) 

Stocks  of  cigars,  tobacco,  and  cigarettes  held  for  sale  at  close  of  business,  October 
3, 1917.  at  post  exchanges  at  Armv  camps  are  not  subject  to  floor-stock  taxes  imposed 
by  section  403  of  act  of  October  3,  1917.     (T.  D.  2584;  Nov.  20,  1917.) 

Manufacturers — Books  and  returns. 

Instructions  with  reference  to  entries  to  be  made  in  books  and  monthly  returns 
on  November  2,  1917,  when  full  increased  taxes  became  effective.  (T.  D.  2569; 
Oct.  17,  1917.) 

—  Inventories. 

Instructions  with  reference  to  inventories  recjuired  to  be  filed  January  1,  1918, 
and  verification  thereof  by  collectors  of  internal  revenue  or  their  deputies;  further 
duties  of  deputy  collectors  stated,     (T.  D.  2583;  Nov.  17,  1917.) 

Manufacturers  of  tobacco,  snuff,  cigars,  and  cigarettes  required  to  make  inven- 
tories in  accordance  with  sections  3358,  3390,  Revised  Statutes,  such  inventory  to  be 
made  before  commencement  of  business  of  January  1,  1919;  tobacco  of  each  class, 
and  stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine-cut,  and  smok- 
ing tobacco,  snuff,  cigars,  and  cigarettes,  of  the  several  classes,  should  be  weighed 
separately;  inventory  must  include  unstemmed  tobacco  stored  off  bonded  factory 
premises  and  also  the  attached  and  unattached  stamps;  tobacco  material  in  factory 
required  to  be  segregated  according  to  classification;  tobacco  dust,  sweepings, 
etc.,  must  be  inventoried  as  "waste"';  weight  and  marks  of  each  unopened  pack- 
age, etc.,  required  to  be  listed  on  back  of  inventory  form;  record  of  quantity  of 
tobacco  used  from  date  of  inventory  to  date  of  deputy  collector's  visit  required  to 
be  kept;  inventory  must  be  verified  early  as  practicable  after  January  1,  1919; 
duties  of  deputy  collectors  enumerated.     (T.  D.  2777;  Dec.  11,  1918.) 

Inventories  prepared  in  accordance  wdth  sections  3358  and  3390,  Revised  Statutes, 
required  to  be  filed  before  commencement  of  business  on  January  1,  1920;  weighing; 
inventory  of  attached  and  unattached  stamps  required;  segregation  of  tobacco 
material  in  factory;  tobacco  dust,  sweepings,  etc.,  to  bo  inventoried  as  "waste"; 
listing  of  weight  and  marks  of  unopened  packages,  etc. ;  verification;  duties  of  deputy 
collectors.     (T.  D.  2955;  Nov.  29,  1919.) 

A  corporation  carrying  on  business  as  a  manufacturer  of  tobacco,  snuff,  cigars,  or 
cigarettes,  or  as  a  dealer  in  leaf  tobacco,  will  be  required  to  hav'e  the  monthly  reports 
and  inventories  signed  and  sworn  to  by  a  duly  authorized  officer  or  agent  of  the  cor- 
poration and  to  file  the  monthly  reports  within  the  prescribed  time  with  the  collector 
of  the  district  in  which  the  factory  or  dealer's  place  of  business  is  located.  (T.  D. 
3073;  Sept.  27,  1920.) 

An  officer's  authority  to  sign  and  make  oath  to  a  corporation's  monthly  reports  and 
inventories,  unless  specifically  given  in  the  charter  or  by-laws,  must  be  conferred 
by  a  resolution  in  due  course  of  the  board  of  directors.  In  case  of  such  resolution,  a 
certificate  thereof  in  duplicate,  executed  by  the  president  and  attested  by  the  secre- 
tary, should  be  filed  with  the  collector  of  the  district  in  which  the  monthly  reports 
and  inventories  are  to  be  filed;  one  copy  should  be  retained  by  the  collector  and  one 
forwarded  by  him  to  the  commissioner.     (T.  D.  3073;  Sept.  27,  1920.) 

Whenever  it  is  not.possible  or  convenient  for  an  officer  of  a  corporation  to  sign  and 
swear  to  its  monthly  reports  and  inventories  as  a  manufacturer  of  tobacco,  snuff, 


118 


CIGARETTES. 


Manufacturers— Couilnucd. 

. Inventories — Continued. 

ci"-ar3  or  cigarettes,  or  as  a  dealer  in  leaf  tobacco,  an  agent  may  be  authorized  to 
execute  thein  and  may  bind  the  corporation  as  fully  as  an  officer,  under  the  fol- 
lov/ing  conditions: 

A  resolution  in  due  course  of  the  board  of  directors  should  appoint  and  authorize 
the  superintendent  or  manager  of  the  factory  or  leaf  establishment,  identif>dng  both 
the  individual  and  the  factory  or  leaf  establishment,  to  execute  the  monthly  reports 
and  inventories  required  of  the  corporation,  and  pro^dde  fmther  that  the  power  of 
attorney  so  created  shall  continue  in  full  force  xintil  written  notice  of  the  revocation 
thereof  is  given  to  the  collector  of  the  district  thereby  affected.  A  certificate  in 
duplicate  of  such  resolution,  executed  by  the  president  and  attested  by  the  secretary, 
should  then  be  filed  with  the  collector  of  the  district  in  which  the  monthly  reports 
and  inventories  are  to  be  filed;  one  copy  should  be  retained  by  the  collector  and  one 
forwarded  by  him  to  the  commissioner.  Such  certificate  will  constitute  authority 
for  the  collector,  until  he  has  actual  notice  of  the  recall  of  the  power,  to  accept  monthly 
reports  and  inventories  executed  by  such  agent.     (T.  D.  3073;  Sept.  27,  1920.) 

Actual  and  accurate  inventories  as  required  by  law  must  be  made  by  manufac- 
tmers  of  tobacco,  snuff,  cigars,  and  cigarettes  oii  January  1,  1921.  Each  manu- 
factm-er  should  observe  carefully  the  following  instructions: 

(1)  The  inventory  must  be  made  before  the  commencement  of  business  on  Jan- 
uary 1, 1921.  After  it  is  completed  the  correct  totals  should  be  immediately  entered 
on  the  blank  form  which  will  be  furnished  to  each  manufacturer  by  the  collector 
of  the  district  in  which  Ms  factory  is  located. 

(2)  All  stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine  cut,  and 
smoking  tobacco,  snuff,  cigars,  and  cigarettes  of  the  several  classes  must  be  separately 
weighed  or  counted,  as  the  case  may  be.  An  accurate  inventory  of  attached  and 
unattached  stamps  m.ust  also  be  made. 

(3)  All  tobacco  material  in  the  factory  should  be  segregated  according  to  the 
classification  provided  in  the  prescribed  invcntoiy  form,  and  weighed  separately. 

(4)  The  weight  and  marks  of  each  unopened  hogshead,  case,  or  bale,  or  other 
package  of  tobacco,  and  all  broken  packages  of  tobacco  and  loose  tobacco  within 
the  factory  and  inventoried  by  the  manufacturer,  should  be  listed  and  each  item 
should  be  sufficiently  described  to  aid  the  deputy  collector  in  verifying  the  inventory. 
Such  list  should  be  made  on  the  back  of  the  inventory  form  or  on  separate 
sheets  of  the  same  size  attached  thereto. 

(5)  Tobacco  dust,  siftings,  sweepings,  and  waste  shall  be  inventoried  by  cigar 
manufacturers  under  the  head  of  "waste"  only,  and  by  quasi  manufacturers  of 
tobacco  under  separate  heads,  each  properly  desribed. 

(6)  An  accurate  record  of  the  quantity  of  tobacco  of  each  class  used  during  the 
period  from  the  date  of  inventory  to  the  date  of  the  a  isit  of  the  deputy  should  be 
kept  for  the  pm-pose  of  enabling  him  to  arrive  at  the  actual  quantity  of  tobacco 
of  each  class  which  was  on  hand  on  the  inventory  date.     (T.  D.  3099;  Dec.  10, 1920.) 

Each  inventory  shall  be  verified  by  a  deputy  collector  at  the  earliest  practicable 
date  after  January  1,  1921.  Each  deputy  should  be  directed,  in  determining  the 
correctness  of  the  figures  shown  in  the  inventory,  to  take  into  account  the  quantity 
of  tobacco  of  each  different  Idnd  sold  and  used  on  the  one  hand  and  purchased  on 
the  other  hand  between  the  time  of  his  visit  and  the  taking  of  the  inventory.  _  The 
deputy  should  require  any  necessary  amendment  to  be  made  before  permitting 
oath  to  be  taken  and  should  observe  the  instructions  in  Regulations  No.  8  (revised 
July  1, 1910) ,  page  GO,  under  the  head  of ' '  Deficiencies  found  by  examining  officers. ' ' 
Any  deficiencies  which  may  be  disco^'ered  should  be  reported  immediately.  (T.  D. 
3099;  Dec.  10,  1920.) 

Witlidrawal  of  tobacco  for  export. 

Instructions  with  reference  to  supplying  manufacturers  of  cigarettes  with  revised 
Form  550,  application  for  withdrawal  for  export.     (T.  D.  2521 ;  Sept.  1, 1917.) 

Paper  and  tubes — Accrual  of  tax. 

Taxes  imposed  by  section  404  of  act  of  October  3,  1917,  effective  on  November  2, 
1917,  accrue  upon  removal  of  packages,  books,  sets,  or  tubes  from  the  place  where 
they  are  made  in  the  United  States,  or,  if  they  are  imported,  upon  withdrawal  from 
customhouse  for  consumption  or  use.     (T.  D.  2-552;  Oct.  22,  1917.) 

• Catarrh,  and  asthma  reraedies. 

Closed-end  tubes,  used  in  the  preparation  of  catarrh  and  asthma  remedies,  are 
not  taxable  as  "cigarette  tubes. "    (T.  D.  2570;  Nov.  6,  1917.) 


CIGAEETTES.  119 

Paper  and  tubes — Contiiiiicd. 
Exemptions  from  tax. 

Cigarette  papers,  made  up  into  packages,  books,  or  sets,  corUaiiilug  not  more  than 
25  papera,  and  also  cigarette  tubes  delivered  to  a  duly  registered  manufacturer  of 
cigarettes  under  stated  conditions,  are  exempt  from  tax.     (T.  D.  2552;  Oct.  22, 1917.) 

Exports. 

No  provision  is  made  by  law  for  the  exporlajion  without  the  payment  of  tax  of 
cigarette  papers  in  packages,  books,  or  sets,  or  of  cigarette  tubes.  (T.  D.  2552; 
Oct.  22,  1917.) 

Imports. 

\Vlieu  cigarette  paper  made  up  into  packages,  books,  or  sets,  or  cigarette  tubes  are 
imported,  the  customs  consumption  entry  or  withdrawal  for  consumption  entry  shall 
be  prepared  in  triplicate  and  show  in  detail  number  of  packages,  etc.,  containing 
stated  number  of  papers  each ;  two  copies  of  customs  entries  to  be  filed  with  collector; 
tax  to  be  paid  to  collector  at  time  entries  are  filed  with  him ;  collector  to  make  certain 
entries  on  copy  of  customs  entry;  report  in  duplicate  to  be  made  by  collector  of 
customs  to  collector  of  internal  revenue  of  quantity  imported.  (T.  D.  2552;  Oct. 
22,  1917.) 

Record,  etc.,  of  manufacturers  of  cigarette  tubes. 

Every  person,  corporation,  partnership,  or  association  making  up  cigarette  paper 
into  packages,  etc.,  in  the  United  States,  required  to  keep  a  book  and  enter  therein 
each  day  the  number  of  packages,  etc.,  removed  for  consumption  or  use;  daily 
record  required  of  number  of  tubes  sold  and  delivered  tax  free' to  duly  reoistered 
manufacturers  of  cigarettes  and  also  number  of  packages  of  tubes  containing  100 
tubes  or  fi'actional  part  thereof  and  number  intended  for  use  by  smoker  in  making 
cigarettes  removed  subject  to  tax;  monthlv  returns  required;  tax  due  at  time  of 
filing  return.     (T.  D.  2552;  Oct.  22,  1917.)" 

■ Time  v/lien  act  effective. 

Section  404  of  the  act  of  October  3,  1917,  levying  a  tax  upon  cigarette  paper,  took 
effect  on  November  2,  1917.     (T.  D.  2547;  Oct.  22,  1917.) 

Rates  of  tax. 

Taxes  imposed  by  sections  400  to  403  of  the  act  of  October  3,  1917,  removed  from 
factory  or  customhouse  for  consumption  or  use  on  and  after  October  4,  1917,  and 
November  2,  1917,  according  to  their  several  classifications,  .shown  by  table. 
(T.  D.  2569;  Oct.  17,  1917.) 

Soldiers'  kits. 

Instructions  with  reference  to  the  shipm.ent  from  tobacco  and  cigarette  factories 
of  so-called  soldiers'  kits  or  cartons  containing  packages  of  tobacco  and  cigarettes 
to  New  York,  there  to  be  repacked  under  supervision  of  custom.s  officer  for  exporta- 
tion to  United  States  soldiers  in  Europe.     (T.  D.  2517;  Aug.  17,  1917.) 

Stamps — Cancellation. 

Stamps  required  by  section  400  of  the  act  of  October  3,  1917,  must  be  afiixcd 
in  such  manner  as  to  seal  the  package  and  shall  be  canceled  by  the  manufacturer 
writing  or  imprinting  on  each  stamp  his  factory  number,  the  number  of  the  district, 
and  State,  and  date  of  cancellation  to  include  month  and  year;  in  case  of  importer 
of  sm-all  cigars  or  cigarettes  the  stanips  shall  be  canceled  by  the  owner  or  importer 
writing  or  imprinting  upon  same  his  name  and  date  of  cancellation  to  include 
month  and  year.     (T.  D.  25G9;  Oct.  17,  1917.) 

Inventory  and  return. 

All  attached  and  imattached  stamps  for  payment  of  tax  on  cigarettes  held  by 
manufacturers  in  their  factories  on  October  4,  1917,  and  November  2,  1917,  before 
commencement  of  business  on  said  days,  required  to  be  inventoried  and  returns 
filed  for  additional  tax,  as  provided  in  section  1006  of  act  of  October  3, 1917;  stamps 
in  transit  on  date  inventory  is  required  piu-chased  at  old  rates  m^ust  be  included 
in  inventory;  forms  for  returns  and  inventories;  manufacturers  required  to  render 
return  and  inventory,  notwithstanding  he  may  have  no  stamps  on  hand  on  dates 
mentioned.     (T.  D.  2569;  Oct.  17,  1917.) 


■£20  CIGARETTES. 

Stamps— Continued. 

Orders. 

Forms  of  orders  for  stamps,  revised,  standardized  as  to  size,  printed  in  different 
colors  required  to  be  used  as  soon  as  supply  is  forwarded  to  collectors  and  distributed 
by  them  to  manufacturers.    (T.  D.  2411;  Dec.  12,  1916.) 

Instructions  with  reference  to  use  by  manufacturer  of  revised  Form  485,  orders 
for  stamps  for  cigarettes.     (T.  D.  2604;  Dec.  12,  1917.) 

Sales. 

Stamps  for  tax  payment  of  imported  cigarettes,  to  be  sold  only  to  owners,  con- 
signees, or  importers,  on  requisition  of  proper  customhouse  ofiicer;  stamp  order 
Forms  icS,  172,  173,  and  485  restricted  to  use  of  manufacturers  in  the  United  States; 
Reo-ulations  No.  8,  revised  July  1,  1910,  page  62,  amended  to  provide  that  when 
(.'igarettes  imported  in  the  mails  are  for  delivery  at  places  other  than  where  ex- 
amined by  customs  officers,  and  are  forwarded  to  the  postmaster  who  notifies  the 
addressee  furnishing  him  with  Customs  Catalogue  No.  3493,  which  is  forwarded  to 
postmaster  with  the  package,  necessary  stamps  shall  be  procured  from  and  sold  by 
the  nearest  collector  of  internal  revenue.     (T.  D.  2500;  June  15,  1917.) 

Time  when  act  effective. 

Section  400  of  the  act  of  October  3,  1917,  levying  a  tax  upon  cigarettes,  took  effect 
on  November  2,  1917.     (T.  D.  2547;  Oct.  22,  1917.) 

Withdrawal  for  use  of  United  States — Application, 

Manufacturer  must  file  application  in  duplicate  on  Form  6G4  for  permit  to  make 
withdrawal  of  product  in  specific  lots  from  his  factory,  and  in  addition  to  giving 
number  of  factory,  district  and  State,  the  number  of  original  or  statutory  packasjes 
and  contents  of  each  shall  be  set  forth  in  each  application,  as  well  as  the  total  quantity 
covered,  rate  of  tax  applicable,  amount  of  tax  to  be  remitted,  and  the  institution  or 
name  of  the  person  or  officer  to  whom,  and  the  address  to  which,  shipment  or  delivery 
is  to  be  made;  these  applications  may  be  forwarded  direct  to  the  Commissioner  of 
Internal  Kevenue,  in  which  case  the  duplicate  application  will  be  forwarded  by  the 
Commissioner  to  the  collector,  or  filed  with  the  collector  for  the  district,  in  which 
case  the  collector  must  forward  the  original  application  immediately  to  the  Com- 
missioner; application  should  be  filed  sufficient  time  in  advance  of  date  upon 
which  withdrawal  is  contemplated  to  be  made  to  allow  of  receipt  and  issuance  of 
permit  by  the  Commissioner  and  receipt  thereof  by  the  manufacturer  prior  to  that 
date,     (f .  D.  2982;  Jan.  22,  1920.) 

Bills  of  lading. 

Where  product  withdrawn  is  transported  by  common  carrier,  the  manufacturer 
must  file  with  the  collector  of  the  district  in  which  the  factory  making  withdrawal 
is  located  bills  of  lading  in  duplicate  covering  each  shipment  from  the  factory  to 
the  point  of  final  destination;  one  of  these  bills  of  lading,  which  must  be  filed 
promptly  after  withdrawal  is  made,  will  be  filed  with  the  copy  of  the  application 
and  permit  which  it  covers  in  the  collector's  office,  and  the  other  shall  be  forwarded 
immediately  with  letter  of  transmittal  to  the  Commissioner.  (T.  D.  2982;  Jan.  22, 
1920.) 

Bond  for  transportation  and  delivery. 

The  manufacturer  is  required  to  furnish  transportation  and  delivery  bond  in 
duplicate  on  Form  665  with  satisfactory  sureties  and  in  penal  sum  of  not  less  than 
the  tax  on  the  total  quantity  specified  in  the  requisition;  this  bond,  which  shall 
state  quantity  of  product  requisitioned,  number  of  factory,  and  its  location,  includ- 
ing the  district  and  State,  from  which  withdrawal  is  to  be  made,  and  the  institiition 
or  name  of  the  person  or  officer  to  whom,  and  address  to  which,  shipment  or  delivery 
is  to  be  made,  may  be  executed  by  corporate  surety  or  individual  sureties,  in  the 
latter  ca.«e  each  individual  surety  being  required  to  show  qualification  on  Form  33, 
executed  in  duplicate,  and  the  duplicate  form  to  be  attached  to  the  duplicate 
bond;  the  original  and  duplicate  bond  must  be  filed  with  the  collector  for  the  dis- 
trict in  which  the  factory  is  located,  who  will,  if  the  bond  meets  his  approval,  enter 
an  indorsement  to  that  effect  on  both  the  original  and  duplicate,  and  forward  the 
duplicate  immediately  to  the  Commissioner  of  Internal  Revenue.  (T.  D.  2982; 
Jan.  22,  1920.) 


CIRCUSES.  121 

Withdrawal  for  use  of  United  States  — rontimierl. 

Certificate  of  receipt  by  Government  officer. 

The  Government  rofciving  officer  at  the  place  of  delivery  should  inspect  each 
shipment,  in  order  lliat  he  may  certify  as  to  the  quantity  received  and  the  date  of 
receipt,  his  certificate  to  be  made  on  Form  Gti7  in  duplicate  and  forwarded  promptly 
to  the  manufacturer,  who  must  tile  both  copies  of  the  certificate  of  receij>t  with  the 
collector  of  internal  revenue  for  the  district  within  30  days  of  date  of  witlulrav/al; 
where  there  is  loss  of  goods  in  transit,  the  receipt  should  specify  the  number  of 
statutory  packages,  the  number  of  inner  packages,  if  any,  and  the  total  (juantity 
HO  lost,  and  the  amount  reported  lost  or  any  difference  between  the  quantity  with- 
draw-n  under  permit  and  that  certified  to  by  the  receiving  officer  ^\'iU  remain  as 
charged  against  the  transportation  bond,  and  assessment  of  tax  thereon  will  be  made 
against  the  manufacturer  in  the  absence  of  evidence  sho"vving  that  the  goods  not 
<  overed  by  the  receiving  officer's  certificate  were  actually  destroyed.  (T.  D:  2982; 
Jan.  22,  1920.) 

Collector's  account;  credit  on  bond. 

The  bond  covering  the  total  quantity  of  product  recjuisitioned  will  be  credited 
in  the  office  of  the  Commissioner,  to  whom  the  collector  will  forward  the  original 
certificate  of  receipt  immediately  after  it  is  received  by  him.  (T.  D.  2982;  Jan.  22, 
1920,) 

Departmental  requisition. 

Whenever  cigarettes  are  purchased  for  use  of  the  United  States  and  it  is  proposed 
to  make  withdrawals,  tax  free,  from  the  place  of  manufacture,  requisition  in  dupli- 
cate on  Form  6G3,  approved  by  head  of  department  or  head  of  bureau,  or  other 
.  organization,  if  independent  of  a  department,  must  be  filed  with  the  Commissioner 
of  Internal  Revenue;  this  requisition  must  specify  the  total  quantity  of  the  prod- 
uct contracted  for  at  a  price  not  including  the  tax  thereon,  the  name  of  the  manu- 
facturer, his  factory  number,  district  and  State,  the  location  of  the  factory  and  the 
institution  and  name  of  the  person  or  officer  to  whom,  and  address  to  which,  ship- 
ment or  delivery  is  to  be  made;  one  copy  of  the  requisition  will  be  forwarded  by 
the  Commissioner  to  the  collector  of  internal  revenue  for  the  district  in  which  ia 
located  the  factory  designated  to  furnish  the  product.    (T.  D.  2982;  Jan.  22,  1920.) 

— —  Entries  in  manufacturer's  records  and  reports. 

Each  withdrawal  of  a  product  from  the  factory  shall  be  entered  by  the  manufac- 
turer in  his  ^e^'enue  book  on  the  day  withdrawal  is  made  and  shall  be  included  in 
his  monthly  or  annual  report  under  an  appropriate  heading  and  carried  in  the 
recapitulation  as  a  special  credit.     (T.  D.  2982;  Jan.  22,  1920.) 

. Labeling  or  branding. 

Each  individual  package  of  tobacco  manufactures  shall  be  labeled  or  branded 
"For  the  use  of  U.  S.  (Jovernment,"  together  with  number  of  permit  and  the  date 
thereof,  the  letters  and  figures  of  such  printing  to  be  conspicuous,  in  bold-face  tvpe 
of  not  less  than  one-fourth  of  an  inch  in  height.     (T.  D.  2982;  Jan.  22,  1920.) 

Permit. 

Requisition  and  bond  having  been  filed,  permit  in  duplicate  on  Form  C6G  for 
each  withdrawal,  for  which  application  is  made  and  approved,  will  be  issued  by 
the  Commissioner  and  forwarded  to  the  collector,  and  the  original  permit  will  be 
delivered  by  the  collector  to  the  manufacturer  to  be  retained  as  authority  for  mak- 
ing the  withdrawal;  no  more  than  the  quantity  named  in  the  permit  may  be  with- 
drawn thereunder  and  no  withdrawal  shall  be  made  in  advance  of  the  issue  of  a 
permit;  withdrawals  miist  be  made  within  a  reasonable  time  after  receipt  of  permit 
or  else  request  should  be  made  for  cancellation  of  such  permit;  all  products  ^\•ith- 
drawn  in  advance  of  issue  of  permit  will  be  held  subject  to  tax  and  a  manufacturer 
who  violates  the  law  by  withdrawing  products  on  which  tax  has  not  been  paid, 
without  permit,  will  be  liable  also  to  statutory  penalties.    (T.  D.  2982;  Jan.  22, 1920.) 

CIHCT7SES. 
Admissions. 

Proprietor,  manager,  or  duly  authorized  officer  of  traveling  or  itinerant  shows, 
exhibitions,  or  amusement  enterprises,  which  have  fixed  or  established  headquar- 
ters, required  to  register  with  collector  of  district  in  which  headquarters  are  located, 


222  CIVIC   ORGANIZATIOiSrS — CLAIMS. 

Admissions— Continued . 

and  required  to  file  at  same  time,  or  as  soon  thereafter  as  possible,  a  schedule  of  the 
itinerary  and  to  keep  a  daily  record  and  render  monthly  returns  to  the  collector  of 
said  district.     (T.  D.  2681;  Mar.  26,  1918.) 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  709  of  the  act  of 
October  3, 1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  consider- 
able variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions,  rid- 
inp'  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  tem.porary  inclosures  or  on  vacant  lots.     (T.  D.  2681;  Mar.  26,  1918.) 

Transportation  charges. 

Where  a  lump-sum  charge  is  made  for  transportation  of  a  circus  train,  which  car- 
ries both  property  and  persons,  the  3  per  cent  tax  applies  to  such  charge;  if,  however, 
advance  passenger  transportation  is  included  in  such  lump-sum  charge,  8  per  cent 
tax  applies  to  such  portion  of  charge  as  represents  charge  for  advance  passenger 
transportation,  and  3  i^er  cent  tax  applies  to  balance  of  lump-sum  charge.  (T.  D. 
2676;  Mar.  18,  1918.) 

CIVIC  OKGANIZATIONS. 
Capital  stock  tax. 

Civic  leagues  or  organizations  not  organized  for  profit,  but  operated  exclusively 
for  promotion  of  social  welfare,  are  exempt  from  tax  imposed  by  section  407  of  the  act 
of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  191G.  T.  D.  2750,  art.  12;  Aug.  9, 
1918.) 

Income  tax — ^Exemption. 

Ci"\TLC  leagues  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on 
filing  with  collector  affidavit  setting  out  character  and  purpose  of  organization  and 
showing  that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or 
indi^■idual,  and  that  such  income  is  used  exclusively  to  promote  purposes  for  which 
organized  as  indicated  in  particular  paragraph  under  which  exemption  is  claimed. 
(T.  D.  2690;  art.  67.) 

Exemption  from  filing  returns  and  paying  income  tax  of  ci\'ic  leagues  is  condi- 
tional upon  such  an  organization  filing  affidavit  showing  character  and  purpose  of 
organization,  source  of  income  and  disposition  of  same,  whether  or  not  any  of  its 
income  is  credited  to  surplus  or  inures  to  benefit  of  any  private  stockholder  or 
indi\ddual,  to  which  affidavit  should  be  attached  copy  of  charter  or  articles  of 
incorporation  and  by-laws;  where  collector  is  in  do;ibt  as  to  taxable  status  of  organ- 
ization, upon  receipt  of  affida'vdt,  etc.,  he  will  refer  affidaAdt  and  accompanying 
papers  to  Commissioner  of  Internal  Revenue  for  decision;  if  itis  held  that  corpo- 
ration itself  is  exempt  from  income  and  excess-profits  taxes  it  is  not,  however, 
exempt  from  the  withholding  requirements  nor  from  furnishing  information  in 
accordance  with  provisions  of  act  of  October  3,  1917.     (T.  D.  2693;  Apr.  8,  1918.) 

CLAIMS. 

Abatement  cf  taxes — Distilled  spirits. 

Fixing  of  rate  of  tax  on  spirits  lost  in  transit  for  export,  or  by  casualty  in  wai'c- 
houses,  does  not  affect  right  of  distiller  to  obtain,  in  proper  cases,  abatement  of  tax 
under  act  of  December  20,  1879,  or  section  3221,  Re\dsed  Statutes.  (T.  D.  2539; 
Oct.  17,  1917.) 

Provisions  of  T.  D.  2GSS  do  not  govern  in  case  cf  claims  for  abatement  of  taxes  on 
distilled  spirits,  fermented  Kquors,  and  wines.     (T.  D.  2926;  Sept.  29,  1919.) 

Duplicate  assessments. 

Collectors  instructed  to  present  once  a  month  blanket  claim  on  Form  47  for 
abatement  of  taxes  in  cases  of  duplicate  assessments,  cases  where  specific  exemption 
has  not  been  taken  on  taxpayer's  return,  cases  of  excessive  assessments  caused  by 
mathematically  erroneous  calculations  of  tax  by  taxpayer  upon  his  return,  and 
cases  of  50  per  cent  additional  taxes  where  tentative  return  has  been  filed  -within 
required  time,  but  where  fact  of  such  filing  has  been  overlooked  in  collector's 
office,  and  the  additional  tax  made;  schedule  accompanying  form;  claim  to  be 
forwarded  so  as  to  be  received  in  Com.missioncr's  ofiice  by  5th  of  each  month;  sepa- 
rate claims  req\ured  to  be  presented  where  amounts  abatable  have  been  assessed 
upon  lists  of  the  different  classes.     (T.  D.  2698;  Apr.  16,  1918.) 


CLAIMS.  123 

Abatement  oS  taxes — Continued. 
Excise  taxes. 

Penalties  of  5  per  cent  erroneously  assessed  luider  Revenue  Act  of  1917  on  sales 
taxes  in  cases  where  formal  demand  in  writing  on  Form  1-17  was  not  made  on  tax- 
payer should  be  refunded  on  Form  751  if  collected,  or  abated  on  blanket  Form  47 
if  not  collected;  all  claims  on  these  forms  must  be  submitted  by  collector  in  tripli- 
cate, and  notation  showing  reason  for  abatement  (1)  opposite  each  taxpayer's  name 
on  such  claims,  or  (2)  at  head  of  each  group  of  names  to  v.diich  same  reason  applies. 
(T.  D.  301G;  May  3,  1920.) 

Statement  of  classes  of  claims  for  abatement  of  sales  taxes  or  penalties  which  may 
be  made  by  collectors  on  Form  751  or  blanket  Form  47  where  claim  has  not  l>een 
filed  by  individual  taxpayers;  these  claims  must  be  submitted  by  the  collector 
in  triplicate,  and  notation  showing  reason  for  abatement  made  oi)posite  each  tax- 
payer's name  on  such  claims  or  at  head  of  each  group  of  names  to  which  the  same 
reason  applies;  claims  for  abatement  of  sales  taxes  or  penalties  other  than  those 
specified  herein  must  be  made  by  individual  taxpayer  on  Form  40  or  I'orm  47, 
respectively,  except  in  specific  instances  where  the  collector  may  be  given  author- 
ity by  the  department  to  use  Form  751  or  ])lanket  Form  47.  (T.  D.  2991;  Mar.  13, 
1920.) 

Income  taxes — Erroneous  or  illegal  assessment. 

Claims  for  abatement  of  taxes  or  penalties  erroneously  or  illegally  assessed  or 
which  are  abatable  under  remedial  acts,  etc.,  must  be  made  out  upon  Form  47, 
and  must  be  sustained  by  specified  affidavits;  objections  to  claims  should  be  care- 
fully stated  by  collector  in  certificate  to  be  attached  to  and  made  part  of  claim; 
claim  should  be  further  supported  by  certificate  of  collector  showing  specified  data, 
collector  being  careful  to  set  out  full  amount  assessed;  when  case  is  compromised  in 
which  assessment  is  involved,  amount  paid  as  tax  should  be  credited  to  list,  and 
amount,  if  any,  remainiug  outstanding,  should  be  claimed  for  abatement  on  Form 
47,  if  terms  of  compromise  so  require;  claims  on  said  Form  47  for  abatement  of 
errors  for  assessment  made  in  collector's  office,  which  errors  are  not  corrected  by 
filing  Form  488,  should  be  executed  by  collector,  but  briefed  in  name  of  taxpayer. 
(T.  D.  2G90;  arts.  258,  259.) 

When  claims  for  abatement  of  taxes  are  allowed  in  office  of  Commissioner,  sched- 
ule Form  7220  for  abatement  is  drawn  for  aggregate  of  so  much  as  is  abated  upon 
each  claim  named  in  schedule  and  schedule  is  sent  directly  to  collector  to  whom 
taxes  are  charged,  and  is  hisauthority  for  taking  credit  on  Form  51B  and  his  quarterly 
account,  Form  79,  for  taxes  abated;  no  credit  for  abatement  shall  be  taken  except 
upon  schedule  Form  7220  from  Commissioner  of  Internal  Revenue;  orders  for 
abatement  are  sent  to  auditor  for  Treasury  Department.     (T.  D.  2690;  art.  259.) 

Filing  of  claim  for  abatement  of  tax  alleged  to  have  been  erroneously  assesssd 
does  not  necessarily  operate  as  suspension  of  collection  of  tax  or  make  it  any  less 
the  duty  of  the  collector  to  exercise  due  diligence  to  prevent  collection  of  tax 
being  jeopardized;  he  should,  if  necessarv,  collect  tax  and  leave  taxpayer  to  his 
remedy  by  claim  on  Form  4G.     (T.  D.  2690;  art  261.) 

Where  claim  for  abatement  on  Form  47  is  filed  within  10  days  after  demand  for 
payment  of  tax  or  penalty  and  accepted  by  collector,  amount  of  5  per  cent  penalty 
imposed  by  section  31S4,  Revised  Statutes,  on  tax  claimed,  will  wait  on  determina- 
tion of  claim;  upon  receipt  of  notice  of  reduction  of  claim,  collector  should  imme- 
diately notify  party  asse,ssod  and  demand  payment  of  tax,  and  if  tax  is  not  then 
paid  within  10  days  after  mailing  notice,  5  per  cent  penalty  accrues  on  amount  not 
allowed;  vrhere  entire  amount  of  assessment  is  not  demanded  in  claim  and  balance 
of  tax  is  not  paid  within  required  10  days,  the  5  per  cent  penalty  accrues  on  balance 
not  claimed;  interest  at  1  per  cent  per  month,  imposed  by  said  section  3184,  con- 
tinues to  run,  and  should  be  collected  with  tax  at  time  of  payment  for  full  number 
of  calendar  months  which  intervene  between  date  of  expiration  of  first  10  days' 
notice  and  date  of  pavment  of  tax,  notwithstanding  fact  that  claim  for  abatement 
has  been  filed.     (T.  D.  2G90;  arts.  262,  263.) 

Uncollectible  taxes. 

Under  section  3218,  Re\T!sed  Statutes,  collectors  are  entitled  to  credit  for  tax 
assessed  against  parties  who  may  have  absconded  or  become  insolvent  pVior  to  day 
when  tax  ought  to  have  been  collected,  provided  due  diligence  was  used  by  the 
collector,  but,  as  obligation  to  pay  .still  remains  upon  the  parties  assessed,  collectors 
required  to  keep  record  (No.  23)  of  all  taxes  thus  credited  and  of  person  from  whom 
they  are  due,  and  to  enforce  payment  Avhcnever  it  is  in  their  power  bo  to  do;  if  tax 
reported  as  uncollectible  on  account  of  insolvency  or  absconding  of  party  is  paid 


i'24  CLAIMS. 

Abatement  of  taxes  -Continued. 

Income  taxes — Continued. 

Uncollectible  taxes — Continued. 

after  credit  has  been  given  for  it,  it  should  be  returned  upon  Form  58.     (T.  D.  2690; 
arts.  247,  248.) 

Collector  or  deputy  who  made  demand  for  payment  required  to  prepare  claim 
for  taxes  and  assessed  penalties  alleged  to  be  uncollectible  on  Form  53,  showing 
certain  specified  facts;  collector  must  show  that  tax  could  not  have  been  collected 
at  time  they  first  became  due  and  payable  nor  at  any  time  since;  in  case  of  payment 
of  tax  for  which  claim  is  pending,  collector  should  notify  department  at  once; 
claim  should  be  mailed  to  Commissioner  of  Internal  Revenue,  but  letter  of  transmit- 
tal should  not  be  sent  with  claim  unless  they  contain  necessary  explanations.  (T. 
I).  2090;  art.  249.) 

No  suit  will  be  brought  to  recover  unpaid  taxes  until  collector  of  district  shall 
have  submitted  to  Commissioner  full  report  of  all  material  facts  and  circumstances 
of  the  case,  and  shall  have  received  express  authority  to  report  case  to  United 
States  attorney  for  suit.     (T.  D.  2690;  art.  250.) 

Amounts  collected  by  distraint  or  otherwise  subsequent  to  institution  of  suit  for 
collection  by  United  States  attorney  should  be  at  once  reported  to  United  States 
attorney  for  his  guidance  in  his  further  prosecution  of  case  in  court.  (T.  D.  2690; 
art.  251.) 

Credit  given  collector  for  taxes  abated  as  uncollectible  will  not  affect  suit  pending 
for  their  recovery,  nor  will  it  relieve  collector  from  duty  of  distraining  any  property 
of  taxpayer  that  may  be  found  at  any  time  before  judgment.     (T.  D.  2690;  art.  252.) 

When  suit  to  recover  tax  is  decided  in  favor  of  United  States,  and  execution 
issued  and  returned  nulla  bona  as  respects  whole  or  part  of  judgment,  collector 
should  satisfy  himself  whether  or  not  any  personal  property  can  be  found  to  satisfy 
such  judgment,  and  whether  there  is  any  real  property  which  can  be  subjected,  by 
distraint  or  by  suit  in  equity,  under  section  3207,  Revised  Statutes,  to  sale  in  satis- 
faction of  judgment;  where  satisfied  that  there  is  no  such  real  or  personal  property 
collector  should  present  to  Commissioner  a  claim  on  Form  53  for  abatement  of 
amount  not  collected  if  it  has  not  already  been  abated,  making  statement  thereon 
of  his  action,  accompanied  by  certificate  of  clerk  of  court  as  to  facts  in  case.  (T.  D. 
2690;  art.  253.) 

Where  suit  for  taxes  not  abated  as  uncollectible  is  dismissed  upon  technical 
defect  in  proceedings,  or  when  adverse  verdict  is  rendered  on  some  technical  ground 
not  reaching  m.erits  of  case,  and  right  to  new  trial  or  to  appeal  has  elapsed  and  tax 
can  not  be  collected  by  distraint  or  by  suit  in  ecpiity  to  subject  real  estate  to  sale, 
claim  for  abatement  should  be  made  on  Form  53.     (t.  D.  2690;  art.  254.) 

Collectors  are  authorized  to  pay  clerk  of  court  his  legal  fees  for  certificates  fur- 
nished by  him  relative  to  litigated  taxes,  and  will  be  credited  in  their  expense 
accounts  for  amounts  so  paid  on  filing  therewith  vouchers  covering  expenses  thus 
incurred.     (T.  D.  2690;  art.  255.) 

Where  laud  is  sold  to  satisfy  assessments,  amount  realized  after  deducting  ex- 
penses of  sale,  should  be  credited  to  the  lists,  and  the  remainder,  if  uncollectible, 
claimed  on  Form  53;  if  land  is  bought  in  by  collector  for  United  States,  amount 
for  which  same  is  purchased,  after  deducting  expenses  of  sale,  should  be  credited  to 
assessments  under  limitations  prescribed  in  Regulations  No.  2,  revised,  and  re- 
mamder,  if  uncollectible,  claimed  on  Form  53.     (T.  D.  2690;  art.  256.) 

When  claims  for  abatement  of  taxes  are  allowed  in  office  of  Commissioner,  sched- 
ule Forrn  7220  for  abatement  is  drawn  for  aggregate  of  so  much  as  is  abated  upon 
each  claim  named  in  schedule,  and  schedule" is  sent  directly  to  collector  to  whom 
taxes  are  charged,  and  is  his  authority  for  taking  credit  on  Form  51B  and  his  quar- 
terly account,  Form  79,  for  taxes  abated;  no  credit  for  abatement  shall  be  taken 
except  upon  schedule  Form  7220  from  Commissioner  of  Internal  Revenue;  orders 
for  abatement  are  sent  to  auditor  for  Treasury  Department.     (T.  D.  2690;  art.  259.) 

\\liere  collector  discovers  from  schedule  of  abated  taxes  that  mistake  has  occurred 
either  m  having  abated  a  larger  amount  than  that  claimed  or  in  abating  a  tax  pre- 
viously abated,  he  should  immediately  notify  Commissioner  of  such  fact,  bo  that 
order  may  be  recalled,  and  error  be  corrected  by  issuing  of  new  one  in  its  place;  in 
Buch  case  no  credit  for  any  amount  whatever  should  be  taken  upon  Form  51B,  or 
upon  quarterly  account,  until  order  of  abatement  and  schedule  have  been  cor- 
rected.    (T.  D.  2690;  art  260.) 

Taxes  erroneously  or  illegally  assessed  are  by  the  Commissioner  of  Internal  Reve- 
nue abated  to  the  taxpayer,  Avhile  taxes  uncollectible  are  simply  abated  by  the 
Commissioner  to  the  collector  against  whom  they  are  charged ;  but  amounts  which 


CLAIMS^.  125 

Abatement  of  taxes — Continued. 

■ Income  taxes — Continued. 

Uncollectible  taxes— Continued. 

by  error  or  otherwiae  have  been  twice  charged  to  a  collector  are  held  to  be  matters 
of  account  and  not  subjects  for  abatement;  collectors  should  use  Form  488  to  adjust 
errors  in  income-tax  matters  held  to  be  matters  of  account,  and  not  subject  for 
abatement,  and  forward  completed  form  to  Commissioner  of  Internal  Revenue, 
marked  "Income  Tax  I)ivi.«ion."     (T,  D.  2690;  art.  264.) 

Procedure. 

Instructions  to  collectors  modifying  Regulations  Xos.  2,  14,  and  33  (arts.  247-273), 
prescribing  procedure  with  regard  to  claims  on  Forms  46,  47,  53,  and  488.  (T.  D. 
2654;  Feb.  19,  1918.) 

Claims  for  abatement  of  sales  taxes  or  penalties  and  interest  other  than  those 
specified  in  this  Treasury  Decision  must  be  made  by  indi\'idual  taxpayer  on  Form 
46  or  47,  respectively,  except  in  specilic  instances  wliere  collector  may  be  given 
authority  by  the  Bureau  to  use  Form  751  or  blanket  Form  47.  (T.  D.  3016;  May  3, 
1920.) 

Duplicate  assessments  should  be  abated  on  blanket  Form  47;  claims  must  be 
submitted  by  collector  in  triplicate,  and  notation  showing  reason  for  abatement 
(1)  opposite  each  taxpayer's  name  on  such  claims,  or  (2)  at  head  of  each  group  of 
names  to  which  same  reason  applies.     (T.  D.  3016;  May  3,  1920.) 

Penalties  of  200  per  cent  erroneously  assessed  under  Revenue  Act  of  1917  should 
be  abated  on  blanket  Form  47;  claims  on  such  form  must  be  submitted  by  collector 
in  triplicate,  and  notation  showing  reason  for  abatement  (1)  opposite  each  tax- 
payer's name  on  such  claims,  or  (2)  at  head  of  each  group  of  names  to  which  same 
reason  applies.     (T.  D.  3016;  May  3,  1920.) 

• Wines. 

Wines  in  transit  September  8,  1916,  should  be  so  inventoried  by  both  shipper 
and  receiver,  tax  in  such  cases  to  be  assessed  against  shipper,  but  abated  if  paid 
by  receiver.    (T.  D.  2387;  Oct.  30,  1916.) 

The  abatement  provision  of  section  402  of  the  act  of  September  8,  1916,  applies 
not  to  the  tax  collectible  on  the  finished  wines,  but  to  the  tax  assessed  on  the  brandy 
used  in  the  fortification  of  such  wines;  proof  as  to  the  use  of  the  brandy  and  actual 
possession  of  wines  by  producer  at  time  such  act  went  into  effect  must  be  furnished 
with  each  claim  filed;  part  of  paragraph  23  of  Regulations  No.  28,  supplement  No. 
2,  revoked.     (T.  D.  2440;  Feb.  5,  1917.) 

Refund  of  taxes — Admissions. 

Where  a  ticket  is  redeemed  before  a  performance,  the  tax  imposed  by  section  700 
of  the  act  of  October  3,  1917,  as  well  as  the  price  of  the  ticket,  should  be  refunded; 
where  a  pass  is  "tax  paid,' '  no  refund  of  tax  will  be  allowed  on  account  of  failure 
to  use  any  or  all  of  admissions  covered  by  it.     (T.  D.  2681;  Mar.  26,  1918.) 

Capital  stock  tax. 

Commissioner  of  Internal  Revenue  will  estimate  fair  value  of  capital  stock  in 
cases  regarded  as  involving  any  understatement  or  undervaluation  when  second 
assessment  is  made  in  case  of  any  return  which  in  opinion  of  collector  was  false  or 
fraudulent  or  contained  any  understatement  or  undervaluation;  no  tax  collected 
under  such  assessment  shall  be  recovered  by  any  suit  unless  it  is  proved  that  return 
was  not  false  or  fraudulent  and  did  not  contain  any  understatement  or  undervalua- 
tion.   (T.  D.  2750,  art.  19;  Aug.  9,  1918.) 

No  tax  is  refundable  if  corporation  ceases  to  do  business  during  the  year.  (T.  D. 
2750,  art.  1;  Aug.  9,  1918.) 

The  amount,  if  any,  of  the  munition  manufacturer's  tax  imposed  by  Title  III 
of  the  act  of  September  8,  1916,  actually  paid  by  the  corporation  since  making  its 
last  previous  return  is  deductible  from  capital  stock  tax;  if  munition  manufacturer's 
tax  is  due  and  payable  but  has  not  been  paid  at  time  capital  stock  tax  becomes 
due  and  payable,  no  credit  of  the  munition  manufacturer's  tax  is  permissible  until 
after  such  latter  tax  has  been  paid;  after  its  payment  the  credit  may  be  availed  of 
by  a  claim  for  refund  of  so  much  of  capital  stock  tax  actually  paid  as  is  not  in  excess 
of  the  munition  manufacturer's  tax  which  l)ecame  due  and  payaV)le  within  the 
same  calendar  year.     Cf.  D.  3009;  Apr.  22,  1920.) 

Distilled  spirits. 

Claims  for  remission  of  tax  on  spirits  lost  in  transit  for  export  not  required  where 
spirits  are  shipped  in  sealed  cars  and  the  seals,  on  arrival  of  cars,  are  found  intact, 
and  where  loss  reported  does  not  exceed  4  wine  gallons  as  to  any  one  package,  pro- 


2^26  CLAIMS. 

Befimd  of  taxes— Continued. 

Distilled  spirits— Continued . 

vided  average  loss  does  not  exceed  2  wine  gallons  per  package  aa  to  all  packages 
"•auged;  requisites  of  application  for  relief  v^-^here  loss  reported  exceeds  amount 
stated;  certificate  setting  forth  wliether  spirits  were  insured  in  excess  of  mavket 
value  thereof,  exclusive  of  tax;  regulations  applicable  to  spirits  lost  when  shipped 
in  unsealed  cars,  except  that  loss  in  excess  of  1  proof  gallon  per  package  will"  be 
regarded  in  such  cases  as  excessive.     (T.  D.  2461;  Mar.  16,  1917.) 

Fixing  of  rate  of  tax  on  spirits  lost  in  transit  for  export,  or  by  casualty  in  ware- 
houses, does  not  affect  right  of  distiller  to  obtain,  in  proper  cases,  refund  of  tax 
under  act  of  December  20,  1879,  or  section  3221,  Revised  Statutes.  (T,  D.  2539; 
Oct.  17,  1917.) 

Esta,te  tax. 

Under  section  207,  act  September  8,  1916,  if  amount  of  tax  as  finally  determined 
is  less  than  amount  paid  upon  basis  of  tentative  return,  Commissioner  will,  upon 
filing  claim  ou  Form  46,  make  refund  of  excesa  payment;  if  amount  of  tax  as  finally 
determined  exceeds  amount  so  paid,  Commissioner  will  notify  executor  of  such 
excess;  from  time  of  such  notification  to  time  of  final  payment  of  such  excess  part 
of  the  tax  interest  will  be  added  at  rate  of  10  per  cent  per  annum.  (T.  D.  2750; 
Sept.  5,  1918.) 

Excessive  payments. 

Advancements  will  be  made  to  each  collector  of  internal  revenue,  at  the  begin- 
ning of  each  quarter  of  fiscal  year,  out  of  appropriation  for  refundment  of  internal- 
revenue  taxes,  sum  estimated  to  be  sufficient  for  repayment  of  excessive  collections, 
as  follows:  (1)  Collections  exceeding  tax  shovrn  by  return  of  taxpayer  to  be  due; 
(2)  collections  exceeding  amount  of  tax  shown  by  assessment  list  to  be  due;  (3) 
duplicate  pajmients  where  (a)  both  are  made  in  advance  of  assessment,  (fe)  both 
are  made  after  assessment,  (c)  one  is  made  before  and  one  after  assessment.  Pro- 
cedure governing  refund  stated.     (T.  D.  2688;  Apr.  1,  1918.) 

Excise  taxes. 

Evidence  sustaining  allegations  of  incorrectness  in  returns  by  corporations  sub- 
ject to  tax  imposed  by  act  of  August  5,  1909,  need  not  be  set  out  in  the  declaration 
in  suit  to  recover  such  tax.     (T.  D.  2697;  Apr.  16,  1918.     Ot.  Dec.) 

According  to  decision  in  case  of  Chicago  &  Alton  Railroad  Co.  v.  United  States, 
decided  by  Court  of  Claims,  December  3,  1917,  where  railroad  company  sold  bonds 
and  equipment  notes  at  discount  in  1906  and  books  showed  that  loss  was  entirely 
charged  off  under  profit  and  loss  account  for  that  year,  and  company  in  making 
returns  under  act  of  August  5,  1909,  for  purpose  of  assessment  of  excise  tax  for  years 
1911  and  1912,  failed  to  deduct  proportionate  amount  of  discount  sustained,  it  has 
no  right  to  refund  of  such  amount.     (T.  D.  2631;  Jan.  19,  1918.     Ct.  Dec.) 

According  to  the  decision  in  the  case  of  Camp  Bird  (Ltd.)  v.  Howbert,  decided 
by  circuit  court  of  appeals,  at  the  December  term,  1917,  a  corporation  vv-hich  under- 
stated in  its  original  return  the  amount  for  which  it  was  subject  to  tax  may  not 
recover  any  part  of  a  second  assessment  paid,  although  original  return  was  made  in 
good  faith  and  without  anv  intention  to  escape  law^'ul  tax.  (T.  D.  2661;  Mar.  5, 
1918.     Ct.  Dec.) 

Tax  imposed  by  act  of  October  3,  1917,  is  payable  in  respect  of  sale  made  whether 
or  not  purchase  price  is  actually  collected,  but  if  articles  sold  are  returned  and  sale 
entirely  rescinded  no  tax  is  pavable,  and  if  paid  it  is  refundable.  (T.  D.  2719; 
Art.  VI.)  1    -         .  i- 

A.ffidavit  containing  itemized  list  of  articles  sold  in  foreign  commerce  upon  which 
tax  has  been  paid,  giving  names  of  consignees,  destination,  amount  of  tax,  month 
in  which  paid  and  statement  that  goods  were  actuallv  delivered  to  consignee 
najned  in  a  foreign  countrv  or  the  Philippine  Islands  or  Porto  Rico,  pursuant  to 
sale  by  claimant  by  one  of  the  methods  recognized  in  T.  D.  2781,  and  that  afiiant 
has  received  ad^dce  to  this  effect,  may  be  accepted  as  satisfactorv  evidence  in  sup- 
port of  claim  for  recovery  back  of  excise  taxes  paid  under  Title  VI  of  the  act  of 
October  3,  1917,  in  cases  where  because  of  number  of  shipments  and  small  amount 
of  tax  involved  in  each  it  is  impracticable  to  furnish  copies  of  invoices  covering 
2^^919?'  ^        '  receipts,  or  copies  of  through  bills  of  lading.     (T.  D.  2785;  Jan. 

Since  Revised  Statutes,  section  3464,  only  extends  the  exemption  to  cases  cov- 
ered by  tne  regulations,  if  such  regulations  arc  not  complied  vath  and  goods  for 
Ccoyernment  use  are  delivered  without  regard  there1;o,  the  tax  must  be  paid,  and 
having  been  paid,  can  not  be  refunded.     (T-  D-  2785;  Jan.  23    1919  ) 


CLAIMS.  127 

Befund  of  taxes — Continued. 
Excise  taxes — Continued. 

Statement  of  classes  of  claims  for  refund  of  sales  taxes  or  penalties  which  may  be 
made  by  coUectoi-s  on  Form  751  or  l)l.inket  Form  47  where  claim  has  not  been 
filed  by  individual  taxpayers;  these  claims  must  be  submitted  l)y  the  collector 
in  triplicate,  and  notation  shov^'ine;  reason  for  refund  made  opposite  each  taxpayer's 
name  on  such  claims  or  at  head  of  each  group  of  names  to  which  the  same  reason 
applies;  claims  for  refund  of  sales  taxes  or  penalties  other  than  those  specified 
herein  must  be  made  by  individual  taxpayer  on  Form  4G  or  Form  47,  respectively, 
except  in  specific  instances  where  the  collector  may  be  given  authority  by  the 
department  to  use  Form  751  or  blanket  Form  47.     (T.  D.  2991;  Mar.  13,  1920.) 

Claims  for  refund  of  sales  taxes  or  penalties  and  interest  other  than  those  specified 
in  this  Treasury  Decision  mast  be  made  by  individual  taxpayer  on  Form  40  or  47, 
respectively,  except  in  specific  instances  where  collector  mav  be  given  authority 
by  the  Bureau  to  use  Form  751  or  Ijlanket  Form  47.     (T.  D.'  3016;  May  3,  1920.) 

Penalties  of  5  per  cent  erroneously  assessed  under  Revenue  Act  of  1917  on  sales 
taxes  in  cases  where  formal  demand  in  writing  on  Form  1-17  was  not  made  on 
taxpayer  should  be  refunded  on  Form  751  if  coUectod,  or  abated  on  blanket  Form 
47  if  not  collected;  all  claims  on  these  forms  must  be  submitted  l)y  collector  in 
triplicate,  and  notation  showing  reason  for  abatement  (l)  opposite  each  taxpayer's 
name  on  such  claims,  or  (2)  at  head  of  each  group  of  names  to  which  same  reason 
applies.     (T.  D.  301G;  May  3,  1920.) 

Income  taxes. 

Where  corporation  discovers  expenses  or  liabilities  which  were  due  and  payable 
dm-ing  preceding  year,  it  may  make  amended  return  for  year  to  which  such  expense 
or  liability  applies,  include  such  expense  in  deductions  of  that  year,  and  fde  claim 
for  refund  for  any  taxes  overpaid  by  reason  of  failure  to  deduct  such  expense  or 
liability  in  original  return  of  that  year.     (T.  D.  2690;  art.  128.) 

Where  no  depreciation  has  been  charged  off  and  deducted  from  gross  income  of 
prior  years,  amount  allowable  as  de'luction  for  year  in  which  property  becomes 
obsolete  shall  be  ascertained  by  deducting  from  property  its  residual  value  pl-,is 
amount  eqiial  to  depreciation  actually  sustained  during  the  prior  period  and  which 
might  have  been  deducted  wlien  computed  at  rate  applicable  to  same  or  similar 
property;  amount  of  such  depreciation  as  applicable  to  former  years  may  be  made 
basis  of  amended  returns  and  claim  for  refund  of  taxes  oveipaid  l)y  reason  of  fact 
that  no  depreciation  deduction  was  claimed  in  those  yeai"S.     (T.  D.  2690;  art.  179.) 

Claims  for  refund  of  assessed  lax  and  penalties  must  be  made  out  upon  Form  46, 
and  all  facts  relied  upon  in  support  of  claim  should  be  clearly  set  forth  under  oath, 
claim  to  be  supported  by  affidaAdt  of  deputy  collector  of  proper  division  and  by 
certificate  of  collector  shoAving  certain  specified  matters;  claim  should  be  made  in 
name  of  party  assessed,  if  living,  but  if  dead,  claim  should  be  made  in  name  of 
executor  or  administrator  and  certified  copies  of  letters  of  administration  or  letters 
testamentary  or  other  similar  evidence  siiould  be  affixed  to  claim  to  show  that 
claimant  ia  administrator,  etc.;  affidavit  may  be  made  by  agent  of  party  assessed, 
but  in  such  case,  power  of  attornev  must  accompany  claim.  (T.  D.  2690;  arts. 
265,  2GG.) 

Warrants  in  jiayment  of  claims  allowed  will  be  drawn  in  names  of  parties  entitled 
to  money  and  sliall,  unless  otherwise  directed,  be  sent  by  Treasurer  of  United 
States  directly  to  proper  parties  or  their  duly  authorized  attorneys  or  agents;  where 
claimants  ai-e  indebted  to  United  States  for  taxes,  they  must  be  paid  before  war- 
rants are  delivered.     (T.  D.  2690;  arts.  267,  268.) 

Under  section  14  (e)  of  the  act  of  September  8,  1916,  upon  examination  of  any 
return  of  income  made  pursuant  to  act  of  August  5,  1909,  levying  excise  tax,  and 
acts  of  October  3,  1913,  September  8,  1916,  and  October  3,  1917,  levying  income  tax 
"and  for  other  purposes,"  if  it  shall  appear  that  amounts  of  lax  have  been  paid 
in  excess  of  those  properly  due,  taxpayer  may  present  claim  for  refund  notwith- 
standing provisions  of  section  3228,  lleviscd  S'tatutes.     (T.  D.  2690;  art.  269.) 

Lodging  of  an  appeal  (claim  for  refund)  made  out  in  due  form  with  proper  col- 
lector of  internal  revenue  for  purpose  of  transmission  to  Commissioner  oi  Internal 
Revenue,  in  usual  course  of  biisiness,  under  requirements  of  Regulations  of  Secre- 
tary of  the  Treasurv  is  in  legal  effect  a  presentation  of  the  appeal  to  the  Commissioner. 
(T.  D.  2G90;  art.  270.) 

All  claims  for  refund  of  taxes  should  be  received  by  collector  and  forwarded  to 
Commissioner  of  Internal  Revenue;  in  no  case  should  collector  refuse  to  forward 
claim  for  reason  that  it  was  not  presented  to  him  witliin  two  years  after  payment  of 
tax.     (T.  D.  2690;  art.  271.) 


128  CLAIMS. 

Refund  of  taxes— Continued. 

Income  taxes — Continued. 

Collector  should  keep  perfect  record  in  book  furnished  for  purpose  of  all  claims 
presented  to  commissioner  and  must  certify  as  to  each  claim  whether  it  has  been 
before  presented  or  not.     (T.  D.  2690;  art.  272.) 

Rules  for  preparation  and  verification  of  claims  on  Forms  46  or  47  stated.  (T.  D. 
2690;  art.  273.) 

Claims  for  sums  of  money  recovered  by  suit  for  any  of  the  causes  and  against  any 
of  the  officers  enumerated  in  section  3220,  Revised  Statutes,  should  be  made  upon 
Form  46,  and  claimant  should  state  grounds  of  claim  under  oath,  giving  names  of 
parties  to  suit,  cause  of  action,  dates  of  commencement  and  of  judgment,  court  in 
which  judgment  wasrecovered  and  its  amount;  to  affidavit  there  should  be  annexed  a 
duly  certified  copy  of  record  of  court,  copy  of  final  judgment,  certificate  of  probable 
cause,  and  itemized  bill  of  costs  paid  receipted  by  clerk  or  other  officer  of  court. 
(T.  D.  2690;  art.  274.) 

In  v-iew  of  provisions  of  section  989,  Revised  Statutes,  protecting  collector  from 
personal  liability  in  case  court  certifies  that  there  was  probable  cause  for  act  done 
by  him,  it  is  for  interest  of  collector  to  see  that  in  all  cases  wherein  judgment  is 
rendered  against  him,  court  shall  be  asked  to  give  certificate  of  probable  cause; 
if  judgment  debtor  shall  have  already  paid  amount  recovered  against  him,  claim 
should  be  made  in  his  name  and  affidavit  should  state  exact  amount  paid  by  him; 
there  should  also  be  certificate  of  clerk  of  court  in  which  judgment  was  recovered 
(or  other  satisfactory  evidence)  showing  that  judgment  has  been  satisfied  and 
specifying  exact  sum  paid  in  as  satisfaction,  with  detail  of  all  items  of  cost  paid  or 
for  which  judgment  debtor  is  liable.     (T.  D.  2690;  art.  275.) 

Inheritance  taxes. 

.Judgment  in  suit  against  collector  to  recover  succession  tax  collected  under  act 
of  June  13,  1898,  for  part  of  claim  only,  certain  interests  involved  being  erroneously 
held  to  be  taxable  as  being  vested  in  possession  or  enjoyment  before  July  1,  1902, 
which  judgment  was  satisfied  by  the  United  States,  is  no  bar  to  suit  against  United 
States  in  Court  of  Claims  to  recover  unpaid  residue.  (T.  D.  2885;  July  10,  1919. 
Ct.  Dec.) 

Claim  for  refund  filed  in  .\ugust,  1903,  with  Commissioner  of  Internal  Revenue 
as  prerequisite  to  suit  against  collector  to  recoAer  succession  tax  collected  under 
act  of  June  13,  1898,  is  sufficient  to  meet  requirements  of  act  of  July  27,  1912;  effect 
of  claim  was  not  extinguished  bv  judgment  in  suit  and  it  is  not  necessary  that  claim 
be  filed  under  the  1912  act.     (f .  D.  2885;  July  10,  1919.     Ct.  Dec.) 

Where  application  was  made  on  September  7, 19]  6,  to  the  Secretary  of  the  Treasury 
for  repayment  of  tax  collected  under  act  of  June  13,  1898,  and  claim  was  rejected  on 
October  30,  1916,  suit  brought  in  Court  of  Claims  on  January  23,  1917,  under  the 
act  of  July  27,  1912,  was  within  the  six-vear  period  allowed  by  section  1069,  Revised 
Stiitutes.     (T.  D.  2885;  July  10,  1919.  'Ct.  Dec.) 

Claim  for  refund  filed  by  the  attorney  for  trust  company,  trustee  under  will,  and 
claim  filed  for  and  in  behalf  of  administrator  de  bonis  non  of  decedent,  can  not 
be  ascribed  to  cestui  C(ue  trust  on  whose  behalf  the  original  executrix  paid  the  tax 
without  protest,  and  hence  did  not  satisfy  provision  of  act  of  July  27,  1912,  that 
repayment  shall  be  made  to  "such  claimants  as  have  presented  or  shall  hereafter 
so  present  their  claims."     (T.  D.  2886;  July  10,  1919.     Ct.  Dec.) 

Inutility  of  filing  claim  by  the  cestui  que  trust,  based  on  fact  that  she  kneAV  precise 
facts  of  demands  that  had  been  made,  and  that  she  knew  also  that  claims  of  the  class 
to  which  hers  belonged  had  been  uniformlv  rejected,  can  not  be  urged  as  an  excuse  for 
failure  to  file  another  claim  in  her  own  name.     (T.  D.  2886;  July  10, 1919.     Ct.  Dec.) 

A  tax  demanded  and  paid  under  section  29  of  the  war-revenue  act  of  June  13, 
1898,  on  a  contingent  beneficial  interest  not  vested  prior  to  July  1,  1902,  contrary 
to  the  refunding  act  of  June  27,  1902,  is  a  tax  "erroneously  collected"  within  mean- 
ing of  the  act  of  July  27,  1912,  although  payment  was  without  protest  or  reservation, 
and  under  that  act  right  to  refund  is  barred  if  claim  was  not  presented  to  the  Com- 
missioner of  Internal  Revenue  on  or  before  January  1,  1914.     (T.  D.  3007;  Apr. 

• Occupational  tax. 


WTiere,  after  payment  of  special  tax,  seating  capacity  of  theater  is  increased 
T  !^.^"n  i  fLT„i  „„i^^,Pi''^^?^"?'y  ^^y}  ^  sufficient  to  cover,  tax  at  higher  rate  must 

ing  new  liability  is  not 


.^^j,v,..v.  Lii«,u  vy.a,..!  I.XA  pitviuiiKiy  paia  is  sumcient  to  cover,  t: 

be  paid  covenng  period  beginning  with  first  day  of  month  in  which  seating  capacity 

IS  increased  and  ending  June  30  following;   if  return  disckwi  


f'LARlFlKD    WINES — CLEARING    HOUSi:.  129 

Refund  of  taxes-  ronlinufd. 

- —  Occupational  tax     ("oiitiniiod. 

made  (luriiij:  month  in  wliich  rhango  lake!'  place,  liability  to  penalty  of  50  per  cent 
of  new  tax  is  incurred;  payment  of  tax  at  liigher  rate  does  not  entitle  taxpayer  to 
refund  of  any  part  of  a'liount  lir.-st  paid.     (T.  D.  2775;  Nov.  29,  1918. ) 

Procedure. 

liifitructions  to  (•(dlectors  modifying  Regulations  Nos.  2,  14,  and  H;i  (art.  247-27:?\ 
prescribing  procedure  wi»th  regard  to  claims  ou  Forms  4ti,  47,  53,  and  488.  iT.  1). 
2(354;  Feb.  li),  1918.) 

Procedure  to  be  observed  in  filing  claims  for  refund  of  transportation  tax  based 
on  ground  that  transportation  ser\iie  \vasren(b'red  an  exempt  governmental  agency 
and  that  tax  was  collected  on  property  in  process  of  exportation,  slated. 
(T.  D.  2727;  June  5,  1918.) 

Nonrevenue  remittances,  such  as  State  or  municipal  taxes,  sent  to  colleclor 
tlirough  error  and  deposited  by  him.  should  be  jcfunded  on  I'orm  751:  claims  on 
this  form  must  be  submitted  by  c-olleclor  in  tripli(  ate.     (T.  D.  ;U)1K;  May  3,  1920.) 

Filing  of  amended  returns  does  not  constitu4e  Ijeginning  of  new  proceedings  which 
so  supersede  the  original  returns  as  to  remove  bar  imposed  by  sections  3227,  3228, 
Revised  Statutes,  against  claims  by  taxpayers  for  refund  of  taxes  paid  upon  original 
returns  and  assessments.     (T,  U.  3013;  May  3,  1920.     Ct.  Dec.) 

Reopening. 

Under  section  14,  paragraph  A,  of  the  act  of  September  8,  191f),  claims  for  refund 
rejected  by  Commissioner  because  of  statute  of  limitations  in  existence  at  that  time 
can  be  reopened  if  question  involves  an  examination  of  the  return.  (T.  U.  2390; 
Nov.  1,  191G.) 

Statements  by  revenue  officers. 

Revenue  officers  are  proliibited  from  furnishing  statements  in  cases  pending 
before  office  of  Oommissiuner  unless  called  for  by  such  ofhce  or  required  by  regula- 
tions to  be  furnished  in  cases  when  originally  presented  through  regtdar  official 
channels;  violation  of  instructions  contained  in  T.  D.  H)07  will  subject  offending 
officer  to  dismissal,  and  when  circumstances  justify,  to  prosecution  under  section 
3169  of  the  Revised  Statutes.     (T.  D.  2443;  Feb.  9,  1917.) 

Wines. 

Refunding  provision  of  section  402  of  act  of  September  8,  1910.  applies  not  to  the 
tax  collectible  on  the  finished  wines  but  to  the  tax  assessed  on  the  brandy  used  in 
the  fortification  of  such  wines;  proof  as  to  use  of  brandy  and  actual  possession  of 
wines  by  producerattimesuch  act  went  into  effect  must  be  furnished  with  each  claim 
filed ;  part  of  paragraph  23  of  Regulations  No.  28,  supplement  No.  2,  revolced .  (T.  D, 
2440;  Feb.  5,  1917.) 

There  is  no  proAdsion  in  the  act  of  September  8,  1910,  for  refund  of  tax  on  brandy 
used  in  fortifying  wines  or  redistillation  of  such  wines;  since  act  of  Septembei-  8, 
191G,  is  amendatorv  of  the  act  of  October  22,  1914,  refunding  proAision  of  latter 
act  is  not  applicable.     (T.  D.  23S7;  Oct.  30,  1910.) 

CLARIFIED  WINES. 

See  "Wines." 

CLEARING  HOUSE. 
Definition. 

The  terms  "clearing  house,"  "clearing  house  corporation,"  and  "clearing  house 
association,"  -within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes  on  sales  and 
transfers  of  shares  of  stock  and  like  securities,  include  each  and  every  association  of 
individuals,  partnerships,  and  associations  engaged  in  business  of  clearing,  settling, 
or  adjusting  transactions  in  the  purchase,  sale,  receipt  or  delivery  of  shares  of  stock, 
whether  or  not  the  same  be  a  part  or  department  of  an  exchange  or  an  independent 
body.     (T.  D.  2008;   Nov.  30,  1917.) 

The  term  "clearing  house,"  within  Regulations  No.  40,  Part  2,  relating  to  stamp 
taxes  upon  sales  of  produce  or  merchandise  on  exchanges  for  future  delivery,  in- 
cludes every  clearing-house  corporation,  clearing-house  association,  or  incorporated 
or  unincorporated  association,  carried  on  for  purpose  of  clearing,  settling,  and  ad- 
justing transactions  in  purchasing,  selling,  receiving,  or  delivering  produce  or  mer- 
chandise, whether  such  clearing  house  be  a  part  or  department  of  an  exchange  or 
an  independent  body.     (T.  D.  2008;   Nov.  30,  1917.) 

70420°— 21 y 


130  CLEARING    HOUSE. 

Sales  for  future  delivery— Affixing  and  canceling  stamps. 

Stamps  in  value  equal  to  amount  of  tax  on  sales  must  l^e  affixed  to  memorandum 
or  other  evidence  of  sale  or  agreement  to  sell;  clearing  house,  acting  as  agent,  re- 
quired to  make  returns  showing  stamps  affixed  and  canceled;  manner  of  canceling 
etamps  stated.     (T.  D.  2608;  Nov.  30,  1917.) 

Exempt  transactions. 

No  tax  is  imposed  on  cash  sales  of  produce  or  merchandise  for  immediate  or  prompt 
delivery,  which,  in  good  faith,  are  actually  intended  to  be  delivered;  sellers  of 
produce,  etc.,  may  transfer  contracts  to  clearing  house  association  and  such  transfer 
shall  not  be  deemed  to  be  a  sale  or  agreement  of  sale,  provided  it  does  not  vest  bene- 
ficial interest  in  such  association  and  is  made  only  to  enable  such  association  to  adjust 
accounts  of  its  members;  no  by-law  or  custom  of  any  exchange  or  similar  institution, 
inconsistent  with  the  act  of  October  3,  1917,  or  any  regulations  thereunder,  nor  any 
collateral  agreement  inconsistent  with  such  act  or  regulations  thereunder  shall  ex- 
empt any  person  from  payment  of  tax.     (T.  D.  2608;   Nov.  30,  1917.) 

Memoranda  of  sales. 

Every  sale  or  agreement,  not  e\'idenced  by  memorandum  or  contract  expressly 
requiring  immediate  or  prompt  deliver}^  shall  be  deemed  to  be  for  future  delivery; 
every  person  mating  sale  of  any  product,  etc.,  at,  on,  or  in  any  exchange  for  future 
delivery,  shall  deliver  to  the  buyer  a  bill,  memorandum,  or  other  evidence  of  such 
sale,  showing  certain  specified  data  and  items  of  information;  no  single  sale  or  con- 
tract made  upon  an  exchange  by  one  member  for  another  need  be  evidenced  by 
more  than  one  memorandum;  written  return  or  sheet  to  clearing  house,  acting  as 
agent,  considered  to  be  memorandum;  return  by  clearinghouse.  (T.  D.2608;  Nov. 
30,  1917.) 

■ S-ecords. 

All  persons  who  make  sales  or  contracts  of  sales,  including  "transferred  or  scratched 
sales,"  "pass  outs,"  "pair-offs,"  or  "matched  trades,"  and  all  other  forms  of  sale  of 
any  product  or  merchandise  on  exchange  for  future  delivery  required  to  keep  record 
showing  specified  items  of  information;  form  of  record  required;  clearing  houses 
to  keep  record  showing  certain  data.     (T.  D.  2608;   Nov.  30,  1917.) 

Kegistration. 

Regulation  No.  40,  Part  2,  requires  a  statement  of  registration  by  persons  making 
contract  of  sale  of  produce  or  merchandise  on  exchanges  for  future  delivery;  record 
of  regii^tration  to  be  kept  by  collector,  and  certificate  of  registration  to  be  issued  and 
posted;  forms;  statement  of  registration  by  exclianges  and  clearing  liouses.  (T.  D. 
2608;  Nov.  30,  1917.) 

K/eturns. 

Clearing  houses  and  persons  making  contracts  of  sale  at,  on,  or  in  any  excnange, 
etc.,  for  future  delivery,  required  to  make  return  showing  specified  data  and  informa- 
tion; substitute  returns;  clearing  houses  acting  as  agents  roquii'ed  to  return  state- 
ment of  amounts  of  stamps  affixed  to  memoranda  of  sales.  (T.  D.  2608;  Nov.  30, 
1917.) 

Stock  sales — Exempt  transactions. 

No  tax  is  imposed  upon  agreement  evidencing  deposit  of  stock  certificates  as  col- 
lateral security,  nor  upon  deliveries  or  transfers  to  broker  for  sale,  nor  upon  deliv- 
eries or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfers  shall 
be  accompanied  by  certificate  setting  forth  the  facts,  nor  upon  transfers  or  deliv- 
eries to  clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  between 
members;  no  by-law  or  custom  of  any  excliange  oi-  similar  institution,  nor  any 
collateral  or  additional  agreement  or  imderstanding,  inconsistent  or  in  conflict  with 
any  requirement  of  the  act  of  Octob>er  3,  1917,  or  of  Regulation  No.  40,  Part  1,  shall 
exempt  any  person  from  the  payment  of  the  tax.     (T.  D.  2608;  Nov.  30,  1917.) 

Returns. 

Clearing  houses  and  pei-sons  engaged  wholly  or  partly  in  buying,  selling,  or  trans- 
ferring shares  of  stock,  required  to  make  returns  showing  specified  data  and  informa- 
tion; .substitute  returns.      (T.  D.  2608;  Nov.  30   1917.) 


CLUBS — COLLATERAL  SECURITY.  131 

CLUBS. 

Capital  stock  tax. 

Clubs  organized  and  operated  exclusively  for  pleasure,  recreation,  and  other 
uonprofitable  puqioses  no  part  of  net  income  of  wliich  inures  to  benefit  of  any 
private  stockholder  or  member,  is  exempt  from  tax  imposed  by  section  407  of  act 
of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  191G.  T.  D.  2750,  art.  12;  Aug.  9, 
1918.) 

Dues. 

See'^Dues."- 

Income  tax — ^Exemption. 

Clubs  are  not,  as  such,  exemptfrom  tax;  exemption  is  conditional  on  filing  with 
collector  affidavit  setting  out  character  and  purpose  of  organization,  and  showing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individ- 
ual, and  that  such  income  is  used  exclusively  to  promote  purposes  for  which  organ- 
ized as  indicated  in  particular  paragraph  tinder  which  exemption  is  claimed.  (T. 
D.  2690;  art.  67.) 

Social  clubs  organized  and  operated  exclusively  for  pleasure,  recreation,  and 
other  uonprofitable  purposes  are  exempt  from  tax,  proinded  no  part  of  any  net 
income  inures  to  benefit  of  any  private  stockholder  or  individual;  this  exemption 
reaches  practically  all  social  and  recreation  clubs  supported  by  membership  fees, 
dues  and  assessments;  if  a  club,  by  reason  of  comprehensiA^e  powers  granted  in  its 
charter,  engages  in  any  business  for  profit,  it  will  be  held  that  such  club  is  not  a 
social  club,  it  tlnis  becoming  a  business  or  commercial  enterprise,  and  any  profit 
realized  is  subject  to  tax.     (T.  D.  2690;  art.  72.) 

Exemption  from  filing  returns  and  paying  income  tax  of  pleasure  and  recreation 
clubs  is  conditional  upon  such  an  organization  filing  affidavit  shomng  character 
and  purpose  of  organization,  source  of  income  and  disposition  of  same,  whether  or 
not  any  of  its  income  is  credited  to  surplus  or  inures  to  benefit  of  any  private  stock- 
holder or  individual,  to  which  affidavit  should  be  attached  copy  of  charter  or  arti- 
cles of  incorporation  and  by-laws;  where  collector  is  in  doubt  as  to  taxable  status 
of  organization,  upon  receipt  of  affidavit,  etc.,  he  will  refer  affidavit  and  acconi[)a- 
nying  papers  to  Commissioner  of  Internal  P..evcnue  for  decision;  if  it  is  held  that 
corporation  itself  is  exempt  from  income  and  excess-profits  taxes  it  is  not,  however, 
exempt  from  the  withholding  requirements  nor  from  furnishing  information  in 
accordance  witJi  provisions  of  act  of  October  3,  1917.     (T.  D.  2693;  Apr.  8,  1918.) 

COCAINE. 

See  "Narcotics." 

COCKTAILS. 

See  "Rectified  Spirits";  "Wines." 

COLLATERAL  SECUBITY. 

Assignment  of  insurance  policy. 

No  stamp  tax  is  imposed  upon  power  of  attorney  in  transfer  by  assignment,  abso- 
lute or  as  collateral  security,  of  interest  in  contract  of  insurance,  if  power  of  attorney 
grants  authority  to  do  or  perform  only  such  acts  for  or  in  behalf  of  assignor  as  are 
otherwise  vested  in  assignee.     (T.  D.  2599;  Dec.  3,  1917.) 

Distilled  spirits. 

Persons  selling  v/arehouse  receipts  representing  distilled  spirits  in  storage  are 
liable  to  special  tax  as  they  would  be  on  account  of  the  sale  of  the  spirits  themseh^es, 
but  in  -vdew  of  section  3244,  Revised  Statutes,  as  amended,  such  liability  will  not 
attach  to  persons  selling  such  certificates  received  as  seciu'ity  for  or  in  payment  of 
a  debt,  provided  such  certificates  or  the  spirits  represented  thereby  are  sold  in  one 
lot,  or  the  spMts  arc  sold  at  public  auction  in  lots  of  not  less  than  20  gallons  each; 
T.  D.  1278  revoked.     (T.  D.  2784;  Jan.  23,  1919.) 

Estate  tax — Noni-esident  decedents. 

Brokers  holding  as  collateral  securities  belonging  to  nonresident  decedent  may 
not  release  to  foreign  administrator  or  executor  or  foreign  beneficiary  such  securi- 
ties tmtil  either  tax  due  has  been  paid  or  ancillary  letters  have  been  taken  out  or 
otherwise  provision  has  beeu  made  by  estate  for  satisfaction  of  tax  lien.  (T.  D. 
2454;  Feb.  28,  1917.) 


232  COLLATERAL  SECURITY. 

Excess  profits  tax. 

ProyxTly  of  mrmlxT  of  partnership,  deposited  .with  bank  and  pledged  as  collateral 
Bectiritv  for  the  repayment  of  a  loan  by  or  for  the  benefit  of  the  partnership  in 
Tnirsuance  of  the  articles  of  partnership  is  part  of  the  invested  capital  of  such  part- 
nership, within  act  of  Oct.  3,  1917.     (T.  D.  3080;  Oct.  19,  1920;  Ct.  Dec.) 

Floor  taxes. 

Form  of  bond  with  personal  stirety  tc.  be  execiitcd  in  pcral  stm  of  not  less  than 
tax  due  and  in  no  case  less  then  $l,(iOO  pnerribtd;  pers  ral  ei<rety  need  not  be 
required  to  qualify  on  Form  33  when  he  is  supported  bv  collateral  security  of  a 
value  clearly  in  excess  of  amount  of  tax  due.     (T.  D.  2557;  Oct.  27,  1917.) 

Where  collateral  other  than  Liberty  bonds  is  deposited  as  security,  principal 
must  execute  bond  in  stated  form,  and  collector  is  required  to  gi^-e  certain  receipt; 
collateral  sliotdd  be  surrendered  to  taxpayer  as  soon  as  tax  and  interest  have  been 
paid;  if  tax  is  paid  in  installments  proportionate  amount  of  collateral  deposited 
may  be  surrendered  in  disrretion  of  collector.     (T.  D.  2574;  Oct.  31,  1917.) 

Anv  re<;istered  or  coupon  bonds  of  the  United  States  may  be  accepted  assectirity 
lor  payment  of  Moor  taxes,  in  accordance  with  T.  D.  2537,  T.  D.  2554,  alid  T.  D. 
2557.  '(T.  D.  260G;  Dec.  13,  1917.) 

— —  Liberty  bonds. 

Collectors  authorized  to  accept  in  lieu  of  surety  bonds  as  securety  for  payment 
of  floor  taxes  covered  by  section  1002  of  the  act  of  October  3,  1917,  Liberty  bonds 
of  the  United  States  equivalent  to  the  actual  amount  of  taxes  due.  (T.  D.  2537; 
Oct.  17,  1917.) 

Bonds  deposited  as  security  must  be  immediately  forwarded  to  Oommissioner 
of  Internal  Revenue  by  registered  mail  for  safe-keeping,  except  where  collector's 
office  is  in  same  <ity  as  Federal  reserve  bank,  in  which  case  coupon  bonds  received 
should  be  deposited  with  such  bank,  which  will  issue  its  receipt;  disposition  of 
receipts;  assi<j;timent  of  registered  bonds;  insurance  of  package.  (T.  D.  2554; 
Oct.  25,  1917".) 

Collectors  authorized  to  accept  certificate  of  bank  or  trust  company,  member  of 
Federal  Reserve  System,  sufficiency  and  solvency  of  which  are  satisfactory  to  col- 
lector, to  effect  that  taxpayer  has  deposited  cash  or  Treasury  certificate  of  indebted- 
ness in  full  payment  of  Liberty  loan  bond  subscriptions  in  name  of  "Commissioner 

of  Internal  Revenue  in  trust  for ,"  or  in  event  bond  transaction  is 

not  consummated  taxes  will  be  paid  to  collector  in  cash  or  corporate  surety  bond 
filed;  form  of  certificate  indicated;  certificate  to  be  forwarded  to  Commissioner 
of  Internal  Revenue.     (T.  D.  2554;  Oct.  25,  1917.) 

Where  Liberty  bonds  or  other  collateral  are  deposited  as  security,  principal  must 
execute  bond  in  stated  form,  and  collectors  should  give  to  depositor  receipt  in  form 
stated;  Liberty  bonds  or  other  collateral  deposited  and  in  possession  of  collector 
should  be  surrendered  to  taxpayer  as  soon  as  tax  and  interest  have  been  paid;  if 
tax  is  paid  in  installments,  proportionate  amount  of  collateral  deposited  may  be 
surrendered  in  discretion  of  collectcr.     (T.  D.  2574;  Oct.  31,  1917.) 

Stamp  taxes. 

Promissory  notes  issued  and  delivered  on  or  after  April  6,  1918.  and  secured  by 
pledge  of  any  bonds  or  obligations  of  United  States,  issued  after  April  24,  1917, 
and  all  promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured 
by  pledge  of  promissory  note  which  itself  is  secured  by  jjledge  of  United  States 
bonds  or  obligations  issued  after  April  24,  1917,  are  exempt  from  stamp  tax  imposed 
by  section  301  of  the  act  of  April  5,  1918;  bonds  herein  mentioned  include  Liberty 
bonds;  exemption  applies  only  where  par  value  of  bonds  or  obligations  pledged 
shall  equal  amount  of  promissory  note.     (T.  D.  2701;  Apr.  16,  1918.) 

Bonds  of  a  private  corporation  delivered  by  it  to  the  United  States  Housing 
Corporation  as  collateral  security  for  a  loan  to  aid  the  borrower  in  performing  its 
contract  with  the  Unitwl  States  Housing  Corporation  are  subject  to  stamp  tax. 
(T.  D.  2782;  Dec.  24,   1918.) 

Wine  makers. 

Wine  maker  producing  not  exceeding  1 ,000  gallons  may  either  file  bond,  Form  699, 
or  may  deposit  with  collector  as  security  Liberty  loan  bonds  or  cash  equal  to  amount 
of  tax;  if  Liberty  loan  bonds  are  deposited,  he  must  execute  bond,  in  duplicate, 


COLLECTION— COLLEGES.  133 

Wine  makers-  -Continued, 
in  stated  form,  and  in  su(  h  form  with  appropriate  Piibftitutionp  in  rase  caf^h  is 
dei)0Mited;  bond  and  security  must  be  tiled  with  collector  prior  to  time  of  crushing 
grapoH.     (T.  D.  27G5;  Oct.  21,  1918.) 

When  Liberty  loan  bonds  or  cash  are  depo.sited  as  security  by  wine  maker  pro- 
ducin'j:  not  exceeding,'  1,000  f^allons  per  year,  the  ('ollector  should  give  the  depositor 
a  i(-reipt  in  stated  forrp.  which  receipt  should  be  made  in  triplicate,  one  copy  being 
immediatoly  transmitted  to  Commissioner  of  Internal  Revenue:  safekeeping  of 
bonds;  assigning  of  registered  bonds;  security  thus  pledged  should  not  be  held  by 
collector  except  upon  instructions  from  t'ommissioner,  and  security  will  be  surren- 
dered as  soon  as  tax  and  any  accrued  penalty  and  interest  have  been  i)aid.  (T.  D. 
27G5;  Uct.  21,  1918.) 

COLLECTION. 

Taxes. 

See  specific  heads. 

COLLECTOKS  OF  INTEKNAL  REVENTJE. 

Actions  against. 

Act  of  February  8,  1899,  wliich  provides  that  no  action  against  a  United  States 
officer  shall  abate'by  reason  of  the  expiration  of  his  term  was  to  enable  proceedings 
pending  against  public  officials  in  their  official  capacity  to  be  continued  when 
necessary  to  obtain  settlement  of  questions  involved.  (T.  D.  2394;  Nov.  11, 
1916.     Ot.  Dec.) 

Suit  to  recover  back  taxes  collected  can  not  be  maintained  against  successor  of 
collector  to  whom  taxes  were  paid  except  in  his  individual  capacity;  remedy  either 
lies  in  action  against  collector  who  actually  received  the  taxes  or  in  action  against 
■  the  United  States.     (T.  D.  2394;  Nov.  14,  1910.     Ct.  Dec) 

Suit  for  recovery  of  taxes  erroneously  or  illegally  assessed  can  be  brought  only 
against  collector  who  collected  the  taxes  and  not  against  his  successor,  according 
to  the  decision  in  the  case  of  Philadelphia.  Harrisburg  and  Pittsburgh  Kailroad 
Co.  <•.  Lederer.     (T.  D.  2507;  July  2,  1917.     Ct.  Dec.)      . 

Expenses. 

Effective  .July  1 ,  1919,  field  deputy  collectors  entitled  to  actual  necessary  traveling 
expenses  and  reimbursement  for  amount  actually  expended  for  lodging  and  sub- 
sistence not  to  exceed  statutory  limit  of  .$5  per  day  when  absent  from  designated 
posts  of  duty;  post  of  duty  shall  be  fixed  witliin  division  to  wiiich  such  collector  ia 
assiLnied,  and  sliall  be  designated  at  the  largest  town  or  city  in  that  division.  (T.  D. 
2884;  July  9,  1919.) 

Instructions  to. 

See  specific  heads. 

COLLEGES. 

Admissions  to  entertainments. 

Admissions  to  school  or  college  athletic  contests  and  other  college  entertainments 
are  not  taxable  if  proceeds  go  to  the  school  or  the  college,  but  they  are  if  proceeds 
are  used  for  support  of  athletics  or  other  separate  purposes.  (T,  D.  2081;  Mar.  26, 
1918.) 

Every  institution  claiming  exemption  from  collecting  tax  on  admissions  by 
reason  of  being  educational  recjuired  to  file  with  collector  of  district  affidavit  upon 
stated  form,  prior  to  conducting  any  entertaiimient  or  amusement  or  permitting 
either  to  be  conducted  for  its  benefit;  unless  affidavit  shall  be  filed  sufficiently 
before  date  of  entertainment  to  permit  of  full  advance  investigation  of  circum- 
stances and  a  decision  thereon,  managers  of  entertainment  shall  keep  and  exhibit  to 
internal  revenue  officers  complete  record  of  admissions  to  each  performance,  and 
will  he  held  responsible  for  collection  of  tax  in  case  claim  for  exemption  is  not 
allowed.     (T.  D.  2681;  Mar.  26,  1918.) 

Income  taxes — Salaries  received  under  Smith-Lever  Act. 

Where  employees  of  universities  receiving  salaries  paid  in  part  or  in  whole  from 
funds  received  under  the  Smith-Lever  Act  of  May  8,  1914,  are  officers  or  employeea 
of  a  State,  they  are  not  required  to  include  in  their  income  tax  returns  as  taxable 


234  COMMKRCIAL   CLUBS — COMMISSIONS. 

Income  taxes-Salaries  received  under  Smith-Lever  Act-Contimicd . 
iucomo  the  aalarieB  m  received;  if  organization  of  college  is  one  which  belongs  to 
State  and  which  State  governs,  legislature  may  vacate  offecers,  elect  new  professors, 
and  do  whatever  it  thinks  necessary  in  management  of  the  college,  l)ut  if  colleges 
are  -overncd  by  trustees  not  directly  responsible  to  State  legislatures,  employees 
Jecehing  salariis  paid  in  part  fi-om  Smith-Lever  funds  are  not  employeeB  of  t^^ 
State,  and  are  not  exempt  from  tax  on  that  giwmd.     (T.  D.  2668,  Mar.  9,  1918.) 

Withdrawal  of  alcohol  for  use  of. 

See  ''Alcohol.' ' 

COMMEBCIAL  CLUBS. 

See  "Boards  of  Trade. " 

Capital  stock  tax. 

Business  league,  chamber  of  commerce,  or  board  of  trade,  not  organized  for  profit 
and  no  part  of^net  income  of  which  inures  to  benefit  of  any  private  stockholder  or 
individual  is  exempt  fTom.  tax  imposed  by  section  407  of  the  act  of  September  8, 
191G.     (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art  12;  Aug.  9,  1918.) 

Dues. 

Tax  imposed  by  section  701  of  act  of  October  3,  1917,  does  not  attach  to  dues 
paid  to  chambers  of  commerce  or  other  primaTily  business  organizations.  (T.  D. 
2681;Mar.  26,  1918.) 

Dues  paid  for  membership  privileges  in  chamber  of  commerce  or  other  primarily 
commercial  organization  are  taxable  if  privileges  include  clubhouse  facilities 
eucli  as  are  afforded  by  ordinary  city  social  club.     (T.  D.  2795;  Feb.  26,  1919.) 

Those  social  facilities  afforded  by  a  commercial  club  which  are  kept  open  freely 
to  the  public  and  not  limited  to  members  are  not  sufficient  to  constitute  the  club 
a  social  club  for  purposes  of  the  dues  tax.     (T.  D.  2782;  Dec.  24,  1918.) 

Dues  paid  commercial  club  conducted  primarily  for  commercial  objects  are 
nottaxahle  for  special  reason  that  cliief  social  feature,  tliat  of  tlie  restaurant,  besides 
being  maintained  as  an  adjunct  to  the  luncheon  meetings,  is  regulaiiy  opened 
to  the  members,  local  business  and  civic  organizations,  and  used  by  them  for  pur- 
poses which  the  club  is  engaged  in  furthering.     (T.  D.  2795;  Feb.  26,  1919.) 

Income  taxes — Exenxption. 

Exemption  from  filing  returns  and  paying  income  tax  of  commercial  clubs  is 
conditional  upon  such  an  organization  filing  affidavit  shomng  character  and  pur- 
pose of  organization,  source  of  income  and  dispoeition  of  same,  whether  or  not  any 
of  its  income  is  credited  to  surplus  or  inures  to  benefit  of  any  private  stockholder 
or  individual,  to  which  affidavit  should  be  attached  copy  of  charter  or  articles  of 
incorporation  and  by-laws ;  where  collector  is  in  doubt  as  to  taxable  status  of  organiza- 
tion, upon  receipt  of  affidavit,  etc.,  he  will  refer  affidavit  and  accompanying  papers 
to  Commissioner  of  Internal  Revenue  for  decision;  if  it  is  held  that  corporation 
itself  is  exempt  from  income  and  excess  profits  taxes  it  is  not,  however,  exempt 
from  the  withholding  requirements  nor  from  furnishing  information  in  accordance 
mth  provisions  of  act  of  October  3,  1917.     (T.  D.  2693;  Apr.  8,  1918.) 

COMMISSIONS. 

Excise  taxes — Basis  of  tax. 

Commifisions  to  agents  and  other  expenses  of  sale  are  not  deductible  from  price 
in  computing  same  for  pnrpose  of  tax  imposed  by  section  600  of  the  act  of  October 
3,  1917.     (T.  D.  2719;  Art.  III.) 

Income  taxes. 

Commissions  paid  salesmen  are  income  to  the  salesmen  as  well  as  expense  to  the 
payer.     (T.  D.  2690;  art.  4.) 

Commissions  on  renewal  premium  for  insuraaice  received  by  agents  cm  account 
of  business  written  is  income  to  be  accounted  for  as  such  and 'for  calendar  year  of 
Its  receipt.     (T.  D.  2690;  art,.  4.) 

Commissions  paid  in  purchasing  and  selling  securities  are  a  part  of  the  cost  or 
selling  price  of  the  securities  and  not  otherwise  deductible;  they  do  not  constitute 
expense  deductions.     (T.  D.  2690.;  art.  8.) 


COMMUNITY  PROPERTY — COMPENSATION.  135 

Incoiue  taxes — Continued. 

Where  corporation  sells  its  bonds  at  discount  plus  commission  for  scllino;  amount 
of  such  discount  and  commission,  tof^ether  with  other  expenses  incidental  to  issuing 
bonds,  constitute  a  loss,  aggregate  amount  of  which  will  for  ]nirpose  of  income-tax 
return  bo  prorated  over  life  of  bonds  sold  and  amount  thus  apportioned  to  each  year 
will  be  deductible  from  gross  income  of  each  year  until  bonds  shall  have  been 
redeemed.     (T.  D.  2690;  art.  150.) 

COMMUNITY  PROPERTY. 
Estate  tax. 

Highest  selling  price  of  stocks  and  bonds  on  day  of  death  fixed  as  value  to  be 
returned,  or,  if  no  sale,  then  highest  bid  price;  if  stocks  or  bonds  are  not  listed  on 
the  market  the  executor  may  set  up  value  that  he  deems  true  value  as  of  day  of 
decedent 's  death ;  if  bulk  of  estate  is  community  property  its  value  should  not  be 
shown  under  item  4  of  Form  706,  but  dec-edent's  legal  share  should  be  returned 
under  the  several  items.     (T.  D.  2513;  July  16,  1917.) 

If  property  conveyed  to  husband  and  wife  is  taken  Iiy  each  in  entirety  and  in 
such  manner  that  each  was  owner  of  all,  and  upon  death  of  either  no  new  interest 
or  title  vested  in  survivor,  one-half  of  property  thus  jointly  owned  should  be 
returned  as  portion  of  gi'oss  estate  of  decedent  husband  or  wnfe,  as  case  may  be; 
wherever  public  records  show  property  in  name  of  decedent,  presumption  is  tliat  it 
was  sole  property  of  decedent,  and  burden  of  showing  that  surviving  spouse  owned 
any  interest  therein  is  upon  such    sjwuse.     (T.  D.  2450;  Feb.  14,  1917.) 

Thirty-day  notice  (Form  705)  must  be  filed  within  .30  days  after  death  of  decedent 
■whose  estate  is  taxable,  by  surviving  husband  or  wife,  as  case  may  be,  for  one-half 
the  value,  at  decedent's  "death,  of  community  propertv.  (T.  1).  2454;  Feb.  28, 
1917.) 

COMMUTATION  TICKETS. 

Passenger  transportation. 

The  term  "commutation  or  season  tickets,"  as  usetl  in  section  500,  subdivision 
(c),  of  the  act  of  October  3,  1917,  includes  all  forms  of  tickets  issued  and  intended 
for  use  for  a  certain  number  of  trips  between  two  given  termini,  whether  Limited 
or  unlimited  as  to  the  time  in  which  they  are  to  be  used.     (T.  D.  2676;Mar.  18, 1918.) 

The  8  per  cent  tax  imposed  by  sub<ii\'ision  (c)  of  section  500  of  act  of  October 
3,  1917,  does  not  apply  to  amounts  paid  for  transportation  of  persons  in  case  of  com- 
mutation tickets  for  trips  less  than  30  miles.     (T.  D.  2676;  Mar.  18,  1918.) 

The  10  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October 
3,  1917,  applies  to  amounts  paid  for  commutation  books  purchased  in  United  States, 
calling  for  accommodations  in  parlor  or  sleeping  cars,  or  on  vessels,  in  which  event 
tax  shall  be  paid  as  and  when  collections  are  made  or  amount  paid  for  such  books; 
if  books  be  purchased  outside  the  United  States,  tax  applies  to  amount  paid  for 
coupons  lifted,  calling  for  accommodations  between  or  from  points  in  United  States, 
and  tax  shall  be  collected  as  and  when  coupons  are  lifted.  (T.  D.  2676;  Mar.  18, 
1918.) 

Commutation  tickets  sold  and  partially  used  before  November  1,  1917,  arc  not 
taxable  if  presented  after  that  date  for  remainder  of  journey  or  journeys  called  for. 
(T.  D.  2676;  Mar.  18,  1918.) 

COMPENSATION. 

Income  taxes. 

Retired  pay  of  Army  and  Navv  officers  is  subject  to  income  tax.  (T.  D.  2690; 
art.  4.) 

Retired  pay  of  judges  of  United  States  courts  is  subject  to  income  tax.  (T.  D. 
2690;  art.  4.) 

Compensation  for  service  paid  for  on  percentage  of  net  profits  is  income  to  employee 
and  must  be  accounted  for  as  such ;  where  service  is  rendered  for  stipulated  price, 
wage,  or  salary,  and  paid  with  something  other  than  money,  stipulated  value  of 
service  in  terms  of  money  is  value  at  which  thing  taken  in  paymer.t  is  to  be  con- 
sidered for  purpose  of  tax;  in  absence  of  stipulation  as  to  value  of  service,  payment 
being  made  with  something  other  than  money,  market  or  ix>asonable  Aalue  of  thing 
taken  in  payment  is  amount  to  be  included  as  income.     (T.  D.  2690;  art.  4.) 

Compensation  of  President  of  United  States  for  term  for  which  he  is  elected, 
beginning  March  4,  1917,  shall  not  be  included  as  income  for  purposes  of  income 


236  COMPENSATION. 

Income  taxes     rontinuod. 
f-ix  uikUt  a-'t  of  October  3,  1917,  such  rompensation  beinc  su])jnrt  to  tax  under  the 
act  of  September  8,  1916.     (T.  I).  2690;  art.  5.) 

Conipen.sation  of  all  officers  and  employees  of  a  State  or  any  political  subdivision 
thereof,  except  when  such  compensation  is  paid  by  United  States  Government, 
shall  not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

( 'ompensation  of  all  judges  of  the  Supreme  Court  and  inferior  courts  of  the  United 
Stiites  in  office  September  8,  1916,  and  October  3,  1917,  shall  not  be  iuchided  as  in- 
come, compensation  of  judt,'e.s  of  those  courts  appoin.ed  subsequent  to  September 
8,  19l'6,  beini:  subject  to  tax  under  act  of  that  date  but  not  under  act  of  October 
3.  1917':  compensation  of  judf,^es  of  such  courts  appointed  subseciiieut  to  October  3, 
1917,  are  subject  to  tax  under  both  acts.     (T.  D.  2090;  art.  5.) 

Salaries,  etc.,  and  rents  paid  by  domestic  corporations,  resident  individuals,  or 
partnerships,  to  iioiu-esident  alien  employees  for  services  rendered  entirely  in  a 
forei<jn  country  and  for  ])roperty  located  in  a  foreign  country,  are  not  subject  to 
dediK'tion  and' witliholding  of  the  normal  tax,  and  such  payments  of  income  will 
not  he  subject  to  tax  in  liands  of  recipient  as  from  source  within  United  States. 
(T.  1).  2690;  art  32.) 

Deductions  from  gross  income. 

Amounts  expended  by  corporations,  ])artnerships,  or  individuals  engaged  in 
business,  in  paying  all  or  portions  of  regular  compensation  of  officers  or  employees 
wlio  have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces 
of  the  United  States,  or  liave  undertaken  services  for  the  Government  at  reduced  or 
nominal  compensation,  constitute,  during  the  continuance  of  the  war,  ordinary 
and  necessary  expenses  of  doing  business  and  are  allowable  as  deductions  in  com- 
puting net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

.\mounts  paid  for  salary  receiA'ed  for  all  services  rendered  are  deductible  as 
business  expense  when  expenditures  are  occasioned  bv  the  service  in  respect  of 
which  salary  is  paid.     (T.  D.  2690;  art.  8.) 

Debts  arising  from  unpaid  wages,  salary,  rents,  and  items  of  similar  taxable  income, 
riot  allowed  as  deduction  unless  income  they  represent  has  been  included  in  return 
of  grcrss  income  for  year  in  which  deduction  as  bad  debt  is  sought  to  be  made  or  in 
previous  vear,  and  debts  themselves  have  been  actually  ascertained  to  be  worth- 
less and  charged  off.     (T.  D.  2690;  art.  8.) 

When  amount  of  salary  of  officer  or  employee  is  paid  for  limited  period  after  his 
death  to  his  widow  or  heirs  in  recognition  of  services  rendered  by  individual,  no 
services  being  rendered  by  widow  or  heirs,  such  payment  is  not  ordinary  and  neces- 
Harv  expense  of  transacting  business  and  may  not  be  deducted.  (T.  t).  2690;  art. 
137.) 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made 
in  good  faith  and  as  additional  compensation  for  services  actually  rendered  by 
ein])l()yees;  if,  wlien  added  to  stipulated  salaries,  they  do  not  exceed  a  reasonable 
compensation  for  services  rendered,  they  will  be  regarded  as  a  part  of  the  wage  or  hire 
of  the  employee  and  are  deductible  as  an  ordinary  and  necessary  expense  of  opera- 
tion and  maintenance.     (T.  D.  2690;  art.  138.) 

Special  payments  made  to  officers  or  employees  who  are  stockholders,  in  guise  of 
additional  salaries  or  compensation,  amount  of  which  is  based  upon  or  bears  cUso 
relationship  to  stockholdings  of  such  officers  or  employees,  or  capital  invested  by 
Ihem  in  business  of  company,  will  V)e  regarded  as  special  distribution  of  profits  or 
com[)ensation  for  capital  invested,  and  not  payment  for  serAdces  rendered;  payments 
under  such  latter  conditions,  being  in  nature' of  dividends,  will  not  be  deductible. 
(T.  D.  2690;  art.  138.) 

Where  salaries  of  officers  or  employees  who  are  stockholders  are  found  to  be  out  of 
proportion  t.o  volume  of  Imsiness  "transacted  or  excessive  when  compared  with 
salaries  of  like  officers  or  employees  of  other  corporations  doing  similar  kind  or 
volume  of  business,  amount  sti  paid  in  excess  of  reasonable  compensation  for  services 
will  not  be  deduciible,  but  will  be  treated  as  distribution  of  profits.  (T.  D.  2690; 
art.  138.)  ^ 

Compensation  paid  employee  in  cai)ital  stock  of  corporation  may  be  deducted  as 
expense  if  so  charged  on  books  at  actual  value  of  such  stock.     (T.  D.  2690;  art.  139.) 

In  cases  of  compensation  fixed  after  services  are  rendered  and  not  in  accordance 
with  any  contract  or  any  custom  or  practice  amounting  virtually  to  a  contract, 
reasonableness  is  ordinarily  the  controlling  test  of  deductibility.  (T.  D.  2696; 
Apr.  10,  lylo,^ 


COMPOUND  LIQUORS — COMPROMISE.  137 

Income  taxes — Conlimiod. 

Deductions  from  gross  income— Continued. 

Test  of  deductibility  in  rase  of  compjiisation  payments  is  whctlior  ilipy  aro  in 
fact  payments  purely" for  services  or  include  some  other  element;  in  case  of  any 
compensation  which  exceeds  amounts  ordinarily  paid  for  like  ser\-ices  in  like  cuter- 
prises  under  like  circumstances,  burden  is  Tipon  enterprise  to  show  that  amount 
l)aid  was  solely  purchase  price  of  s-^rvices;  this  test  and  its  particular  application 
farther  stated  and  illustrated.     (T.  D.  2C9G;  Apr.  10,  191.S.) 

Compensation  greater  than  that  ordinarily  paid  for  like  services  in  similar  enter- 
pris!>s  must  be  shown  to  represent  payment  for  services  only.  (T.  1).  2696;  Apr.  10, 
1918.) 

Compensation  on  whatever  Ijasis  fixed,  representing  only  tlie  ])rice  paid  for  seryices 
pursuant  to  a  fair  bargain  made  in  advance  between  the  individual  and  the  business 
enterprise,  is  deduct  ible  in  determining  taxable  net  income  of  the  enterprise.  (T.  D. 
2696;  Apr.  10,  1918.) 

Payments  nominally  as  compensation  for  8er\-ices,  wliieh  in  fart  inelude  amounts 
])aid  as  dividends,  waste  of  corporate  assets,  payments  for  property,  or  for  anything 
other  than  8ervie<>s,  are  deduetible  only  to  an  amount  not  in  excess  of  compensation 
for  like  s?rvice8  in  similar  enterprises.     (T.  D.  2696;  Apr.  10,  1918.) 

Information  at  source. 

Every  person,  corporation,  etc.,  paying  compensation,  wages,  etc.,  of  $800  or  more 
in  any  taxable  year,  or,  in  case  of  such  payment  made  l)y  the  United  States,  the 
officerg  or  employees  of  the  United  States  having  information  as  to  such  payments, 
authorized  and  recjuired  to  render  due  and  accurate  return,  setting  forth  the  amount 
of  such  compensation,  wages,  etc.,  and  the  name  and  address  of  the  recipients 
thereof.     (T.  D.  2690;  art.  34.) 

Where  a  person  receives  a  cash  compensation  for  services  rendered  and  in  addi- 
tion thereto  living  qiiarters,  the  value  to  such  person  of  the  quarters  furnished  con- 
stitutes income  subject  to  tax,  and  return  under  section  28  is  required  in  each  case 
where  cash  compensation  received  plus  the  value  of  living  quarters  furnished  equals 
or  exceeds  1800  for  a  tax  year.     (T.  D.  2690;  art.  34.) 

Withholding. 

The  withholding  provisions  of  sections  9  (b)  and  (c)  of  the  income  tax  law  apply 
to  the  normal  tax  levied  upon  entire  net  income  of  nonresident  aliens  of  a  fixed 
or  determinable  annual  or  periodical  class,  as  interest,  rent,  Avages,  etc.,  received 
l>y  them  from  all  sources  within  United  States;  tax  to  be  deducted  and  withheld 
from  individuals  for  1917  and  subsequent  tax  years  is  the  2  per  cent  normal  tax 
imposed  by  the  act  of  September  8,  1916,  as  amended.     (T.  D.  2690;  art.  43.) 

Storekeeper-gaugers. 

On  and  after  January  1,  1917,  compensation  of  storekeeper-gangers  designated 
as  general  storekeeper-gangers  fixed  at  rate  of  14  per  day,  together  with  actual  and 
necessary  traveling  expenses,  except  that  when  aggregate  quantity  of  spirits  remain- 
ing in  charge  of  general  storekeeper-ganger  is  reduced  to  5,000  or  less  gallons  rate  of 
compensation  will  be  $3  per  day  for  such  days  only  as  he  may  be  required  to  visit 
warehouses  for  withdrawal  of  spirits  or  other  necessary  purposes.  (T.  D.  2408; 
Dec.  7,  1916.) 

Rate  of  pay  of  officers  assigned  in  dual  capacity  of  storekeeper-gangers  to  distillery 
warehouses  at  distilleries  having  registered  capacity  of  more  than  20  bushels  and  to 
special  bonded  and  general  bonded  warehouses,  fixed  at  $4  per  day,  this  rate  to  be 
applicable  in  case  of  distillery  warehouse  whether  distillery  is  being  operated  or  is 
under  suspension,  and  as  to  all  warehouses  irrespective  of  quantity  of  spirits  stored 
therein;  when,  however,  quantity  of  spirits  in  w.rehouse  is  5,000  gallons,  or  less, 
rate  of  pay  will  be  fixed  at  $4  per  day  for  such  days  only  as  officer  is  required  to  visit 
warehouse  for  necessary  purposes;  this  rate  of  pay  to  be  effective  on  and  after  Feb- 
ruary 1,  1920.     (T.  D.  2980;  Feb.  II,  1920.) 

COMPOUND  LIQUORS. 

See  "Rectified  Spirits." 

COMPROMISE. 
Distilled  spirits. 

Distilled  spirits  seized  because  of  filing  of  incorrect  return  or  failure  to  file  return 
not  willful  may  be  released  on  payment  of  tax  and  compromise  offer  of  25  per  cent; 
jiayment  of  tax  and  compromise  offer  of  100  per  cent  required  in  case  of  false  return 
or  "willful  failure  to  file  return.  Acceptance  of  such  offers  is  in  lieu  of  forfeiture 
only.    (T.  D.  2877;  June  27,  1919.'> 


138  CONCERTS CONDITIONAL  SALES. 

Income  taxes — Abatement. 

When  case  is  compromised  iu  whicli  assessment  is  involved,  ammint  })aid  as  lax 
should  be  credited  to  list,  and  amount,  if  any,  remaining  outstanding,  should  be 
claimed  for  abatement  on  Form  47,  if  terms  of  compromise  so  required.  (T.  D. 
2G90;  arts.  258,  259.) 

Bad  debts. 

'V\^lerc  settlement  is  had  by  way  of  compromise  whereby  amount,  less  than  debt 
claimed,  is  accepted  in  full  payment  and  satisfaction,  difference  between  amount 
paid  and  that  claimed  is  not  allowable  as  deduction  for  bad  debts;  where  settle- 
ment consists  of  promise  to  pay  amount  less  than  debt,  amount  promised  forms 
basis  of  new  transaction,  and  upon  failure  to  make  good  such  promise  question  will 
arise  as  to  deductibility  of  new  amount  only.     (T.  D.  2690;  art.  8.) 

Damages. 

Amount  received  by  individual  as  result  of  suit  or  compromise  for  personal 
injiuies  sustained  by  him  through  accident  is  not  income  taxable  under  Title  I  of 
act  September  8,  1916,  as  amended  by  Title  XII  of  act  October  3,  1917,  and  of 
'Wtle  I  of  act  October  3,  1917.  (T.  D.  2747;  July  12,  1918.  T.  D.  2690,  art.  4, 
revoked.) 

Violation  of  statute. 

Any  violation  of  law  or  regulations  which  is  violation  of  act  of  August  10,  1917, 
only,  can  not  be  made  subject  of  compromise  by  Commissioner  of  Internal  Revenue, 
under  section  3229,  Revised  Statutes,  which  section  is  applicable  to  offenses  arising 
under  the  internal-revenue  laws  only.     (T.  D.  2559;  Oct.  20,  1917.) 

CONCERTS. 

Admissions — Cabai'ets. 

The  words  "cabaret  or  other  similar  entertainment,"  as  used  in  section  700  of  the 
act  of  October  3, 1917,  include  everj-  hotel,  or  room  therein,  restaurant,  hall,  or  other 
public  place,  at  or  in  which,  in  connection  with  ser\'ice  or  sale  of  food  or  other 
refre.'^hments  or  merchandise,  any  vaude\'illo  or  other  performance  or  diversion  in 
v/ay  of  acting,  singing,  declamation,  or  dancing,  either  with  or  without  instrumental 
or  other  music,  is  conducted ;  every  form  of  entertainment  so  conducted  is  included, 
except  that  furnished  by  orchestras  such  as  were  usual  in  hotels  and  restam-ants 
before  advent  of  cabarets,  performing  instrumental  music  only,  unaccompanied  by 
any  other  form  of  entertainment.     (T.  D.  2681;  Mai'.  26,  1918.) 

CONDEMNATION   OF   PROPERTY. 

See  "E,equiciition  of  Property." 

Income  taxes — Deductions. 

Property  desti'oyed  by  order  of  authorities  of  State  or  of  United  States  may  bo 
claimed  as  a  loss;  if  reimbursement  is  made,  amount  recei\'ed  shall  be  reported  as 
income  for  yeai-  in  which  reimbursement  is  made.     (T.  D.  2090;  art.  4.) 

Net  income. 

_  Actual  cost  of  property  destroyed  by  order  of  authorities  of  a  State  or  of  the  United 
States  may  be  claimed  as  a  loss;  but  if  reimbursement  is  made  hy  a  State  or  United 
States,  amount  received  shall  be  reported  as  income  for  year  in  which  reimburse- 
ment is  made.     (T.  D.  2690;  art.  123.) 

CONDITIONAL   SALES. 
Excise  taxes— Time  tax  attaches. 

In  case  of  conditional  sale,  where  title  is  reserved  until  payment  of  purchase 
price  m  lull,  excise  tax  imposed  by  act  of  October  3,  1917,  attaches  upon  such  pay- 
ment, or  when  title  passes  if  before  completion  of  payments.     (T.  D.  2719 ;  Art.  IV.) 
Income  taxes. 

mere  corporation  sells  property  on  installment  plan,  title  passing  at  time  of  sale, 
gam  to  be  returned  as  income  for  year  in  which  sale  was  made,  vNill  be  excess  of  con- 
tract price  over  fair  market  price  or  value  as  of  March  1, 1913,  if  property  was  acquired 


CONSOLIDATED   COrxPORATIONS — CONTRACTS.  13.9 

Income  taxes — Continued. 

prior  to  that  date,  or  of  contract  price  over  ccst  if  acquir-sd  subsequent  to  that  date. 
(T.  D,  2690;  art.  IIG,) 

Corporation  selling  nierchaudiae  on  installment  basis,  title  passing  to  vendee  at 
lime  of  sale,  will  treat  such  contracts  as  acscounts  receivable  and  as  sales  durintf  the 
year  at  their  face  value,  accounting  for  as  income  the  difference  between  the  cost  and 
sales  price.     (T,  D.  2690;  art.  120.) 

In  sale  or  contract  for  sale  of  personal  property  on  iiistallment  plan,  whether  or  not 
title  remains  in  vendor  until  property  is  fully  paid  for,  income  to  be  returned  by 
vendor  will  be  that  proportion  of  ea'di  installment  which  gross  prolit  to  be  realized 
when  property  is  paid  for  bears  to  gross  contract  price;  if,  for  any  reason,  vendee 
defaults  and  vendor  repossesses  property,  (Mitire  amount  received  on  installmant 
payments,  less  profit  originally  returned,  will  l>e  income  to  vendor  to  be  so  returned 
for  year  in  which  property  was  rep93sessed.     (T.  D.  2707;  Apr.  25,  1918.) 

Where  buyer  of  property  of  corporation  sold  on  installment  plan,  title  passing  at 
time  of  sale,  forfeits  his  contra^'t  and  fails  to  meet  any  of  the  paymejits  contracted 
to  be  made,  selling  corporation  may  deduct  from  its  gross  income  as  a  loss,  such  pro- 
portion of  defaulted  })ayments  as  was  previouslv  returned  as  gross  income.  (T.  D. 
2690;  art.  116.) 

CONSOLIDATED  COBPOHATIONS. 

Issue  of  stock — Stamp  tax. 

Issue  of  stock  by  a  consolidated  corporation,  in  exchange  for  stock  of  the  con- 
solidating corporations,  is  .a  taxable  oiiginal  iasue  under  act  October  3,  1917.  (T. 
D.  2752;  Aug.  14,  1918.) 

Transfer  of  stock — Stamp  tax. 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the  con- 
solidated corporation,  is  not  a  taxable  transfer  under  act  October  3,  1917,  (T.  D. 
2752;  Aug.  14,  1918.) 

CONSOLIDATED    RETURNS. 

Affiliated  corporations. 

See  "Excess  Profits  Tax." 

CONTRACTS. 

Governmental  purposes — Bonds. 

Bonds  given  to  a  State,  township,  cotmty,  or  village,  covering  contracts  for  govern- 
mental purposes  or  the  protection  of  the  State,  township,  county,  village,  ox  munic- 
ipality, in  any  respect,  are  free  from  Federal  taxation.     (T.  D.  2G24;  Dec.  14, 1917.) 

Telegraph,  telephone,  and.  radio  messages. 

Exemption  from  tax  imposed  by  section  500,  sid:)di vision  (e),  act  October  3,  1917, 
on  telephone,  telegraph,  and  radio  messages,  may  be  claimed  when  iimounts  paid 
for  such  messages  are  finally  to  be  paid  by  the  Govei'nment  under  a  cost -phis  contract; 
tliis  does  not  apply  where  contractor  is  doing  v/ork  for  Gover'nment  under  lump-sum 
contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

Transportation  charges. 

Where  contrac  tor  does  work  for  Government,  contract  price  of  which  is  a  lump 
sum,  exemption  provided  for  by  section  502  of  act  of  October  3,  1917,  does  not 
apply  to  amounts  paid  for  transportation  of  property  used  or  to  be  used  by  the  con- 
tractor in  connection  with  the  work.     (T.  D.  2676;  Mar.  18,  1918.) 

Where  contract  price  of  work  for  the  Government  is  cost  plus  certain  percentage, 
amount  received  by  carrier  for  transportation  of  property  used  or  to  be  used  by  con- 
tractor in  such  work  falls  within  exemption  from  tax  imposed  by  section  500  of  act 
October  3,  1917;  certificate  specified  in  Regulations  No.  42,  article  15,  must  be  used 
and  must  be  signed  by  a  Government  officer  or  employee,  certificate  signed  by  con- 
tractor not  being  sufficient.     (T.  X».  2742;  July  1,  1918.) 

Exemption  may  be  claimed  undei-  section  500  of  act  October  3,  1917,  on  amounts 
paid  for  transportaticm  of  persons  employed  by  contractor  working  for  Government 
under  cost-plus  contract,  where  transportation  c-harge  of  <3mployee  is  an  item  in  the 
cost  of  the  work,  and  hence  will  be  finally  paid  by  the  Government;  form  of  exemp- 
tion certificate.     (T.  D.  2742;  July  1,  1918.) 


]40  COOPiCKATIVE    OIIGANIZATIONS. 

Income  taxes— Contracting  company. 

In  the  cafle  of  corporations  engaged  in  contracting  operations  and  which  have 
numerous  uncoini)lete(l  conlracls,  which  in  some  cases  run  for  periods  of  year,  per- 
renfai,'e  of  profit  from  contract  may  be  estimated  on  Vjasis  of  percentage  of  comple- 
tion tuid  payments  made  then>on,  in  which  case  income  to  be  returned  each  year 
during  performance  of  contract  will  be  computed  upon  basis  of  expenses  incurred  on 
such  (H)ntract  during  the  j^ear;  all  under  or  over  statements  of  income  to  be  adjusted 
upon  completion  of  contract  and  return  made  accordingly,  where  contracts  are  fully 
performed  in  one  year  income  resulting  from  performance  shall  be  returned  for  year 
in  which  actually  earned  and  determined.     (T.  D,  2690;  art.  121.) 

State  officers  or  employees. 

Individual  who  contracts  with  State  or  any  political  subdivision  thereof,  for 
doing  of  sijecific  things,  completion  of  which  will  constitute  fulfillment  of  contract  on 
})art  of  such  individual,  is  not  an  officer  or  employee  of  the  State,  or  political  sub- 
di\  ision  thereof,  within  section  4  of  the  income-tax  law,  and  amount  received  by 
him  is  to  be  accounted  for  as  income.     (T.  I).  2090;  art.  4.) 

Stamp  taxes— ^Corporate  stock,  issuance. 

Stamp  tax  does  not  apply  to  contract  or  agreement  by  corporation  to  issue  stock. 
(T.  D.  2599;  Dec.  3,  1917.) 

Sales. 

Contract  for  sale  of  real  estate,  providing  for  future  delivery  by  deed,  is  not  subject 
to  stamp  tax.     (T.  D.  2599:  Dec.  S,  1917.) 

The  term  "contract  of  sale' '  wilhin  Regulations  No.  40,  Part  2,  relating  to  stamp 
taxes  upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery, 
includes  all  sales  or  agreements  of  sale,  or  agreements  to  sell,  including  so-called 
transfers  or  "scratched  sales. ' '     (T.  D.  2008;  Nov.  30,  1917.) 

Contracts  of  sale  of  cotton  for  future  delivery  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  business,  is  taxed  at  the  rate  of  $0.02  for  each 
pound  of  cotton  involved  (to  be  paid  by  stamp);  tax  not  to  be  levied  on  contracts 
complying  with  conditions  prescribed.     (T.  D.  2558;  Oct.  26,  1917.) 

— —  Services. 

Contracts  for  performance  of  serAices  are  not  siibject  to  stamp  tax.  (T.  D.  2599; 
Dec.  3,  1917.) 

COOPERATIVE  ORGANIZATIONS. 

Capital  stock  tax. 

Capital  stock  tax  does  not  apply  to  mutual  or  cooperative  telephone  companj', 
income  of  which  consists  solely  of  assessments,  dues  and  fees  collected  from  members 
for  sole  purpose  of  meeting  its  expenses.     (T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Tax  does  not  apply  to  domestic  building  and  loan  associations  and  cooperativs 
banks  with  no  capital  sto? k  organized  and  operated  for  mutual  purposes  and  without 
profit.     (T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Income  taxes. 

Cooperative  associations,  in  order  to  come  within  the  exem})tion  provided  in  i)ara- 
graph  "Eleventh"  of  section  11  of  the  act  of  September  8,  1916,  as  amended,  must 
establish  to  satisfaction  of  collector  or  Commissioner  of  Internal  Revenue  fact  that 
for  their  own  accoimt,  they  have  no  net  income,  business  being  to  market  products 
of  their  members,  and  that  entire  proceeds  of  such  marketing  less  necessary  selling 
expenses  are  turned  ba(  k  or  paid  to  members  on  basis  of  quantity*!  produce  fur- 
nished by  them — (piality  and  grade  being  considered — as  purchase  price  of  such 
])roduce;  if  such  associations  purchase  for  casli  articles  of  produce  with  view  to 
selling  for  gain,  it  will  be  held  that  such  associations  are  organized  for  profit  and  they 
will  be  held  taxable.     (T.  D.  2690;  art.  75.) 

_  Cooperative  dairy  companies  or  associations,  not  having  capital  stock  and  engaged 
in  collecting  milk  and  disposing  of  same  or  products  thereof,  and  distributing  pro- 
ceeds of  business,  less  necessary  operating  expenses,  among  their  patrons,  upon 
basis  of  quantity  of  butter-fat  in  milk  furnished  by  such  patrons,  are  exempt  from 
lax;  if  company  purchases  milk  at  stipulated  price  and  disposes  of  same,  or  ita 


COriES COEDIALS.  141 


Income  taxes — Ccntinued. 

I)rodiicts,  at  a  j  rofit,  and  siicli  profit  iuiircs  to  honofit  of  company  or  its  members 
on  any  basis  otlier  than  buHor-fat  content  of  milk  fnrnished,  such  company  will 
come  within  reiiuircments  of  law  and  will  be  suViject  to  tax.  (T.  D.  L'U90;  art.  76.) 
Oof>perative  societies,  asnociations  or  corjiurations  which  make  periodical  refund 
to  members  or  to  prospective  members  or  to  patrons  generally,  in  proportion  to  ])iir- 
chases  made  by  recipient,  are  not  within  any  of  the  exceptions  or  exemptions  of  act 
September  8,  1916,  as  amended  by  act  October  3,  1917,  and  are  subject  to  its  pro- 
visions.    (T.  D.  27H7;  June  19,  1918.) 

Wliere  refund  payments  are  made  in  accordance  with  by-laws  or  publislied 
rules  regularly  adhered  to,  they  are  to  be  regarded  as  discounts  or  rebates,  tending 
to  reduce  the  taxable  net  income  of  the  organization.     (T.  I).  2737;  June  19,  1918.) 

Periodical  refunds  by  cooperative  organizations,  which  are  sametimes  called 
"dividends,  "are  wholly  different  from  ordinary  dividends  based  on  .stock  holdings 
and  need  not  be  listed  as  income  by  recipient;  where  recipient  claims  right  to 
deduct  as  business  expenses  any  expenditures  on  which  refund  is  based,  sum 
claimed  as  deduction  must  be  reduced  in  proportion  to  refund  received.  (T.  D. 
2737;  June  19,  1918.) 

Refund  jiayments  made  by  a  cooperative  organization  in  accordance  with  by-lawa 
or  published  rules  regularly  adhered  to,  should  appear  as  added  item  of  cost  in 
detailed  schedule  of  cost  items  submitted  with  the  organization's  return  of  income. 
(T.  D.  2737;  June  19,  1918.) 

Stamp  tax  on  insurance  policies. 

Merely  incidental  profit  earned  by  way  of  int^^rest  on  its  invested  safety  funds  or 
on  its  bank  balance  does  not  change  purely  mutual  character  of  company  or  indicate 
that  its  business,  though  thus  earning  a  profit,  ie  "carried  on  for  profit,"  so  as  to 
require  the  stamping  of  policies  under  act  October  22,  1914.  (T.  D.  27-13;  July  2, 
1918.     Ct.  Dec.; 

COPIES. 

Excess  profits  and  income  tax  returns. 

See   "Excess   Profits  Taxes";  "Income  Taxes   (Corporations)";  "Income  Taxes 
(ludividualsj." 

COPYRIGHTS. 

Excess  profits  tax — Invested  capital. 

r'opyrights  paid  in  for  stock  or  shares  must  be  valued  at  either  actual  cash  value 
at  the  time  of  payment  or  the  par  value  of  the  stock  or  shares  issued  therefor,  which- 
ever is  lower.     (T.  D.  2694;  art.  56.) 

Rules  governing  cases  where  stock  or  shares  (or  stock  or  shares  and  bonds  or  other 
obligations)  have,  prior  to  March  3, 1917,  been  issued  for  a  mixed  aggre4jate  of  tangible 
propertv,  patents  and  copyrights,  and  good  will  or  other  intagible  j^roperty,  stated. 
(T.  D.  2694;  art.  59.) 

Subject  to  limitations  stated  invested  capital  of  individual  is  measured  by  total 
of  actual  cash  paid  into  trade  or  business,  tangible  property  paid  into  trade  or  busi- 
ness, patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  tangible  j)roperty.     (T.  D.  2694;  art.  66.) 

Patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises  and 
other  similar  intangible  assets  may  be  included  in  invested  capital  at  value  not 
to  exceed  actual  cash  paid  tlierefor,  or  actual  cash  value  at  time  of  payment  of 
tangible  property  paid  therefor,  but  only  if  bona  fide  payment  was  made  therefor 
specifically  as  such  in  cash  or  tangible  property.     (T.  D.  2G94;  art.  68.) 

Income  taxes — Invested  capital. 

Amounts  expended  for  securing  copyright  and  plates  which  remain  in  possession 
of  and  as  property  of  person  making  payments  are  investments  of  capital  and  can 
not  be  allowed  as  deductions.     (T.  I).  2690;  art.  8.) 

CORDIALS. 

See  "Wines.", 


142  CORPORATIONS. 

CORPOBATIONS, 

Cjipital  stock — Issue — Stamp  tax. 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issues 
of  certificates  representine;  stock  never  before  issued,  no  matter  when  authorized. 
(T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  does  not  apply  to  issue  of  voting-trust  cer- 
tificates, rej>resenting  stock  certificates  aheady  issued,  nor  to  mere  issue  of  Tiew 
certificates  in  phxce  of  old  certificates  for  stock  previously  outstanding.  (T.  D. 
2752;  Aug.  14,   1918.) 

Tax  imposed  by  act  October  3,  1917,  iipplies  to  issue  of  certificates  of  shares  in 
so-called  Massachusetts  trusts  and  other  unincorporated  associations.  (T.  1). 
2752;  Aug.  14,  1918.) 

Where  corporation  issues  preferred  stock  in  place  of  common,  or  one  kind  of  pre- 
ferred stock  in  place  of  another  kind  of  preferred  stock,  or  stock  without  par  value 
in  place  of  stock  with  par  value,  tax  imposed  by  act  October  3,  1917,  applies, 
even  though  total  outstanding  stock  is  not  thereby  increased.  (T.  D.  2752;  Aug. 
14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  attaches  to  issue  of  preferred  and  common 
stock,  whether  or  not  exchanged  for  old  stock,  upon  reorganization  of  coiporation 
under  section  24  of  the  New  York  stock  corporation  law  for  purpose  of  issuing 
stock  without  par  value,  but  tax  on  transfers  of  stock  is  inapplicable  to  surrender 
of  old  stock  in  exchange  for  new  stock  pursuant  to  such  reorganization.  (T.  I). 
2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  attachesto  issue  of  stock  of  either  corporation 
in  addition  to  already  existing  stock  upon  merger  of  trust  companies  under  sections 
487-49G  of  New  York  banlving  law,  but  such  tax  does  not  attach  to  substitution 
of  new  certificates  for  certificates  representing  old  stock  of  merging  corporation. 
(T.  D.  2752-  Aug.  14,  1918.) 

A  stock  certificate  is  a  document  which  is  evidence  of  the  number  of  shares  of 
stock  which  the  holder  of  it  owns,  and  the  stamp  tax  is  laid  not  on  each  stock  certi- 
-  ficato  that  is  issued  but  on  each  oi-iginal  issue  of  certificates.  (T.  D.  3002;  Apr.  20, 
1920.     Ct.  Dec.) 

A  corporation  engaged  in  organization  is  deemed  to  issue  stock  vrhen  it  obtains 
subscription  for  it. '  (T.  D.  3002;  Apr.  20,  1920.     Ct.  Bee.) 

Issue  of  certificates  of  preferred  or  no  par  value  stock  in  lieu  of  outstanding  certi- 
ficates of  common  stock,  or  vice  versa,  is  not  an  original  issue  of  stock.  (T.  I).  3002; 
Apr.  20,  1920.     Ct.  Dec.) 

So-called  business  property  investment  bond,  wherein  it  is  certifietl  that  the  holder 
thereof  is  the  owner  of  interest  in  certain  specified  real  property,  legal  title  to  which 
was  previously  conveyed  to  a  trustee,  and  whereby  cor|:)oration  issuing  same  agrees 
to  manage  the  property  and  distribute  proceeds  in  certain  manner,  is  not  subject  to 
tax  as  a  certificate  of  stock.     (T.  D.  2795;  Feb.  26,  1919.) 

issue  of  stock  by  a  consolidated  corporation,  in  excliange  for  stock  of  the  con- 
solidating corjwrations,  is  a  tax;able  original  issue  under  act  October  3,  1917.  (T.  D. 
2752;  Aug.  14,   1918.) 

Tax  imposed  I)y  act  October  3,  1917,  k  measiued,  not  by  amount  paid  in,  on,  or 
for  the  stock,  "but  by  the  face  or  par  value  in  the  case  of  shares  having  a  face  or  par 
value,  and  by  the  actual  value  determined  by  the  mai'ket  price  or  otherwise  in 
case  of  shares  having  no  face  or  par  value  but  an  actual  value  in  excess  of  $100  a 
share.     (T.  D.  2752;  Aug.  14,  1918.) 

Transfer — Stamp  taxes. 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock,  applies  to  trans- 
fer of  stock  to  or  from  voting  trustees  or  other  ti'ustees,  to  ti'ansfer  of  voting-  trust, 
certificates,  to  ti-ansfer  of  shares  in  so-called  IVIassacliusetts  trusts  and  other  unincor- 
porated associations,  to  transfer  of  right  to  receive  a  stock  dividend  already  declared, 
and  to  transfer  of  interest  of  a  subscriber  for  stock,  however  such  interest  may 
be  e\adenced  or  conditioned  upon  further  payments.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  attaches  to  sales  or  transfers  of  stock,  whether 
or  not  represented  by  certificates.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
preferred  and  common  stock,  whether  or  not  exchanged  for  old  stock,  upon  reor- 
ganization of  corporation  under  section  24  of  the  New  York  stock  corporation  law 


CORPORATIONS.  143 

Capital  stock — Continued. 

Transfex' — Stamp  taxes — Continnod. 

for  purpose  of  issuing  stock  without  pai-  value,  but  tax  on  transfers  of  stock  ia 
inappIicaTjle  to  surrender  of  old  stock  in  exchange  for  new  stock  i>urBuant  to  such 
reorganization.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  doe.^  not  apply  to  surrender  of  certificate.^  in 
exchange  for  other  certificates  representing  same  or  new  stock,  provided  they  are 
issued  to  the  same  holder,  nor  doea  it  apply  to  surrendcj  of  stock  certificates  for 
retirement  anfl  redemption  for  cash;  if,  however,  corporation  buys  some  of  its  own 
stock  and  transfers  it  to  itself,  whether  or  not  it  intends  e-ventually  to  cancel  it, 
transfer  is  subject  to  tax.     (T.  D.  2752;  Aug.  14,  1918. ) 

Tax  imposed  by  act  October  ^,  1917,  does  not  apply  to  transfer  of  "rights"  to 
eubscribe  for  stock,  prior  to  exercise  of  the  right,  and  actual  subscription.  (T.  D. 
2752;  Aug.   14,  1918.) 

Where,  as  under  section  15  of  the  New  York  stock  corporation  law,  providing 
for  merger  of  ordinary  corporations,  acquisition  of  stock  of  corporation  to  be  merged 
is  condition  precedent  to  merger,  transfer  of  such  stock  to  merging  corporation 
prior  to  actual  merger  is  taxable  under  act  October  3,  1917.  (T.  D.  2752;  Aug.  14, 
1918.) 

Tax  imposed  by  act  October  3,  1917,  does  not  attach  to  exchange  of  stock  certifi- 
cates of  merged  corporation  for  stock  certificates  of  merging  corporation  at  tlie  time 
and  as  part  of  the  merger  of  trust  companies  under  sections  487-49G  of  the  New 
York  banking  law,  nor  to  substitution  of  new  certiiicates  for  old  certificates  rep- 
resenting old  stock  of  the  merging  corporation.     (T.  D.  2752;  Aug.  14,  1918.) 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the 
consolidated  corporation,  is  not  a  taxable  transfer  under  act  October  3,  1917.  (T.  U. 
2752;  Aug.  U,  1918.) 

Tax  imposed  by  act  October  3,  1917,  is  measured,  not  by  am.ount  paid  in,  on,  or 
for  the  stock,  but  by  tlio  face  or  par-  value,  in  the  case  of  shares  having  a  face  or  par 
value,  and  by  the  actual  value  determined  by  the  market  price  or  otherwise,  in 
case  of  shares  having  no  face  or  par  value  but  an  actual  value  iu  excess  of  $100  a 
share.     (T.  D.  27o2;^Aug.  14,  1918.) 

Sale  by  Alien  Property  Custodian  of  sltares  or  certificates  of  stock,  under  authority 
of  section  12  of  the  trading  with  the  enemy  act  of  October  6,  1917,  as  amended,  his 
agreement  so  to  sell,  and  his  transfer  of  legal  title  to  certificiites  or  shares  so  soid, 
are  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  tlic  act  of 
October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Transfer  to  Alien  Property  Ciustodian  of  shares  or  certificates  of  stock  in  com- 
pliance with  demand  made  l)y  him  under  the  trading  with  the  enemy  act  of  October 
6,  1917,  as  amended,  is  not  subject  to  stamp  tax  imjiosed  by  Schedule  A  of  Title 
VIII,  act  of  October  3,  1917.     (T.  D.  2786;  Jan.  29, 1919.^ 

Capital  stock  tax- 
See  "Capital  Stock  Tax." 
Definitions — '  'Corporation." 

The  term  "corporation,"  as  used  in  war  excess  profits  tax  regulations,  includes 
joint-stock  companies  or  associations,  no  matter  how  created  or  organized,  insurance 
companies,  aud  limited  partnerships,  and  unless  otherwise  indicated  by  the<:'ontext, 
term  will  bo  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D.  2694; 
arts.  1,  2.) 

"Corporation"  or  "corporations,"  as  used  in  Regulations  No.  33,  relating  to  in- 
come tax,  construed  to  include  all  corporations,  joint-stock  companies  and  associa- 
tions, and  all  insurance  companies  coming  within  the  terms  of  the  lav.',  as  well  as  all 
business  trusts  organized  or  created  to  engage  in  commercial  or  industrial  enter- 
prises, <?apital  of  which  is  e\T.denced  by  certificates  or  shares  of  interest  issued  or 
issuable  to  members  on  the  basis  of  which  profits  are  distributed  or  distiibutablc. 
(T.  D.  2690;  art.  57.) 

'  'Dividend." 

The  term  "di\ddend,"  within  the  income  tax  law,  meana  any  distribution  made 
or  ordered  to  be  made  by  a  corporation,  joint-stock  company  or  asssociation,  or  insur- 
ance company,  out  of  its  earnings  or  profits  accrued  since  March  1, 1913,  and  jiayable 
to  its  sharehoiers  whether  in  cash  or  in  stock  of  the  corporation,  joint-stock  company 
or  association,  or  insurance  company.     (T.  D.  2690;  art.  106.) 


J  44  CORPORATIONS. 

Deilnitions  — Coatiuucil. 
"Dividend" — Continued. 

Tho  term  "dividend,"  as  used  in  war  exreps  profila  tax  regulations,  has  the  same 
incaninjT  a.s  in  section  31  of  the  act  of  September  8,  1916,  as  amended  )jy  the  act  of 
<)rtob<;r  3,  J917,  to  wit,  any  distribution  made  or  ordered  to  be  made  by  a  corpora- 
tion, joint-Btock  company,  association,  or  insurance  company,  out  of  its  earnings  or 
|)r()lits  accrued  since  March  1,  1913,  and  payable  to  its  stockholders,  whether  in 
cash  or  in  stock,  which  stock  dividends  shall  be  considered  income,  to  the  amount 
of  earniugs  or  profits  so  distributed;  unless  otherwise  iiidicaled  V)y  the  context, 
term  will  be  deemed  to  be  used  only  with  this  scope  or  nat^aning.  (T.  D.  2694; 
ar(8.  1,  9.) 

The  act  of  September  8,  1916,  and  the  act  of  October  3,  1917,  in  excluding  divi- 
dends declared  out  of  earnings  or  profits  that  accrued  prior  to  March  1,  1913,  are  not 
intended  to  be  declaratory  of  the  meaning  of  the  term  "dividends"  in  the  act  of 
October  3,  1913.     (T.  D.  2731;  June  11,  1918.     Ct.  Dec.) 

A  dividend  declared  and  paid  by  one  corporation  in  the  stock  of  another  is  not  a 
"stock  dividend"  within  the  accepted  meaning  of  that  term.  (T.  D.  2732;  June 
11,  1918.     Ct.  Dec.) 

"Foreign  corporation." 

The  term  "foreign  corporation,"  as  used  in  article  35  of  Regulations  No.  33. 
Revised,  means  one  not  organized  and  existing  under  the  laws  of  the  United 
States  or  of  any  State  or  Territory  thereof,  or  of  the  District  of  Columbia,  Porto 
Rico,  or  the  Philippine  Islands.     (T.  D.  2759;  Oct.  2,  1918.) 

"Iiimited  partnership." 

Ivimited  partnerships  «i  the  Pennsylvania  type,  whi<'h  offer  opportunity  for 
limiting  liability  of  all  the  members,  prt>vide  for  transferability  of  partnership 
shares,  and  capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are 
corporations  or  joint-stock  companies;  limited  partnerships  of  New  York  type, 
which  can  not  limit  liability  of  general  partners,  arlthough  special  partners  enjoy 
limited  liability  so  long  as  they  observe  statutory  conditions,  and  which  are  dis- 
solved by  death  or  attempted  transfer  of  interest  of  general  partner,  and  which  can 
not  take  real  estate  or  sue  in  partnership  name,  are  partnerships;  in  doubtful  cases 
limited  partnerships  will  be  treated  as  corporations  unless  they  submit  satisfactory 
proof  that  they  are  not  in  effect  so  organized.     (T.  D.  2711;  May  9,  1918.) 

Estate  tax — Bonds. 

Actual  interest  on  bonds  owned  by  decedent  accrued  to  day  of  death  must  be  re- 
turned as  a  portion  of  the  gross  estate.     (T.  D.  2483;    Apr.  20,1917.) 

Under  section  202  of  act  of  September  8,  1916,  bonds,  both  foreign  and  domestic, 
owned  by  nonresident  decedents,  which  bonds  are  physically  situate  in  the  United 
States,  Hawaii,  or  Alaska  at  the  time  of  the  owner's  death,  must  be  returned  as  a 
portion  of  the  gross  estate;  where  bonds  are  physically  situate  outside  of  the  United 
States,  Hawaii,  or  Alaska,  they  need  not  be  so  returned;  bonds  owned  by  residents 
are  taxable,  regardless  of  where  situate  at  time  of  owner's  death.  (T.  D.  2530;  Oct. 
4,  1917.) 

— —  Dividends. 

There  should  be  included  in  gross  estates  the  entire  dividend  declared  prior  to  day 
of  death  on  stock  owned  by  decedent  at  time  of  death,  whether  received  before  or 
after  that  dav;  no  part  of  diAidend  declared  after  death  should  be  included  in  the 
gross  estate.     (T.  D.  2483;   Apr.  20,  1917.) 

— —  Duties  of  transfer  agents,  etc. 

The  30-day  notice  must  be  filed  for  dividends  declared  prior  to  the  day  of  death, 
and  f()r  interest  payable  after  death  to  the  extent  of  the  portion  accrued  to  the  day  of 
death,  and  if  notice  be  filed  either  within  30  days  from  death  or  immediately  upon 
receipt  of  order  for  transfer  or  payment,  transfer  or  payment  need  not  be  postponed; 
li  tax  IS  not  paid  within  legal  period,  proceedings  will  be  instituted  under  section  208 
of  the  5ict  of  September  8,  19  Ki,  for  the  sale  of  the  property  and  the  payment  of  the 
tax.     (T.  D.  2490;   May  14,  1917.)  i^    f     y  i    j- 

The  30-day  notice  will  shr,w  the  name  and  address  at  time  of  death  of  the  non- 
resident decedent,  and  description  and  valuation  of  the  property  to  be  transferred 
and  paid,  and  the  name,  designation,  and  address  of  the  person  to  whom  transfer  or 

rr^'D^249o"^M     T'^  "^'^^  '^^  ^'°"^^  '^^'  ^'^^  ^^'"''P^^  "'^^^^'"  "^^  ^°^"^  ^'"  ^^'^  corporation. 


CORPORATIONS.  i40 

Estate  tax — Oonlimiod. 

Duties  of  transfer  agents,  etc. — ronlinned. 

The  30-day  notice  munt  be  liled  when  the  corporation,  its  transfer  agent,  register, 
or  paying  agent  is  called  upon  to  make  transfer  of  stock  or  bonds,  or  to  pay  interest 
or  dividends  to  any  person  succeeding  in  right  thereto  a  stockholder  or  bondholder 
who,  since  September  8,  1916,  has  died,  domiciled  outside  the  United  States, 
Hawaii,  or  Alaska.     (T.  D.  2490;   May  14,  1917.) 

Where  transfer  of  stock  or  bonds  or  payment  of  dividends  or  interest  theretofore 
legal  property  of  decedent,  whether  resident  or  nonresident,  is  made  to  or  upon  order 
of  an  executor  or  administrator,  acting  under  letters  granted  in  the  United  States, 
Hawaii,  or  Alaska,  the  corporate  agent  or  othcer  will  not  be  required  to  file  the  30-day 
notice,  make  return,  or  pay  tax.     (T.  D.  2490;  May  14,  1917.) 

Nonresident  decedents  o\vning  stock. 

Transfer  agents  of  corporate  stock  or  bonds,  receiving  into  posse.-3sion  for  transfer 
purposes  such  persunalty  of  nonresident  decedent,  may  not  release  to  foreign  admin- 
istrator or  executor  or  foreign  beneficiary  any  property  within  this  country  at  time 
of  decedent's  death  until  after  tax  due  his  been  paid  or  ancillary  letters  have  been 
taken  out  or  otherwise  provision  has  been  made  by  estate  lor  satisfaction  of  tax  lieu. 
(T.  D.  2454;   P^eb.  28,  1917.) 

Securities  such  as  shares  of  stock  in  domestic  corporations  which  are  property 
within  the  United  States  within  the  meaning  of  Title  II  of  the  act  of  September 
8,  1916,  deposited  by  an  individual  not  resident  within  the  United  States  with  the 
British  Treasur.y,  for  which  certificates  of  deposit  were  issued,  are  at  the  death  of 
such  nonresident,  if  such  certificates  have  not  been  transferred,  a  part  of  his  gross 
estate  and  subject  to  estate  tax.     (T.  D.  2772;  Nov.  8,  1918.) 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 
Excise  taxes — Action  to  recover. 

Though  what  is  necessary  expense  of  operation  and  what  is  reasonable  allowance 
for  property  depreciation  are  ultimately  questions  of  fact,  so  far  as  thej-  involve  legal 
questions  they  are  absolutely  judicial  questions,  and  declaration  in  suit  to  recover 
tax  which  fails  to  show  making  of  new  assessment  by  Commissioner  of  Internal 
Revenue  is  therefore  not  demurrable.     (^T.  D.  2697;   Apr.  16,  1918.     Ot,  Dec.) 

Section  38  of  the  act  of  Augiist  5,  1909,  does  not  make  remedy  by  way  of  reassess- 
ment by  Commissioner  of  Internal  Reven\e  exclusive  of  all  other' remedies  for  col- 
lection of  excise  tax,  and  suit  may  be  brought  under  section  ;^213,  Revised  Statutes, 
in  any  proper  form  of  action,  before  any  circuit  or  district  court  of  United  States  for 
district  within  ^yhich  liability  to  tax  is  incurred  or  where  party  from  w^hom  tax  is 
due  resides  at  time  of  commencement  of  action,  without  any  such  reassessment. 
(T.  D.  2697;   Apr.  16,  1918.     Ct.  Dec.) 

Where  declaration  in  action  to  recover  tax  expressly  avers  that  alleged  deductions 
were  not  reasonable  allowances  for  depreciation,  if  more  definite  or  detailed  infor- 
mation is  needed  to  enable  defendant  to  plead  or  prepare  for  trial,  remedy  is  by  bill 
of  ])articulars.     (T.  D.  2697;  Apr.  16,  1918.     Ct.  Dec.) 

Brokerage  business. 

The  case  of  .Mthciraer  <k  Rawlings  Tn-vestment  Co.  v.  Allen  holds  that  a  corporation 
which  did  a  brokerage  business  and  bought  securities  for  customers  who  paid  only 
part  of  the  price,  paying  interest  on  balances,  corporation  also  paying  for  securities 
purchased  only  part  of  the  price  and  paying  interest  on  balances,  including  in  return 
of  gross  income  difference  between  interest  received  and  interest  paid,  made  incor- 
rect return;  interest  received  by  corporation  from  its  customers  should  be  included 
in  gross  income  and  interest  paid  by  the  corporation  on  said  purchases  is  allowable  as 
interest  payable  on  its  bonded  or  other  indebtedness.  (T.  D.  2441;  Feb.  8,  1917. 
T.  D.  2686;  Apr.  1,  1918.     Ct.  Decs.) 

• "Doing  business." 

The  term  "doing  business,''  as  used  in  act  of  .\ugust  5,  1909,  is  that  which  occu- 
pies the  time,  labor,  and  attention  of  man  for  the  purpose  of  a  livelihood  or  profit; 
a  corporation  which  has  reduced  its  actiAities  to  the  owning  and  holding  of  property 
and  the  disposition  of  its  avails,  and  doing  only  the  acts  necessary  to  continue  their 
status,  is  not  "doing  business,"  and  one  which  is  still  active  in  maintaining  its  opera- 
tion for  ihe  purpose  of  continued  efforts  for  profit  aiul  gain  and  such  af^tiAities  as  are 
essential  to  those  purposes  is  regarded  as  "doing  business."  (T.  D.  2436;  Jan. 
19,  1917.  Ct.  Dec.) 
70420°— 21 10 


l^Q  CORPORATIONS. 

Excise  taxes— Continued. 

-. —  "False." 

The  word  "false"  as  used  in  the  fifth  subdivision  of  section  38  of  the  act  of  August 
5  1909  means  "untrue"  or  "incorrect,"  and  does  not  necessarily  mean  intention- 
ally or  fraudulently  false.     (T.  D.  2697;   Apr.  16,  1918.     Ct.  Dec.') 

■ Income. 

Moneys  received  by  corporation  in  payment  for  iron  ore  under  contracts  made  as 
so-called  royalties,  held  to  amount  to  income  so  as  to  bring  such  payments  within 
scope  of  corporation-tax  act  of  August  5,  1909.  (T.  D.  2436;  Jan.  19,  1917. 
Ct.  Dec.) 

Iron-ore  leases  under  consideration  in  case  of  United  States  r.  Biwabik  Mining  Co., 
decided  by  the  Supreme  Court  of  the  United  States,  held  not  to  be  conveyances  of 
ore  in  place,  but  to  be  grants  of  privilege  of  entering  upon,  discovering,  and  develop- 
ing and  remo-\dng  the  minerals  from  the  land  (Sargent  Land  Co.  case,  242  U.  S.,  50o, 
followed).     (T.  b.  2721;  June  4,  1918.     Ct.  Dec.) 

In  ascertainment  of  net  income  under  the  coi'poration  excise  tax  act  of  1909,  mining 
corporation  is  not  entitled  to  deduction  against  gross  pi'oceeds  from  the  mining  and 
treatment  of  ores  to  the  extent  of  the  gross  value  of  the  ore  in  the  ground  before  it  was 
mined,  ascertained  in  compliance  with  T.  D.  1675.  (T.  D.  2722;  June  4,  1918. 
Ct.  Dec.) 

Consideration  of  entire  proceeds  of  conversion  of  capital  assets  as  constituting  same 
capital,  changed  only  in  form  and  containing  no  element  of  income,  although  in- 
cluding an  increment  of  value,  is  inconsistent  with  general  purpose  of  the  corpora- 
tion excise  tax  act  of  1909.     (T.  D.  2723;  June  4,  1918.     Ct.  Dec.) 

The  word  "income,"  as  used  in  the  corporation  excise  tax  act  of  1909,  imports 
something  entirely  distinct  from  principal  or  capital  either  as  a  subject  of  taxation 
or  as  a  measure  of  the  tax,  conveying  rather  the  idea  of  gain  or  increase  arising  from 
current  activities.     (T.  D.  2723;'  June  4,  1918.     Ct.  Dec.) 

The  gain  on  a  sale  of  timber  acquired  by  a  lumber  mamjiacturing  comjiany 
before  January  1,  1909,  and  converted  into  money  after  that  date,  is  income  within 
the  meaning  of  tlae  corporation  excise  tax  act  of  1909,  but  only  such  poi-tion  of  the 
gain  as  accrued  subsequent  to  December  31,  1908,  is  taxable.  (T.  D.  2723;  June 
4,1918.     Ct.  Dec.) 

In  order  to  determine  whether  there  has  been  gain  or  loss  and  the  amount  of  the 
gain,  if  any,  an  amount  must  be  withdrawn  from  the  gross  proceeds  of  sale  sufficient 
to  restore  the  capital  value  that  existed  on  December  31,  1908,  notwith.standing 
any  increment  of  value  up  to  that  time  had  not  been  entered  on  the  plaintiff's  books 
of  account.     (T.  D.  2723;  June  4,  1918.     Ct.  Dec.) 

The  corporation  excise  tax  act  of  1909  measured  tlie  tax  by  any  income  received 
within  the  year  from  which  the  assessment  was  levied,  whether  it  accrued  within 
that  year  or  in  some  preceding  year  while  the  act  was  in  effect;  but  it  excluded 
all  income  that  accrued  piior  to  January  1,  1909,  although  afterwards  received 
while  the  act  was  in  effect.     (T.  D.  2724;  June  4,  1918.     Ct.  Dec.) 

The  act  of  ]\Iarch  2,  181)7,  with  certain  exceptions,  taxed  only  such  gains  or  profits 
as  might  be  realized  from  a  business  transaction  begun  and  completed  during  the 
preceding  j"oar,  but  the  language  of  the  corporation  excise  tax  act  of  1909^  is  dif- 
ferent in  material  particulars;  Gray  v.  Darlington  (15  Wall.,  63),.  which  construed 
the  former  act,  is  accordingly  not  controlling.  (T.  D.  2724;  June  4,  19 1'?. 
Ct.  Dec.) 

Whether  determination  of  value  of  capital  assets  on  December  31,  1908,  should 
be  made  by  taking  inventory  upon  basis  of  market  values  then  existing,  or  whetlier 
entire  increment  accruing  between  time  of  acquiring  and  time  of  disposing  of  aesets 
shoiild  be  prorated  as  if  it  had  arisen  through  a  series  of  gradual  and  imperceptible 
augmentations,  is  matter  of  detail,  to  be  settled  according  to  best  evidence  obtain- 
able and  in  accordance  with  valid  departmental  regulations.  (T.  D.  2724;  June  4, 
1918.     Ct.  Dec.) 

Sale  of  stock  of  another  corporation  resulted  in  gain  or  profit  to  extent  of  difference 
between  buying  and  selling  prices,  there  being  no  merit  in  contention  that  interest 
should  ])e  added  to  purchase  price  in  order  tJ3  ascertain  its  cost,  anxl  so  much  of 
profits  as  may  be  deemed  to  have  accrued  subsequent  to  December  31,  1908,  must 
be  treated  as  pai-t  of  gross  income.     (T.  D.  2724;  June  4,  1918.     Ct.  Dec.) 

Railroad  corporation  purcliasing  stock  in  another  corporation  for  investment 
pnor  to  Januai-y  1,  1909,  is  taxable  with  respect  to  so  much  of  a  profit  upon  the 
sale  of  stock  as  accrued  after  December  31,  1903.  (T.  D.  272j;  Juno  4,  1918. 
Ct.  Dec.) 


CORPORATIONS.  147 

Excise  taxes — Coutimicd. 
Income — Conliiiuod. 

A  steamsliip  company  is  entillecl  to  docUict  from  gross  income  iu  annual  tax 
returns  required  by  section  38  of  the  act  of  August  5,  1909,  amounts  paid  out  for 
ordinary  and  necessary  repairs  in  the  maintenance  and  operation  of  its  IjiLsiness 
and  property,  and  in  addition  a  reasonal)Ie  allowance  for  depreciation  of  property, 
if  any.     (T."  D.  2773;  Noy.  8,  1918.     Ct.  Dec.) 

Definition  of  "paid-up  capital  stock"  by  a  local  State  statute  is  not  controllint:; 
on  a  Federal  court  construing  the  corporation  excise  tax  act  of  1C09,  which  is  ap- 
plicable to  all  States.     (T.  !>.  3004;  Apr.  2],  1920.    Ct.  Dec.) 

^V^lere  tlicre  has  been  net  decrease  in  reser\o  fimds  required  to  be  maintained 
by  insurance  comimny,  so  much  of  decrease  as  is  released  to  general  uses  of  the 
company  and  increases  its  free  assets  is  income  to  the  company.  CT.  D.  3013;  Mav 
3,1920.     Ct.  Dec") 

Premiums  paid  to  agents  of  insurance  company  but  not  remitted  to  company 
during  j^ear  are  receiyed  by  the  company  and  should  be  returned  as  par!  of  its  gross 
income  for  year  in  'Alnch  paid  to  its  agents.     (T.  D.  3013;  May  3,  1G20.     Ct.  Dec.) 

Taxes  paid  to  a  State  by  yarious  corporations  upon  shares  of  their  stock  owned  by 
another  corporation  are  not  deductible  fi'om  gross  income  of  latter  corporation  as 
taxes  "'paid  by  it,"  such  taxes  being  not  paid  by  this  corporation,  but  being  })aid 
in  its  behalf  by  other  corporations.     (T.  D.  2927;  Pept.  30,  1919.     Ct.  Dec.) 

Interest  paid  by  corporation  on  sum  representing  premiums  leceived  from  sale 
of  its  stock  can  not  be  deducted  in  ascertaining  net  inrome  subject  to  tax  under 
section  38  of  the  act  of  August  5,  1909.     (T.  D.  2880;  July  3.  1919.) 

Indebtcdn'ess  upon  which  interest  may  be  taken  as  a  deduction  under  the  act 
of  August  5,  1909,  can  not  be  gi-eater  than  prr  yalue  of  capital  stock  paid  up  and 
outstanding;  in  computing  paid-up  capital  stock,  a  surplus  created  by  paying  a 
pTomium  on  capital  stock  subscribed  for  can  not  be  added  in  determining  indebted- 
ness upon  which  interest  may  be  deducted .     (T.  D.  3004 ;  Apr.  21,  1 920.     Ct.  Dec.) 

Stock  dividends  are  not  income  within  the  meaning  of  the  act  of  August  5, 1909. 
(T.  D.  3006;  Apr.  22,  1920.     Ct.  Dec.) 

Cash  dividends  declared  from  surplus  earned  partly  before  and  partly  after 
January  1,  1909,  were  income  to  the  stockholder  for  the  year  in  which  dc<lared. 
(T.  D.  3006;  Apr.  22,  1920.     Ct.  Dec. ) 

^^^lere  corporation  sold  bonds  at  discomit  during  l';0C>.  Ifi07,  and  1908.  no  dc- 
du-ction  from  gross  income  for  years  1909,  1910.  and  1911 .  of  sums  set  aside  by  cor- 
poration to  pay  such  discount  at  maturity  of  bonds  is  permitted.  (T.  D.2944; 
Noy.  S,  1919.     Ct.  Dec.) 

In  ascertaining  net  income  of  a  corporation  luider  section  38  of  the  act  of  August 
5,  1909,  which  has  taken  title  to  real  property  subject  to  mortgage,  but  has  not  as- 
sumed indebtedness  secured  thereby,  interest  paid  on  indebtedness  may  be  de- 
ducted as  payments  required  to  be  made  as  condition  to  continued  use  or  posses- 
sion of  the  property.     (T.  D.  2787;  Jan.  31,  1919.) 

Insurance  companies  owiiing  securities  taken  at  market  value  may  not,  mider 
section  38  of  the  act  of  August  5,  1909,  deduct  from  gross  income  as  d'^preciation  the 
net  decrease  in  market  value  of  such  securities;  sums  due  the  United  States  are  a 
yaiid  offset  as  against  amount  found  due  taxpayer  in  suit  against  collector,  though 
included  therein  are  items  which  Commissioner  did  not  claim  to  ])e  due  the  United 
States  when  considering  the  return  for  assessment  ])Ui'poses.  (T.  D.  2882;  July  3, 
1919.) 

"Paid-up  capital  stock,"  as  used  in  section  38  of  the  act  of  August  5,  1909,  means 
such  an  amount  received  by  the  corporation  as  does  not  exceed  the  par  Aalue  of  the 
outstanding  shares,  plus  amoimt  recei\ed  for  any  part-paid  stock;  such  term  does 
not  mean  the  aggregate  amount  'whether  more  or  less  than  par  value)  rc-ceived  !iy 
the  corporation  for  the  shares,  the  full-i)aid  stock  receipts,  and  part-paid  stock  re- 
ceipts issued  by  it.     (T.  D.  289(i;  July  21,  1919.     Ct.  Dec.) 

Interest  which  accrued  prior  to  1909  and  was  paid  in  1911  was  not  income  ^^ithin 
the  act  of  August  5,  1909.     (T.  D.  3048;  July  2G,  1920. ) 

In  the  case  of  a  mutual  life  insurauco  company,  transacting  business  on  tlio 
level-premium  plan,  the  sur[)lus  out  of  which  dividend.s  are  paid  in  any  year  con- 
sists of  the  ascertained  overpayments  of  premiums  for  the  preceding  year.'  There- 
fore surplus  for  the  year  1909  was  received  prior  to  the  time  the  act  became  effective 
and  dividends  paid  out  of  such  surplus  and  applied,  at  the  option  of  the  policy- 
holde^r,  to  purchase  paid-up  addition.s  and  annuities  or  in  partial  payment  of  renewal 
premiums,  were  not  income  for  the  year  in  wliich  they  were  applied.  The  surphi.s 
from  premiums  out  of  which  the  dividends  for  the  year  1910  were  declai-ed  was  a 


248  COKPOKATIONS. 

Excise  taxes  -ronlimiod. 

Income— <'ontinucd. 

part  of  tlip  income  for  the  ypar  1009  and  formrd  a  basis  for  taxation  for  that  year. 
(T.  D.  3057;  Aug.  16.  1920.     <'t.  Dec.) 

Premiums  due  and  deferred  and  interest  due  and  accrued  but  not  actually  col- 
lected in  cash  within  the  taxable  year  are  not  income  "received."  (T.  D.  3057; 
Ai;.<,'.  10,  1920.     Ct.  Dec.) 

Interest  on  policy  loans,  which  by  the  terms  of  the  contract  was  added  to  the 
iirincijjal  when  it  became  due,  does  not  constitute  income  where  it  remains  unpaid 
by  the  i)olicyholder.     (T.  D.  3057;  Aug.  10,  1920.     Ct.  Dec.) 

The  premium  receipts  of  "every  insurance  company"  by  whateA-er  name  they 
are  called  are.  unless  specifically  exempted  by  the  terms  of  the  taxing  statutes  in 
(piestion,  a  part  of  such  company's  gi'oss  income.  (T.  D.  3078;  Get.  13,  1920. 
Ct.  Dec.) 

Premium  deposits  made  in  advance  by  members  of  a  mutual  insurance  com- 
pany to  cover  estimated  losses  and  expenses  are.  so  lon^  as  the  payment  thereof 
constitutes  the  consideration  for  contract  of  insurance,  insurance  premiums  con- 
stituting gross  income  of  the  company.     (T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

Moneys  received  by  way  of  interest  upon  bank  balances  and  from  investment 
of  such  portion  of  premaum  deposits  as  are  not  currently  required  for  the  payment 
of  lo.sses  and  expenses  are  profits  earned  by  an  insurance  company  subject  to  tax. 
(T.  D.  3078;  Oct.  13.  1920.     Ct.  Dec.) 

Depreciation  or  depletion. 

The  term  "depreciation  of  property"  is  used  in  act  of  August  5,  1909,  in  its  ordi- 
nary and  usual  sense  as  understood  by  business  men;  no  allowance  should  be  made 
for  depreciation  on  account  of  depletion  of  property  by  removing  ores  from  mines 
in  cpiestion;  value  of  the  mine  is  lessened  by  the  partial  exhaustion  of  the  property, 
but  such  exhaustion  of  the  body  of  the  ore  can  not  be  deemed  depreciation.  (T.  D. 
2436;  Jan.  19,  1917.     Ct.  Dec.) 

Lessee  of  mining  property  may  not  deduct  proportionate  value  of  ore  in  place  on 
January  1,  1909,  with  respect  to  each  ton  of  ore  mined,  as  so  much  depletion  of 
capital  assets,  but  may  deduct  proportionate  part  of  rovalty  paid  in  advance.  (T, 
D.  2721;  June  4,  1918.     Ct.  Dec.) 

For  purpose  of  determining  net  income  for  basis  of  taxation  under  the  corpora- 
tion excise  tax  act  of  1909,  mining  corporation  may  not  deduct  from  its  gross  income 
any  amount  whatever  on  account  of  depletion  or  exhaustion  of  ore  bodies  caused 
by  its  operations  for  vear  for  which  tax  is  assessed.  (T.  D.  2722:  June  4,  1918. 
Ct.  Dec.) 

Decreases  in  the  value  of  assets  of  an  insurance  company  through  amortization 
of  premiums  on  bonds  are  mere  book  adjustments  and  are  not  deductible  as  an 
item  of  depreciation.     (T.  D.  3057;  Aug.  16,  1920.     Ct.  Dec.) 

— —  Interest  on  indebtedness. 

According  to  the  case  of  Boston  Terminal  Co.  v.  Gill,  decided  by  the  circuit  court 
of  appeals  on  October  25,  1917,  interest  on  bonds  or  other  indebtedness  is  an  allow- 
able deduction  from  gross  income  only  to  the  amount  paid  upon  bonded  or  other 
indebtedness  not  exceeding  the  corporation's  paid-up  capital  stock.  (T.  D.  2671; 
Mar.  11,  1918.     Ct.  Dec.) 

Liberty  bonds. 

<  'orporation  owning  Liberty  bonds  is  not,  to  that  extent,  exempt  from  franchise 
taxes,  excise  taxes,  and  other  corporation  taxes  of  the  United  States,  and  of  the 
several  State?.     (T.  D.  2512;  June  8,  1917.) 

■ Market  value  of  stock. 

Market  value  of  stock  on  December  31.  1908,  may  be  determined  by  an  inventory 
taken  as  of  that  date,  and  the  stipulated  fact  of  the  market  value  of  the  stock  on 
that  date  may  be  accepted  as  supplying  the  lack  of  an  inventory.  (T.  D.  2725; 
June  4,  1918.     Ct.  Dec.) 

Mutual  fire  insurance  companies. 

_  A  corfjoration.  organized  to  insure  its  members,  limited  to  jewelers  and  dealers 
in  goods  ordinarily  carried  in  the  jewelry  trade  against  loss  or  damage  bv  fire,  theft, 
barratry,  embezzlement,  and  transportation,  which  requires  each  member  to 
deposit  in  advance  a  definite  sum  suffii-ient  to  cover  estimated  losses  and  expenses 
for  the  ensuing  year,  the  balance  of  such  devjosits  being  returned  to  members,  is  a 
mutual  fire  insurance  company  and  subject  to  the  taxes  imposed  by  the  act  of 
August  5,  1909.     (T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 


,  CORPOHATIONS.  149 

Excise  taxes     ^'otitinuod. 

Nature  of  tax. 

Tax  imposed  by  a<'t,  of  Au^UHt  5,  1909,  in  not  an  inronio  fax,  V>ut  if  an  cx<if-o  tax, 
inipoHed  upon  doing  of  huHino.sK  in  <'orpora<e  oapa<i(y,  and  measured  in  amount 
})y  net  income,  as  defineJ  by  Bcetion  38  of  the  act.  {T.  IJ.  2710;  A])r.  22,  1018. 
Ot.  Dec) 

Legislative  purpose  of  corporation  excise  tax  act  of  1909  was  not  to  tax  property 
as  KU(h,  or  the  mere  conversion  of  property,  but  to  tax  the  conduct  of  the  business 
of  <  orporations  organized  for  profit  by  9  measure  based  upon  the  gainful  returns 
from  their  business  ojierations  and  property  from  the  lime  such  act  took  effect. 
(T.  D.  2723;  June  4,  1918.     Ct.  Dec.) 

Organization  for  profit. 

("orj)oration8  organized  under  the  laws  (^f  Minnesota,  not  for  charitable  or  eleemo- 
synary purj)oses,  but  for  the  pecuniary  advantage  of  their  shareholders,  are  "organ- 
ised (or  profit"  within  the  meaning  of  the  corporation-tax  law  of  August  5,  1909. 
(T.  D.  2436;  Jan.  19,  1917.     Ot.  Dec.) 

Where  profit  was  one  of  the  substantial  objects  of  the  organization  of  a  corporation, 
incorporated  to  provide  and  operate  a  terminal  for  certain  railroads,  it  is  organized 
for  profit  within  the  meaning  of  the  act  of  August  5,  1909.  (T.  D.  2671;  Mar.  11, 
1918.     Ct.  Dec.) 

■ Public  utilities. 

Moneys  received  for  service  connections  and  pipe  extensions  are  not  permitted 
to  be  dc^ducted  from  gross  amount  of  income,  as  they  do  not  come  within  any  of  the 
permitted  classes  of  deductions  mentioned  in  the  act  of  August  5,  1909;  moneys  so 
expended  are  invested  in  permanent  improvements  which  tend  to  enhance  the 
rental  and  the  market  value  of  the  water  system.  (T.  D.  2475;  Apr.  4,  1917. 
Ct.  Dec.) 

Fact  that  corporation  was  a  public  utilities  corporation  which,  nnder  the  laws  of 
the  State  of  California,  was  not  owner  of  property  but  merely  intrusted  with  use 
thereof,  which  it  must  devote  to  the  public,  does  not  entitle  it  to  more  favorable 
treatment  than  other  corporations,  it  being  a  corporation  organized  for  profit, 
having  a  capital  stock  represented  by  shares,  and  the  act  of  August  5,  1909,  making 
no  exceptions  in  favor  of  public  utilities.     (T.  D.  2475;  Apr.  4,  1917.     Ct.  Dec.) 

— —  Refund. 

Under  the  provision  of  section  14,  paragraph  (a),  act  Septeml)er  8,  1916,  that 
upon  examination  of  any  return  of  income  made  pursuant  to  Title  I,  the  act  of 
August  5,  1909,  and  act  of  October  3,  1913,  if  it  shall  ajipear  that  amounts  of  tax 
have  been  paid  in  excess  of  those  properly  due,  the  taxpayer  shall  be  permitted 
to  present  a  claim  for  refund  thereof  notwithstanding  pro\  isions  of  section  3228 
of  the  Re\ised  Statutes,  claims  for  refund  which  have  once  been  rejected  by  the 
Commissioner  because  of  the  statute  of  limitation  in  existence  at  that  time  may 
be  reopened;  claims  rejected  can  also  be  reopened  if  the  question  involves  an 
examination  of  the  return      (T.  D.  2396;  Nov.  1,  1916.) 

Evidence  sustaining  allegations  of  incorrectness  in  returns  by  corporations  sub- 
ject to  tax  imposed  by  act  of  August  5,  1909,  need  not  be  set  out  in  the  declaration 
suit  to  recover  such  tax.     (T.  D.  2697;  Apr.  16,  1918.     Ct.  Dec.) 

According  to  decision  in  case  of  Chicago  &  Alton  Railroad  Co.  v.  United  States, 
decided  by  Court  of  Claims,  December  3,  1917,  where  railroad  company  sold  bonds 
and  equipment  notes  at  discount  in  1906  and  books  showed  that  loss  was  entirely 
charged  off  under  profit  and  loss  account  for  that  year,  and  company  in  making 
returns  under  act  of  August  5,  1909,  for  purpose  of  assessment  of  excise  tax  for  years 
1911  and  1912,  failed  to  deduct  proportionate  amount  of  discount  sustained,  it  has  no 
right  to  refund  of  such  amount.     (T.  D.  2631;  Jan.  19,  1918.     Ct.  Dec.) 

According  to  the  decision  in  the  case  of  Camp  Bird  (Ltd.)  v.  Ilowbert.  decided 
by  circuit  court  of  appeals,  at  the  December  term,  1917,  a  corporation  which  under- 
stated in  its  original  return  the  amount  for  which  it  was  subject  to  tax  may  not 
recover  any  part  of  a  second  assessment  paid,  although  original  return  was  made  in 
good  faith  and  without  any  intention  to  escape  lawful  tax.  (T.  D.  2661;  Mar.  5, 
1918.     Ct.  Dec.) 

Filing  of  amended  returns  does  not  constitute  beginning  of  new  proceedings 
which  so  supersede  the  original  returns  as  to  remove  bar  imposed  by  sections  3227, 
3228,  Revised  Statutes,  against  claims  by  taxpayers  for  refund  of  taxes  paid  upon 
original  returns  and  assessments.     (T.  D.  3013;  May  3,  1920.     Ct.  Dec.) 


;150  CORPORATIONS. 

Excise  taxes  -Continued. 
Reserve  funds. 

Reserve  hinds  required  by  rules  and  regulations  of  State  insurance  departments, 
promuli^ated  in  the  exercise  of  approprLT,te  power  conferred  by  statute,  are  reserve 
lunds  "required  bv  law"'  within  meaning  of  taxing  acts.  (T.  D.  3013;  I\Iay  3,  1920. 
Ct.  Dec.) 

Assets  required  to  be  held  by  insurance  company  to  meet  ordinar}'  running 
expenses,  such  as  taxes,  salaries,  reinsurance,  and  unpaid  brokerage,  are  not  reserve 
funds  "required  by  law"  for  purpose  of  determining  whether  there  has  been  net 
addition  to  reserve" funds  within  the  year.     (T.  D.  3013;  May  3,  1920.     Ct.  Dec.) 

According  to  the  decision  of  the  Supreme  Court  of  the  United  States,  in  the  case 
of  McCoach  r.  Insurance  Co.  of  North  America,  decided  at  the  October  term,  1016, 
fire  insurance  companies  are  not  required  by  law  of  Pennsylvania  to  hold  a  reserve 
a"-ainst  unpaid  losses,  within  the  meaning  of  the  act  of  August  5,  1909.  (T.  D. 
2501;  June  18,  1917.     Ct.  Dec.) 

The  words  "reserve  funds,"  as  used  in  act  of  August  5,  1909,  have  reference  to  the 
funds  ordinarilv  lield  as  against  the  contingent  Uabilitv  on  outstanding  policies. 
(T.  D.  2501;  June  18,  1917.     Ct.  Dec.) 

The  reserve  funds,  the  net  addition  to  wliicli  is  to  be  deducted  from  the  gross 
income  of  a  life  insurance  company  in  computing  its  net  income,  are  those  funds 
which  are  built  up  to  mature  the  policy,  and  do  not  include  funds  reserved  because 
of  liabilities  on  supplementary  contracts  not  involving  life  contingencies  and  can- 
celed ploicies  upon  which  a  eash-suiTender  value  may  be  demanded.  (T.  D.  3057; 
Aug.  16,  1920.     Ct.  Dec.) 

— —  Retroactive  operation  of  statute. 

Section  14  of  tlie  act  of  September  8,  1916,  amending  section  3225,  Revis3d  Stat- 
utes, providing  that  it  shall  not  apply  to  statements  or  returns  made  or  to  be  made 
in  good  faith  regarding  annual  depreciation  of  oil  or  gas  wells  and  mines,  does  not 
purjiort  to  be  retroactive  in  its  operation.     (T.  D.  2661;  Mar.  5,  1918.     Ct.  Dee.) 

Selling  coi'porations. 

The  transfer  of  the  output  of  a  manufacturing  corporation  to  a  selling  corporation, 
of  which  its  owns  all  the  capital  stock,  is  a  sale  within  the  meaning  of  the  act  of 
October  3,  1917,  subjecting  the  manufacturing  corporation  to  a  tax,  provided  the 
price  at  which  articles  are  sold  or  charged  to  the  distributing  corporation  is  no  less 
than  is  charged  to  indejiendent  outside  distributors  under  similar  conditions. 
(T.  D.  2547-  Oct.  22,  1917.) 

In  case  of  selling  coi-poration  owning  substantially  all  the  stock  of  a  manufacturing 
corporation  whicli  nominally  sells  all  or  part  of  it.s  products  to  selling  corporation, 
manufacturing  corjjoration  is  regarded  as  a  manufacturing  agent,  and  taxable  sales 
are  those  made  by  selling  corporation.     (T.  D.  2719;  Art.  V.) 

Terminal  railway  company. 

Where  terminal  railway  company,  organized  to  perform  terminal  services  for 
for  railroad  companies  which  own  its  stock,  and  such  railroad  companies  which 
own  its  stock,  and  sucli  railraod  companies  and  a  trust  company  enter  into  such 
arrangement  wdiereby  trust  company  made  a  loan  to  such  terminal  company, 
secured  by  pledge  by  railroad  companies  of  the  stock,  latter  companies  agreeing 
to  pay  annual  interest  and  sinking  fund  requirement  of  loan,  evidenced  by  bonds 
secured  by  mortgage  on  terminal  company's  property,  payments  of  installments 
of  interest  and  sinking  fund  were  but  payments  of  rent  by  railroad  companies  to 
terminal  company  to  be  accounted  for  as  part  of  its  income,  as  rent  would  be,  thougli 
made  direct  to  trust  company.     (T.  D.  2710;  Apr.  22,  1918.     Ct.  Dec.) 

Floor  tax — ^Retail  stock. 

Wliere  bookkeeping  and  stock  keeping  of  wholesale  and  retail  departments  of 
est.ablishments  are  kept  separate,  they  will  be  regarded  as  if  they  were  separate 
and  distinct  departments,  and  retail  stock  will  not" be  subject  to  floor  tax.  (T.  D. 
2547;  Oct.  22,  1917.) 

Income  taxes. 

See  ''IncMne  Taxes  (Corporations).". 
Stockholders. 

See  "Income  Taxes  (Individuals)." 


COIIPOKATIONS.  151 

"Person"  includes,  when. 

The  word  "person"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes 
on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  the  pluraf  as  well 
as  the  singular,  and  shall  be  taken  to  refer  to  individuals,  partnerships,  associations, 
and  corporations,  except  where  it  is  plain  from  the  context  tliat  different  meaning 
is  intended.     (T.  D.  2008;  Nov.  30,  1917.) 

Stamp  taxes — Articles  of  incorporation. 

Articles  of  incorporation  are  not  subject  to  stamp  tax.     (T.  D.  2.599;  Dec.  3,  1917.) 

Bonds. 

Instruments  containing  essential  features  of  promissory  note  but  issued  by  corpo- 
rations in  numbers,  under  trust  indenture,  either  in  registered  form  or  with  coupons 
attached,  embodying  provisions  for  acceleration  of  maturity  in  event  of  default  by 
obligor,  for  optional  registration  in  care  of  bearer  bonds,  for  authentication  by 
trustee,  and  sometimes  for  redemption  before  maturity,  or  similar  provisions,  are 
Ijonds  within  meaning  of  Schedule  A  of  Title  VIII  of  act  of  October  3,  1917, 
whether  called  bonds,\lebentures,  or  notes.     (T.  D.  2713;  May  14,  1918.) 

Bonds  of  a  private  corporation  delivered  by  it  to  the  United  States  Housmg 
Corporation  as  collateral  security  for  a  loan  to  aid  the  borrower  in  performing  its 
contract  with  the  United  States  Hotising  Coi-poration  are  subject  to  stamp  tax. 
(T.  D.  2782;  Dec.  24,  1918.) 

Charters.  • 

Applications  for  issuance  of  corporate  characters  are  not  subject  to  stamp  tax. 
(T.  D.  2599;  Dec.  3,  1917.) 

Contract  to  issue  stock. 

Stamp  tax  does  not  applv  to  contract  or  agreement  by  corporatioa  to  issue  stock. 
(T.  D.  2599;  Dec.  3,  1917.)" 

• Interim  certilicates. 

Issues  of  interim  certificates  pending  stock  issue  of  corporation  organized  or 
reorgani/ed  on  and  after  October  4,  1917,  are  subject  to  tax  of  5  cents  on  each  §100 
face  value  or  fractional  part  thereof;  subsequent  exchange  of  such  interim  certificates 
for  regular  stock  certificates  to  same  owner  will  not  be  subject  to  tax.  (T.  D.  2584; 
Nov.  20,  1917.) 

• Sales  or  transfers  of  stock. 

Transfer  of  shares  of  certificates  of  stock  in  any  corporation,  made  by  the  person 
loaning  stock  to  another  borrowing  such  stock  to  effect  a  sale,  and  also  transfer  of 
shares  or  certificates  of  slock  from  a  borrower  returning  tliem  to  lender,  in  fulfillment 
of  borrower's  obligation  to  buy  in  and  return  slock,  are  both  subject  to  tax  imposed 
by  sections  800  and  807  of  the  act  of  October  3,  1917;  in  so-called  short-sale  transac- 
tion, there  are  four  taxable  sales  or  transfers:  (1)  Sale  of  stock  by  jierson  making 
short  sale;  (2)  transfer  from  lender  of  stock  to  person  making  short  sale,  (3)  purchcs^ 
bv  borrower  of  stock  to  return  to  lender,  (4)  transfer  by  borrower  to  lender  of  shares 
to  replace  those  borrowed.     (T.  D.  2G85;  Mar.  30,  1918.) 

Stock  sales — AfSxing;  and  canceling  stamps. 

Stamp  must  l>e  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer 
is  effected  by  delivery  of  certificate  of  stock  assigned  in  blank;  in  case  change  of 
ownership  is  by  transfer  of  certificate  of  stock,  stamp  shall  be  affixed  to  the  certifi- 
cate; in  case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall  be 
placed  upon  the  books;  in  all  other  cases  payment  shall  be  evidenced  by  aflixing 
stamp  upon  memorandum  or  agreement  of  sale  to  be  delivered  by  the  seller  to  the 
buyer;  manner  of  canceling  stamps  stated.     (T.  D.  2608;  Nov.  30,  1917.) 

Amount  of  tax. 

Tax  of  5  cents  on  each  $100  of  face  value  or  fraction  thereof  attaches  to  original 
issue  of  each  certificate  of  stock,  and  tax  of  2  cents  on  each  $100  of  face  value  or 
fraction  thereof  to  each  transfer  or  sale  of  stock,  whether  transfer  is  made  before 
or  after  issuance  of  original  certificate.     (T.  D.  2599;  Dec.  3,  1917.) 


252  COSMETICS^ — COST-PLUS   CONTRACTS. 

Stock  sales— <'<>iili lined. 

Exempt  transactions. 

No  tax  is  imposed  upon  agreement  evidencing  deposit  of  stock  certificates  as 
collateral  security,  nor  upon  deliveries  or  transfer  to  broker  for  sale,  nor  upon  de- 
liveries or  transfers  by  broker  to  customer,  provided  such  <leliveriee  or  transfers 
shall  l)e  accompanied' by  certificate  setting  forth  the  facts,  nor  upon  transfers  or 
deliveries  to  clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  between 
members:  no  by-law  or  custom  of  any  exchange  or  similar  institution,  nor  any  col- 
lateral or  additional  agreement  or  understanding,  inconsistent  or  in  conflict  with 
any  recjuirement  of  the  act  of  October  3,  1917,  or  of  Re.^ulation  No.  40,  Part  1,  shall 
exempt  any  i)ersi)n  from  the  payment  of  the  tax.     (T.  D.  2608;  Nov.  30,  1917.) 

Memorandum  of  sales. 

Persons  selling  or  agreeing  to  sell  stocks  required  to  deliver  to  buyer  a  

memorandum  of  sale,  or  agreement  to  sell,  signed  by  principal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  slock  to  which  it  relates,  number  and 
price  of  shares.     (T.  D.  2608;  Nov.  30,  1917.) 

— —  Rate  of  taxation. 

In  the  case  of  shares  or  certificates  of  stock  having  a  face  or  par  value,  amount  of 
tax  shall  be  based  u])on  total  face  value  of  shares  invoh'cd,  and  shall  be  at  rate  of  2 
cents  for  each  $100  of  such  total  face  value  or  fraction  thereof,  whether  such  aggre- 
gate face  value  is  greater  or  less  than  $100.     (T.  D.  2608;  Nov.  30,  1917.) 

Records. 

Persons  engaged  in  business  of  buying,  selling,  or  transferring  shares  of  stock, 
refjuired  to  keep  record  showing  specified  items  of  information;  form  of  record 
re(]uired.     (T.  D.  2608;  Nov.  30,  1917.) 

Registration. 

PvCgiilation  No.  40,  Part  1,  requires  a  statement  of  registration  by  persons,  corpora- 
tions, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock  and 
other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector  who 
must  issue  certificate  of  registration  to  be  posted  in  jilace  of  business.  (T.  D.  2608; 
Nov.  30,  1917.) 

Returns. 

Clearing  houses  and  persons  engaged  wholh'  or  partly  in  buying,  selling,  or  trans- 
ferring shares  of  stock,  re(juired  to  make  returns  showing  specified  data  and  informa- 
tion; substitute  returns.     (T.  D.  2608;  Nov.  30,  1917.) 

— —  Stamp  sales. 

Stamps  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treasurer,  or 
other  designated  United  States  depository;  State  agents;  requisitions  for  stamps; 
records;  kind  and  color  of  stamps.     (T.  D.'  2741;  June  25,  1918.) 

COSMETICS. 

Excise  taxes. 

See  "'Excise  Taxes." 

COST-PLUS  CONTRACTS. 

Government  work — Messages. 

Exemption  from  tax  imposed  by  section  500.  subdivision  (e).  act  October  3,  1917, 
on  telephone,  telegraph,  and  radio  messages,  may  be  claimed  when  amounts  paid 
for  yuch  niessages  are  finally  to  be  paid  by  the  Government  under  a  cost-plus  con- 
tract; this  does  not  apply  where  contractor  is  doing  work  for  Government  under 
lump-sum  contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

Transportation  tax. 

Exemption  may  be  claimed  under  section  500  of  act  October  3,  1917,  on  amounta 
paid  lor  transportation  of  persons  emjiloved  bv  contractor  working  for  Government 
under  cost-plus  contract,  where  transportation"  charire  of  emplovee  is  an  item  in  the 
cost  of  the  work,  ami  hence  will  be  finally  paid  bv  the  Government:  form  of  exemp- 
tion certificate.     (T.  D.  2742;  July  1,  1918  )        "  ' 


COSTl'MES — COUrtT   DKCISIONS.  153 

Government  work — Conlinued. 

Transportation  tax — Continued. 

\\licre  rontract  price  of  work  for  the  Government  is  ront  i)lus  c(;>rtain  jiercentage, 
amount  received  by  carrier  for  transportation  of  property  used  or  to  be  used  by 
contractor  in  sudi  work  falls  within  exemption  from  tax  imposed  by  section  500  of 
act  October  .S,  1917;  ceitificate  sitecified  in  Retaliations  Ko.  42,  article  15,  must 
be  used  aud  must  be  sij;ned  by  a  (Government  oflicer  or  employee,  certificate  signed 
by  contractor  not  being  eufficient.     (T.  D.  1^742;  July  1,  1918. j 

COSTUMES. 

Income  taxes — Depreciation, 

Tostumes  purchased  and  used  exclusively  in  proflucfion  of  a  play  and  which  are 
not  adapted  for  occasif)nal  personal  use  and  are  not  so  used,  are  part  of  the  equi])- 
ment  of  a  business,  and  as  such,  subject  to  depreciation  in  value  on  account  of  wear 
and  tear  arising  from  their  use  in  the  Ijwsiness;  reasonable  allowance  for  such  depre- 
ciation may  be  claimed.     (T.  D.  2(590;  art.  8.) 

COTTON  FUTURES. 

Stamp  tax. 

Contracts  of  sale  of  cotton  for  future  delivery  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  business,  is  taxed  at  the  rate  of  $0.02  for  each 
pound  of  cotton  involved  (to  be  paid  by  stamj)):  tax  not  to  be  levied  on  contracts 
complying  with  conditiono  prescribed.     (T.  D.  2558;  Oct.  2(],  1917.) 

COUNTIES. 

Definition. 

The  word  "State,"  as  used  in  section  502  of  the  act  of  October  3,  1917,  includes 
political  subdivisions  thereof,  such  as  counties,  cities,  towns  and  other  municipali- 
ties.    (T.  D.  2676;  Mar.  18,  1918.) 

Official  bonds — Taxability. 

Jionds  given  by  officials  of  a  State,  township,  county,  or  village,  for  faithful  per- 
formance of  duties,  are  free  from  Federal  taxation  on  broad  ground  that  sovereign 
States  and  subdivisions  thereof  are  constitutionally  free  from  taxation  by  Federal 
(jiovernraent.     (T.  D.  2624;  Dec.  14,  1917.) 

Taxes — Deductions  from  gross  incorae. 

Taxes  imposed  against  a  corporation  by  authority  of  any  cotmty  (not  including 
those  assessed  against  local  benefits),  and  paid  within  year  for  which  return  is  made, 
are  deductible  from  gross  income  of  domestic  corporation;  similar  taxes  with  like 
exceptions  assessed  against  and  paid  by  foreign  corporation  receiving  income  from 
any  source  within  United  States  are  deductible  from  gross  income  received  from 
Buch  source,  except  that  taxes  imposed  by  foreign  Government  and  paid  by  foreign 
cor})orations  are  not  deductible  from  gross  income  received  from  eourees  within 
United  States.     (T.  D.  2690;  art.  191.) 

COUBT  DECISIONS. 

Adulterated  butter. 

New  York  Butter  Packing  Co.  v.  Edwards.     (T.  D.  2803;  Mar.  12,  1919.) 
Bankers — Special  tax. 

.\nderson  v.  Farmers  Loan  &  Trust  Co.     (T.  D.  2460;  Mar.  17,  1917.) 

Fidelity  Trust  Co.  of  Baltimore  v.  Miles.     (T.  D.  2895;  July  2],  1918.) 
Collectors — Suits  to  recover  taxes  collected. 

Philadelphia,   llarrislnirg  &  l'itts!)urgh  Bailroad  Co.  r.  Ledercr.     (T.  D.  2507; 
July  2,  1917.) 

Corporation  excise  tax. 

-Mtheimer  &  Kawlings  Investment  Co.  r.  Allen.     (T.  T).  2441;   Feb.  8,   1917. 

T.  D.  2686;  Apr.  1,  1918.) 
Boston  &  Maine  Railroad  v.  United  States.     (T.  D.  3004;  Apr.  21,  1920.) 
Boston  Terminal  Co.  t.  (iill.     (T.  D.  2428:  Dec.  30,  1916.     T.  D.  2671;  Mar.  11, 

1918.) 


154  COURT    DECISIONS. 

Corporation  excise  tax— Coat iuued. 

Camp  Bird  (Ltd.)  v.  Howbert.     (T.  D.  23GG:  Sept.  12,  1916.     T.  D.  2GG1;  Mar.  5, 

1918.) 
Chicago  &,  Alton  Railroad  Co.  v.  United  States.     (T.  D.  2631;  Jan.  19,  1918.) 
Doyle  V.  Mitchell  Bros.  Co.     (T.  D.  2723;  June  4,  1918.  j 

Fink  V.  Northwestern  Mutual  Life  Insurance  Co.     (T.  D.  3057;  Aug.  IG.  1920.) 
Goldfield  Consolidated  Mines  Co.  v.  Scott.     (T.  D.  2722;  June  4,  1918.) 
Hays  V.  The  Gauley  Mountain  Coal  Co.     (T.  D.  2724;  Juno  4,  1918.) 
Houston  Belt  &  Terminal  Railway  Co.  v.  United  States.     (T.  D.  2710;  Apr.  22, 

1918.) 
Jewelers  Safety  Fund  Society  v.  Lowe.     (T.  D.  3078;  Oct.  13,  1920.) 
McCoach  r.  Insurance  Company  of  North  America.     (T.  D.  2501;  June  18,  1917.) 
Maryland  Casualty  Co.  v.  United  States.     (T.  D.  3013;  May  3,  1920.) 
Northern  Pacific  Railway  Co.  v.  Lynch.     (T.  D.  3048;  July  26,  1920.) 
Roberts  v.  Lowe.     (T.  D.  2394;  Nov.  14,  191G.) 

San  Francisco  &  Portland  Steamship  Co.  v.  Scott.     (T.  D.  2773;  Nov.  S,  1918.) 
Southern  Pacific  Railroad  Co.  r.  Muenter.     (T.  D.  2944;  Nov.  8,  1919.) 
Union  Hollj-wood  Water  Co.  v.  Carter.     (T.  D.  2475;  Apr.  4,  1917.) 
United  States  r.  Aetna  Life  Insurance  Co.     (T.  D.  2927;  Sept.  30,  1919.) 
United  States  r.  Biwabik  Mining  Co.     (T.  D.  2721;  June  4,  1918.) 
United  States  r.  Cleveland,  Cincinnati.  Chicago  &  St.  Louis  Railroad  Co.     (T.  D. 

2725;  June  4,  1918.) 
United  States  v.  Nashville,  Chattanooga  &  St.  I;0uis  Railwav.     (T.  D.  2697; 

Apr.  IG,  1918.) 
United  States  v.  New  York,  New  Haven  &  Hartford  Railroad  Co.     (T.  D.  2896; 

July  21.  1919.) 
United  States  v.  Philadelphia,  Baltimore  &  Washington  Railroad  Co.     (T.  D. 

3006;  Apr.  22,  1920.) 
Von  Baumbach  r.  Sargent  Land  Co.     (T.  D.  2436;  Jan.  19,  1917.) 

Distilled  spirits. 

Mayes  r.  Casey.     (T.  D.  2757;  Sept.  5,  1918.) 

United  States  v.  Mincey.     (T.  D.  2776;  Dec.  11,  1918.) 

Estate  tax. 

Lederer  r.  Northern  Trust  Co.     (T.  D.  3027;  June  2,  1920.) 

Lederer  r.  Pearce.     (T.  D.  3088;  Oct.  30.  1920.) 

New  York  Tnist  Co.  v.  Eisner.     (T.  D.  2976;  Feb.  11,  1920.) 

Excess  profits  tax. 

Cartier-Holland  Lumber  Co.  r.  Doyle.     (T.  D.  3080;  Oct.  19,  1920.) 
La  Belle  Iron  Works  v.  United  States.     (T.  D.  3051;  July  27,  1920.) 

Forfeitures. 

United  States  v.  One  Saxon  Automobile.     (T.  D.  2789;  Feb.  10,  1919.) 

Income  taxes. 

Brady  v.  Anderson.     (T.  D.  2491;  June  2.  1917.) 

Crocker  r.  Malley.     (T.  D.  2720;  June  4,  1918.     T.  D.  2816;  Apr.  2,  1919.) 

De  Ganay  r.  Lederer.     (T.  D.  2876;  June  25,  1919.) 

Eisner  v.  Macomber.     (T.  D.  3010;  Apr.  26,  1920.    T.  D.  3052;  Aug.  4,  1920.) 

Gulf  Oil  Corporation,  v.  Lewellyn.     (T.  D.  2783;  Jan.  7,  1919.) 

Jackson  r.  Smietanka.     (T.  D.  2960;  Jan.  7,  1920.) 

Jewelers  Safety  Fund  Society  i'.  Lowe.     (T.  D.  3078;  Oct.  13,  1920.) 

Lederer  v.  Penu  Mutual  Life  Insurance  C'o.     (T.  D.  2899;  July  24,  1919.) 

Lewellyn  v.  Gulf  Oil  Corporation.     (T.  D.  2542;  Oct.  19,  1917.) 

Lynch  v.  Hornby.     (T.  D.  2731;  June  11,  1918.) 

Lynch  v.  Turrish.     (T.  D.  2729;  June  11,  1918.) 


CREDITS — CULINARY   EXTRACTS.  155 

Income  taxes — Contiiuied. 

Maryland  Casualty  Co.  v.  Unitcil  States.     (T.  D.  245] ;  Feb.  20,  1917.) 

Mente  v.  Eisner.     (T.  D.  3029;  June  9,  1920.) 

Pealwdy  v.  Eisner.     (T.  D.  2732;  June  11,  1918.) 

Penn  Mutual  Life  Insurauce  Co.  v.  Ledercr.     (T.  D.  3046;  July  19,  1920.) 

Prentis3  r.  Eisner.     (T.  D.  2933;  Oc-t.  9,  1919.     T.  D.  3050;  July  27,  1920.) 

Southern  Pacific  Co.  v.  Lowe.     (T.  D,  2730;  June  11,  1918.) 

Towne  v.  Eisner.     (T.  D.  2506;  June  28,  1917.     T.  D.  2634;  Jan.  21,  1918.) 

United  States  v.  Coulby.     (T.  D.  2858;  June  9,  1919.) 

United  States  v.  McHatton.     (T.  D.  3043;  July  2,  1920.) 

Weiss  V.  Mohawk  Mining  Co.     (T.  D.  3001;  Apr.  15,  1920.) 

West  End  Street  Railway  Co.  r.  Malley.     (T.  D.  2620;  Dec.  17,  1917.) 

William  E.  Feck  &  Co.  (Inc.)  ik  Lowe.     (T.  D.  2726;  June  4,  1918.) 

Inheritance  taxes. 

Coleman  v.  United  States.     (T.  D.  3007;  Apr.  22,  1920.) 
Henry  v.  United  States.     (T.  D.  3008;  Apr.  22,  1920.) 
Rand  v.  United  fates.     (T.  D.  2886;  July  10,  1919.) 
Sage  I'.  United  States.     (T.  D.  2885;  Jidy  10,  1919.) 

Munition  man ufactuxers'  tax. 

Carbon  Steel  Co.  v.  Lewelhm.     (T.  D.  2875;  June  26,  1919.     T.  D.  3003;  Apr.  21, 

1^20.) 
Forged  Steel  Wheel  Co.  v.  LoweUyn.     (T.  D.  2875;  June  26.  1919.     T.  D.  3003; 

Apr.  21,  1920.) 
Worth  Bros.  Co.  v.  Lederer.     (T.  D.  2875;  June  26.  1919.     T.  D.  3003;  Apr.  21, 

1920.) 

Narcotics. 

Doremus  r.  United  States.     (T.  D.  3085;  Oct.  27,  1920.) 
Thompson  v.  United  States.     (T.  D.  2887;  July  12,  1919.) 
United  States  r.  Doremus.     (T.  D.  2809;  Mar.  20,  1919.) 
United  States  v.  O'Hara.     (T.  D.  2392;  Nov.  0,  1916.) 
United  States  v.  Osborn.     (T.  D.  2489;  May  11,  1917.) 
Webb  V.  United  States.     (T.  D.  2809;  Mar.  20,  1919.) 

Priorities  of  taxes. 

Smietanka  r.  Zibell.     (T.  D.  3000;  Apr.  10,  1920.) 
Searches  and  seizures. 

Silverthorne  Lumber  Co.  v.  United  States.     (T.  D.  2984;  Feb.  25,  1920.) 
Shows  or  exhibitions — Special  tax. 

Redpath  Lyceum  Bureau  v.  Pickering.     (T.  D.  2084;  Mar.  28,  1918.) 

Stamp  taxes. 

Edwards  v.  Wabash  Railway  Co.     (T.  D.  .3002;  Apr.  20,  1920.) 

CREDITS. 
Income  taxes — Net  incorae. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)/! 

CROPS. 

See  "Agriculture";  "Farmers," 

CULINARY   EXTRACTS. 

See  "Extracts.", 


256  CUSTOMS   DUTIKS — ^DAMAfiES. 

CUSTOMS   DUTIES. 
Income  taxes- Deductions. 

Import  or  tariff  (luticp  lovied  by  CongreRR  and  paid  to  proper  ruetoms  officers  are 
dc(hi<tib)r  a."  taxop  imposed  tmdor  authority  of  United  States,  provided  they  are  no 
added  to  and  made  a  j)art  of  the  cost  of  articles  of  merchandise,  with  respect  to  which 
they  are  paid,  in  which  case  they  will  he  reflected  in  cost  of  merchandise  and  can 
not'be  separately  deducted.     (T.  D.  2690;  art.  195.) 

CYCLONE  INSURANCE. 

Pee  "Insurance. " 

DAMAGES. 
Excess  profits  tax. 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  usee,  or  property 
which  has  been  lost  or  destroyed  in  whole  or  in  part  through  war  hazards,  excess  of 
amount  received  l)y  owner  as  compensation  for  property  over  value  thereof  on 
March  J,  1913,  or  over  its  cost  if  it  Avas  acquired  after  that  date,  except  so  far  as 
actually  used  for  rej)lace.ment  of  property  in  kind,  is  subject  to  excess-profits  taxes. 
(T.  1).  2706;  Apr.  25,  1918.) 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  uses, 
or  lost  or  destroyed  through  war  hazards,  may  be  to  use  entire  amount  received  as 
compensation  for  replacement  in  kind  of  such  property,  sucli  replacement  may  not 
be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case  tax- 
payer may  establish  "replacement  fund"  in  whicli  entire  amount  of  compensa- 
tion shall  be  held  and  pending  disposition  thereof,  accounting  for  gain  or  loss  may 
deferred  for  reasonable  lime,  to  be  determined  by  Commissioner  of  Internal  Reve- 
nue.    (T.  D.  2706;  Apr.  25,  1918.) 

Where  property  requisitioned,  lost,  or  damaged  constitutes  all  or  part  of  security 
umler  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund  may,  subject 
to  a})proval  of  Commissioner,  be  amount  of  compensation  received,  less  amount,  if 
any,  which  becomes  payable  out  of  such  compensation  under  terms  of  such  instru- 
ment or  obligations  thereby  secured;  in  such  case  taxpayer  should  apply  to  Com- 
missioner for  permission  to  establish  such  fund,  reciting  in  liis  application  all  facts 
relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  possible  to 
re{)lace  or  restore  property;  taxpayer  required  to  furnish  bond  with  security  or 
make  deposit ;  when  replacement  or  restoration  is  made,  new  or  restored  property 
shall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  that  at  which 
the  requisitioned,  damaged,  or  destroj'cd  ]>roperty  was  carried,  except  and  to  extent 
that  such  new  or  restored  property  has  an  increased  productive  capacity.  (T.  D. 
2706;  Apr.  25,  1918.) 

Forms  of  application  for  permission  to  establisli  replacement  fund  and  of  ]>crmit 
therefor  prescribed.     (T.  D.  273:j;  June  17,  1918.) 

Income  taxes. 

Amount  received  by  in.dividual  f.s  result  of  suit  or  compromise  for  personal 
injuries  sustained  by  him  Ihrougli  ac<  ident  is  not  income  taxable  under  Title  I 
of  act  September  8,  1916,  as  amen<led  by  Title  Xll  of  act  October  3,  1917,  and  of 
Title  1  of  act  October  3,  1917.  (T.  D.  2747;  July  12,  1918.  T.  D.  2690;  art.  4, 
revoked.) 

When  corporation  as  result  of  suit  or  otherwise  secures  payment  for  damages  which 
it  may  have  sustained,  and  amount  of  such  payment  is  in  excess  of  an  amount 
necessary  to  make  good  the  damage  or  damaged  property,  amount  of  such  excess 
shall  be  considered  and  returned  as  income  for  year  in  which  received;  if  entire 
or  estimated  amount  of  damage  shall  have  been  previously  charged  off  and  deducted 
from  gross  income,  then  amount  recoA-ered  shall  be  returned  as  income;  if  amoiuit 
recovered  is  less  than  damage  sustained,  or  less  than  amount  necessary  to  make 
good  the  damage,  difference  between  actual  amount  of  damage  sustained  and 
amount  recovered  will  be  deductible  as  a  loss.     {T.  D.  2690;  art.  94.) 

Any  amount  paid  pursuant  to  judgment  or  otherwise  on  account  of  damages 
is  deductible  from  gross  income  to  the  extent  of,  and  when  amount  is  actually  paid, 
less  any  amount  of  such  damages  as  may  have  been  compensated  for  by  insurance. 
(T.  D.  2690;  art.  158.) 

No  deduction  from  inventory  value  of  merchandise  or  material  will  be  allowed 
except  where  inventory  includes  goods  or  materials  which,  by  reason  of  obsoles- 


DANCES — DEBENTURES.  157 

Income  taxes — Conlimicd. 

cciice  or  «laniag«\  arc  unsalable;  whon  such  deduction  is  claimed  facts  conncclcd 
thert-with,  including  statement  of  cost  of  goods,  value  at  which  they  were  invento- 
ried, and  present  condition  must  be  fded  with  return.     (T.  D.  2G90;  art.  ICO.) 

Depreciation  computtnl  on  total  invoice  coat  of  merchandise  in  slock  is  not.  an 
allowable  deduction,  except  that  if  portion  of  such  merchandise  is  unsalaVjle  by 
reason  of  obsolescence  or  dama,u;e,  depreciation  deduction  not  in  excess  of  decline 
in  value  during  taxable  year  will  be  allowed.     (T.  D.  I'til););  art.  16!).) 

In  case  of  property  title  to  which  has  been  recpiisitioned  for  war  uses,  or  property 
which  has  been  lost  or  destroyed  in  whole  or  in  part  tlirough  war  hazards,  excess 
of  amount  received  by  owner  as  compensation  for  property  over  value  thereof 
on  March  1,  1913,  or  over  its  cost  if  it  wa8ac(iuired  after  that  date,  except  so  far  as 
actually  used  for  replacement  of  property  in  kind,  is  subject  to  excess-profits  taxes. 
(T.  1).  2706:  Apr.  25,  1918.) 

Although  intention  or  obligation  of  owner  of  property  ri'ipusiiioned  for  war  uses, 
or  lost  or  destroyed  through  war  hazards,  may  be  to  use  entire  amount  receiA  ed  aa 
Compensation  for  re[)lacement  in  kind  of  such  pro})eity,  such  replacement  may 
not  be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case  tax- 
payer may  establish  "replacement  fund"  in  which  entire  amount  of  compensation 
shall  be  held,  and  pending  disposition  thereof  accounting  for  gain  or  loss  may  be 
deferred  for  reasonable  time,  to  be  determined  by  Commissioner  of  Internal  Reve- 
nue.    (T.  D.  2706;  Apr.  25,  1918.) 

Where  property  requisitioned,  lost,  or  damaged  constitutes  all  or  part  of  security 
under  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund  may, 
subject  to  approval  of  Commissioner,  be  amount  of  compensation  received,  less 
amount,  if  any,  which  becomes  payable  out  of  such  compensation  under  terms  of 
such  instrument  or  obligations  thereby  secured;  in  such  case  taxpayer  should  apply 
to  (Commissioner  for  permission  to  establish  such  flind,  reciting  in  his  application  all 
facts  relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  possible 
to  replace  or  restore  property;  taxpayer  required  to  furnish  bond  with  security 
or  make  deposit;  when  replacement  or  restoration  is  made,  new  or  restored  properly 
shall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  that  at  which  the 
requisitioned,  damaged,  or  destroyed  property  was  carried,  except  and  to  extent 
that  such  new  or  restored  property  has  an  increased  productive  capacity.  (T.  D. 
2706;  Apr.  25,  1918.) 

Forms  of  application  for  permission  to  establish  replacement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733;  June  17,  1918.) 

DANCES. 
Admission. 

See  "Admissions." 

DEALER. 
Definition. 

The  term  "dealer,"  as  used  in  Article  XXXVII  of  Regulations  No.  44,  relating 
to  war  excise  taxes  and  war  tax  on  bcA'erages,  does  not  refer  to  or  include  a  purchaser 
for  his  own  use,  unless  such  use  is  the  manufacture  or  jiroduction  of  another  article 
intended  for  sale.     (T.  D.  2719;  Art.  XXXVII.) 

Particular  articles. 

See  specific  heads. 

DEBENTURES. 
Definition. 

The  terra  "debenture"  ordinarily,  though  not  necessarilj',  refers  to  an  unsecured 
bond.     (T.  D.  2713;  May  14,  1918.) 

Stamp  taxes. 

Instruments  containing  essential  features  of  promissory  note  but  issued  by  cor- 
porations in  numbers  under  tn.st  indenture,  either  in  registered  form  or  with  cou- 
pons attached,  embodying  provisions  for  acceleration  of  maturity  in  event  of  default 
by  obligor,  for  optional  registration  in  case  of  bearer  bijnds,  for  authentication  by 
trustee,  and  sometimes  for  redemption  before  maturity,  or  similar  provisions,  are 
bonds  within  meaning  of  Schedule  A  of  Title  VIII  of  ac.t  of  October  3,  1917,  Avhether 
tailed  bonds,  debentures,  or  notes.     (T.  D.  2713;  May  14,  1918.) 


]_  5  8  DEBTS — DEPLETION. 

DEBTS. 

Income  taxes— Deductions. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 

DECEDENTS'  ESTATES. 

See  "  Estates " ;  "Estate  Tax";  "  Inheritance  Taxes.'! 

DEDUCTIONS. 

Allowance  in  determining  tax. 

See  specific  heads. 

DEEDS. 

Stamp  tax. 

Contract  for  sale  of  real  estate,  providing  for  future  delivery  by  deed,  is  not  sub- 
ject to  stamp  tax;  stamp  of  face  value  corresponding  with  aniount  representing 
vendor's  equitv  conveyed  should  be  attached  to  instrument  conveying  property; 
where  exchange  of  eciUal  equities  is  made,  stamp  slionld  be  attached  to  each  deed 
corresponding  with  amount  of  each  et^uity  exchanged ;  in  determining  amount  of 
incumbrance  on  realty  being  transferred,  new  incumbrances  placed  upon  realty 
at  time  of  or  after  sale  should  not  be  considered.     (T.  D.  2.599;  Dec.  3,  1917.) 

Conveyance  of  realty  to  Alien  Property  Custodian  in  compliance  with  demand 
made  by  him  under  trading  Avith  the  enemy  act  of  October  6.  1917,  as  amended,  is 
not  subject  to  stamp  tax  imposed  bv  Schedule  A  of  Title  VIII  of  act  of  October  3, 
1917.     (T.  D.  2786;  Jan.  29,  1919.)  " 

Conveyance  by  Alien  Property  Custodian  of  realty  sold  by  him  under  authority 
of  section  12  of  the  trading  with  the  enemy  act  of  October  6,  1917,  as  amended, 
is  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  the  act  of  October 
3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Ti"ast  deeds. 

See  "Trust  Deeds." 

DEFINITIONS. 

See  "Words  and  Phrases." 

DENATURED  ALCOHOL. 

See  "Alcohol." 

DEPLETION. 

Excess  profits  tax — Invested  capital. 

Where  through  failure  to  provide  for  depletion,  depreciation,  obsolescence,  or 
other  expenses  or  losses,  or  where  for  any  cause  books  of  account  of  taxpayer  do  not 
show  true  paid-in  or  earned  surplus  and  undivided  profits,  in  computation  of  in- 
vested capital  such  adjustments  shall  be  made  as  are  necessary  to  arrive  at  correct 
amount;  where  taxpayer  claims  additions  to  capital  account,  books  of  account  will 
be  presumed  to  show  true  facts,  and  burden  of  proof  ■ndll  rest  upon  taxpayer,  and 
such  additions  will  be  accepted  only  to  extent  and  under  certain  specifically  stated 
conditions.     (T.  D.  2694;  art.  64.) 

Rules  for  valuation  of  tangible  property,  subject  to  requirements  of  article  42  of 
Piegulations  No.  41  as  to  allowance  for  depletion,  depreciation,  and  obsolescence, 
stated;  presumed  that  tangible  assets  were  acquired  with  cash  either  paid  in  directly 
or  derived  from  trade  or  business,  but  taxpayer  entitled  to  show  that  such  assets 
v.'ere  paid  in  as  tangible  property.     (T.  D.  2694;  art.  67.) 

Losses. 

Basis  of  computation  of  invested  capital  is  found  in  amount  of  cash  and  other 
I)roperty  paid  in,  which  computation  must  take  properly  into  account  surplus  aiid 
undi\-ided  profits;  in  computation  of  such  surplus  and  undivided  profits;  recogni- 
tion must  first  be  given  expenses  incurred  and  losses  sustained  from  original  organi- 
zation of  business  concern  down  to  taxable  year,  including  reasonable  allowance 
for  depletion,  depreciation,  or  obsolescence  of  property  "originally  acquired;  if 


DEPLETION.  159 

Excess  profits  tax — Continued. 

Losses — Continued. 

value  appreciation  of  kind  not  subject  to  income  tax  (other  than  that  allowed  under 
article  55  of  Regulations  No.  41)  has  been  taken  up  in  accounts,  deduction,  must 
be  made  in  respect  of  such  appreciation;  in  computation  of  invested  capital  for 
any  year-  full  effect  must  bo  given  to  any  liquidation  of  original  capital.  (T.  D. 
2(»4;art.  42.) 

Excise  taxes — Mining  properties. 

Lessee  of  mining  property  may  not  deduct  proportionate  value  of  ore  in  place  on 
January  1, 1909,  with  ix-spect  to  each  ton  of  ore  mined,  as  so  much  deiiietion  of  capital 
assets,  butmay  deduct  proportionate  partof  rovaltv^  paid  in  advance.  (T.  D.  2721; 
June  4,  1918.     Ct.  Dec.) 

For  purpose  of  determining  net  income  for  basis  of  taxation  under  the  corporation 
exci.se  tax  act  of  1909,  mining  corporation  may  not  deduct  from  its?  gross  income  any 
amount  whatever  on  account  of  depletion  or  exhaustion  of  ore  bodies  caused  by  its 
operations  for  year  for  which  tax  is  assessed.     (T.  D.  2722;  June  4,  1918.    Ct.  Dec.) 

Income  taxes — Net  income. 

In  case  of  timberlands,  fair  market  price  or  value  of  timber  standing  March  1, 
1913,  or  cost  of  timber  when  purchase  wa.s  made  siibsequent  to  that  date,  will  be  basis 
for  calculation  of  depletion,  and  this  value  as  of  March  1,  1913,  or  cost  when  subse- 
quently purchased,  is  not  to  be  exceeded  for  purposes  of  deduction  in  returns  of  in- 
come ;  whole  of  such  value  is  to  be  distributed  over  entire  am.ount  of  standing  timber 
on  those  respective  dates;  rules  governing  timber-owning  companies.  (T.  D.  2G90; 
arts.  8,  173,) 

^\^len  corporation  sets  aside  part  of  its  earnings  to  create  sinking  fund  with  which 
to  i-etire  indebtedness,  annual  additions  to  such  fund  are  not  allowable  deduction 
from  gross  income  as  or  in  lieu  of  depreciation  or  on  any  other  account;  earnings 
thus  set  aside  are  an  a.sset  and  any  accretion  thereto  must  be  accounted  for  as  income ; 
ruling  will  not,  however,  forbid  deduction  of  reasonable  allowance  for  depletion  of 
natural  deposits  even  though  amount  so  deducted  be  used  in  whole  or  in  part  in 
payment  of  its  indebtedness.     (T.  I).  2690;  art.  166.) 

Essence  of  sections  5  and  12  of  the  act  of  September  8,  1910,  as  amended  by  the  act 
of  October  3,  1917,  is  that  owner  or  operator  of  gas  or  oil  properties  shall  secure 
through  an  aggregate  of  annual  depletion  deductions  the  return  of  amount  of  capital 
actually  invested,  or  amonnt  not  in  exces.?  of  fair  market  Aalue  as  of  March  1,  1913, 
of  properties  owned  prior  to  that  date.     (T.  D.  2690;   art.  170.) 

In  case  of  operating  fee  owner,  amount  returnable  through  depletion  deductions 
is  fair  market  value-of  property  (exclusive  of  cost  of  physical  property)  as  of  March 
1,  1913,  if  acquired  prior  to  that  date,  or  actual  cost  of  property  if  acquired  subse- 
quent to  that  date,  plus,  in  either  case,  cost  of  development  (other  than  cost  of 
jihysical  property  incident  to  such  de\'elopment)  up  to  point  at  which  income  from 
developed  territory  equals  or  exceeds  deductible  expenses.     (T.  D.  2690;  art.  170.) 

In  ease  of  lessee,  capital  to  be  returned  is  amount  paid  in  cash  or  its  equivalent  as 
bonus  or  otherwise  by  lessee  for  lease,  plus  expenses  incurred  in  developing  property 
(exclusive  of  physical  property)  prior  to  receipt  of  income  therefrom  sufhcient  to 
meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and  lessee,  such  inci- 
dental expenses- as- are  paid  for  wages,  fuel,  etc.,  in  connection  with  drilling  of  wells 
and  further  development  of  ])roperty  may  be,  at  option  of  operator,  deducted  as 
operating  expense  or  charged  to  capital  account.     (T.  Di  2690;  art.  170.) 

Estimate,  subject  to  approval  of  Commissioner  of  Internal  Revenue,  required  to  be 
made  of  probable  quantity  of  oil  ()V  gas  contained  in  or  to  be  recovered  from  territorj' 
with  respect  to  which  investment  is  made;  invested  c-a]iital  v\ti11  be  divided  by  num- 
berof;unit&of  oil  or  gas  so  estimated,  and  cpiotient  will  be  per  unit  cost  or  amount  of 
capital  inv<^sted  in  each  unit  recoverable;  this  quotient,  when  multiplied  by  num- 
lier  of  units  removed  from  territory  in  one  year,  will  determine  amount  which  will  be 
allowable  deducted  from  gross  income  for  that  year  on  account  of  depletion  or  as 
return  of  invested  capital  imtil  total  of  such  deduction  shall  equal  capital  invested. 
(T.  1).  2690;   art.  170.) 

Every  individual  or  coiporation  entitled  to  deduction  on  account  of  depletion  or 
for  return  of  capital  invested  shall  keep  accurate  ledger  account,  in  which,  in  case  of 
fee  owner,  shall  be  charged  fair  market  value  as  of  March  1,  1913,  or  cost,  if  acquired 
subsequent  to  that  date,  of  oildr  gas  property,  plus  costof  development,  or,  in  case 
of  lessee,-  amount  actually  original!)'  invested  in  lease  and  its  development;  this 
i'lnount  shall  he  credited  as  amount  claimed  each  year  as  deduction  on  account  of 
'lepletioH  oras  return  of  capital,  to  end  that  when  credits  to  account  equal  debits  no 


IGO  DEPLETION. 

lucerne  taxes-  Net  income — Continued. 

further  deductions  on  either  account,  with  respect  to  this  property  and  cajntal  in- 
vested therein,  will  be  allowed;  or,  in  lieu  of  direct  credit  to  property  account, 
amounts  so  claimed  and  allowed  as  deduction  may  be  credited  to  depletion  reserve 
account.     (T.  D.  2090:  art.  170.) 

If  quanlity  of  oil  or  <>;a.s  can  not  be  determined  with  certainty,  depletion  deduction 
will  be  computed  in  accordance  with  rules  set  out  in  T.  D.  2447,  except  that  lessees 
may  compute  deductions  for  return  of  c'ai>ital  (cost  of  lease  and  development)  in 
fame  manner  as  owners  in  fee;  that  is,  they  may  extinguish  such  capital  on  basis  of 
reduction  in  flow  and  production  as  compared  with  proceeding  year,  or,  in  case  of 
leasehold  proi)erties  brought  in  or  developed  during  year,  depletion  deduction  may 
be  computed  on  basis  of  decline  in  settled  flow  and  production,  as  eA'idenced  by  test.? 
and  gauges  made  at  end  of  year  as  compared  with  similar  tests  and  gauges  made  at 
time  settled  flow  was  determined;  for  purpose  of  computing  depletion  territory  com- 
prehended in  given  lease  will  be  considered  unit  with  respect  to  which  depletion 
deduction  may  be  claimed  and  allowed.     (T.  D.  2690;   art.  170.) 

WTiere  operator  is  owner  of  fee,  value  determined  and  set  up  as  of  March  1,  1913, 
or  cost  of  property  if  acquired  subsequent  to  that  date.  or.  if  operator  is  lessee,  actual 
amount  paid  for  lease,  plus,  in  case  of  both  owner  and  lessee,  cost  of  subsequent  de- 
velopment, exclusive  of  physical  property,  if  such  cost  is  capitalized,  will  be  basis 
for  determining  depletion  deduction  or  deduction  for  return  of  capital  for  all  subse- 
quent years  during  continuance  of  ownership  under  which  value  was  fixed  or  by  which 
investment  was  made;  during  such  ownership  there  can  be  no  revaluation  for  pur- 
pose of  deduction  if  it  should  be  found  that  quantity  of  oil  or  gas  was  underestimated 
at  time  value  was  fixed  or  propertv  was  acquired,  or  at  time  lease  contract  was  en- 
tered info  or  purchased.     (T.  I).  2690;   art.  170.) 

Hoth  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition  to  and  sep- 
arate from  deduction  allowable  for  depletion  or  return  of  capital,  be  permitted  to 
deduct  reasonable  allowance  for  dejueciation  of  physical  property,  such  as  ma- 
chinery, tools,  equipment,  pipes,  etc.,  amount  deductible  on  this  account  to  be  such 
an  amount,  based  upon  its  capitalized  value  (cost^  equitably  distributed  over  its 
useful  life,  as  will  bring  it  to  its  true  salvage  value  when  no  longer  useful  for  purpose 
for  which  property  was  acquired.     (T.  D.  2090;  art.  170.) 

As  to  both  fee  owner  and  lessee,  capital  invested  in  physical  property,  upon  which 
depreciation  deduction  is  computed,  should  be  segregated  in  books  of  account  from 
that  invested  in  oil  or  gas  territory  or  in  lease  or  leases,  Avith  respect  to  which  deduc- 
tion for  depletion  or  return  of  capital  is  claimed,  and  credits  for  depreciation  may  be 
made  in  same  manner  as  provided  for  depletion.     (T.  D.  2090;   art.  170.) 

Ownership  of  mine  content  at  time  for  which  computation  is  made  is  an  e-s-sential 
prerequisite  to  an  allowable  deduction  for  depletion,  under  section  5  (a)  and  section 
J 2  (a)  of  Title  I  of  the  act  of  September  8,  1916,  as  amended;  deduction  in  case  of 
lessee  limited  ti)  amount  equal  to  capital  actually  invested  in  lease  without  regard  to 
value  as  of  l^Iarch  1, 1913,  or  any  other  date;  the  seventh  and  eighth  paragraphs  of 
section  5  (a)  and  the  second  paragraph  of  section  12  (a  (authorize  in  case  of  mine 
owners  two  classes  of  deductions  to  take  care  of  wasting  of  assets,  namelv  deprecia- 
tion and  depletion.     (T.  D.  2690;  art.  171.) 

(Original  cost  of  mineral  deposit  may  be  taken  as  basis  for  com.puting  annual  deple- 
tion de<luctious  if  fair  market  value  as  of  March  1,  1913,  can  not  be  ascertained  other- 
wise, allowance  being  made  for  minerals  which  may  have  been  removed  prior  to  that 
date;  where  property  was  acquired  subsequent  to  that  date,  same  rule  for  com- 
puting annual  depletion  deduction  will  apply,  except  that  basis  of  computation  will 
be  actual  cost  rather  than  value  as  of  March  1,  1913.     (T.  D.  2090;  art.  172.) 

Every  individual  or  corporation  claiming  and  making  deduction  for  depletion  of 
natural  deposits  shall  keep  accurate  ledger  account,  in  which  shall  be  char^^ed  fair 
market  value  as  ot  March  1.  1913,  or  cost,  if  propertv  was  acquired  subsequent  to 
ttiat  date,  of  mineral  deposits  involved,  account  to  be  credited  with  amount  of  de- 
pletion deduction  claimed  and  allowed  each  vear,  or  amount  of  depletion  shall  be 


lair  marKct  value  or  cost  of  property,  as  case  mav  be,  will  be  basis  for  de 
depletion  deduttion  for  all  subsequent  vears  during  ownership  under  wh 
was  fixed,  and  during  such  ownership  there  mav  be  no  revaluation  if  it 
found  that  estimated  quantity  of  deposit  was  understated :  where  quantitv  i 


rhich  value 
should  be 

,1,^  ^u      ■     ^    ^.l      1.--.    ^r..\  -  quantity  of  mineral 

deposit  prior  toMarch  1,  1913,  can  not  be  accuratelv  estimated,  necessarv  if  deple- 

lon  deduetions  are  to  be  taken,  for  owner  of  deposit^s,  with  best  information  available 

to  arrive  at  fair  Uiarket  value  of  property  as  of  March  1,  1913,  which  value  during 


DEPLETION.  101 

Income  taxes  Net  income — Contiimed. 
period  of  ownership  will  bo  final ;  thon,  on  bapip  of  moct  probable  nunilier  of  units  in 
property,  per  unit  value  shall  be  determined  as  basi?  for  corn})utinjj  annual  deple- 
tion allowances;  this  method  and  allowances  to  be  continued  until,  but  nt>l  be- 
yond, time  when  value  as  of  March  1,  19l;i,  shall  have  been  extinguished.  (T.  D. 
2»)90;   art.  172.) 

Precise  manner  in  which  estimated  fair  market  Aalue  of  mineral  dejxisits,  a.s  of 
March  1,  1913,  shall  be  made,  must  be  determined  by  owner  upon  such  basis  as  must 
not  comprehend  any  operating  prohts.  estimate  to  be  subject  to  approval  of  Com- 
missioner; in  passing  upon  accuracy  and  fairness  of  estimate  due  weight  to  market 
value  of  stock  of  corporation  on  March  1,  191;?.  and  also  to  sworn  st'.Uements  as 
to  value  of  slock  filed  at  any  time  thereafter  for  ))urpose9  of  special  excise  tax  based 
on  value  of  capital  stock  imposed  by  Title  IV  of  the  act  of  September  8,  1910,  will 
be  attached.     (T.  D.  2(i90;   art.  172.) 

Where  depletion  deduction  is  computed  on  basis  of  cost  or  price  at  which  any 
mine,  mineral  lands  or  properties  were  accjuired,  corporation  upon  request  of  Com- 
missioner must  show  that  cost  or  price  at  which  pro})erty  \\as  bought  was  fixed  for 
purposes  of  bona  fide  jjurchase  or  sale  by  which  jiroperty  passed  to  owner  in  fact  as 
well  as  in  form,  dil'ferent  from  a  endor;  in  determing  whether  or  not  price  or  cost  at 
which  any  purchase  or  sale  was  made  rei)resented  actual  market  value,  due  weight 
will  be  given  to  relationship  or  connection  existing  between  party  or  parties  selling 
l)roperty  and  buyer  thereof.     (T.  1).  2090;   art.  172.) 

Operator  will  be  permitted  to  deduct  from  gross  income  of  each  year  reasonaVile 
allowance  for  depreciation  of  all  ])hysical  property  used  in  connection  with  opera- 
tion of  mine  and  owned  by  operator:  for  this  purpose  the  actual  cost  (not  value )  will 
be  equitably  distributed  over  useful  life  of  such  property  until  true  sahage  value 
has  been  reached ;  both  owner  and  lessee  will  keep  accurate  ledger  accounts  to  which 
will  be  charged  capital  invested  in  mine  or  lease,  and  in  machinery,  equipment,  etc., 
crediting  such  accounts  or  a  depreciation  reserve  account  with  amount  claimed  and 
allowed  as  a  deduction  each  year  until,  as  result  of  such  credits,  the  capital  charge 
shall  be  extinguished,  after  which  no  further  deduction  on  this  account  will  be 
allowed.     (T.  D.  2090;  art.  172.) 

Both  owner  and  lessee  will  keep  accurate  ledger  accounts  to  which  will  be  charged 
capital  invested  in  mine  or  lease,  and  in  machinery,  ecjuipment,  etc.,  crediting 
such  accounts  or  a  depletion  reserve  account  with  amount  claimed  and  allowed  as 
a  deduction  each  year  until,  as  result  of  such  credits,  the  capital  charge  shall  be 
extinguished,  after  which  no  further  deduction  on  this  account  will  be  allowed. 
(T.  D.  2690:  art.  172.) 

Where  property  was  acquired  by  j)urchase  or  otherwise  (other  than  l)y  lease) 
prior  to  March  1,  Kfl^,  amount  of  inve:stetl  capital  which  may  be  extinguished 
through  annual  depletion  deductions  from  gross  income  will  be  the  market  value  of 
mine  property  so  acquired,  as  of  March  1,  191:3;  value  contemplated  as  basis  for 
depletion  deductions  must  not  be  based  upon  assumed  salable  value  of  output  under 
current  operative  conditions,  less  cost  of  production,  for  reason  that  value  so  deter- 
mined would  comprehend  profits  to  he  reali/.ed  from  operation  of  property;  value 
must  not  be  specidative  but  must  be  determined  upon  basis  of  salable  value  en 
bloc  asof  March  1, 1913,  of  entire  deposit  of  minerals,  exclusive  of  improvements  and 
development  work;  en  bloc  value  having  been  ascertained,  estimate  of  number  of 
units  (tons,  pounds,  etc. ),  should  be  made,  and  en  bloc  value  diA^ided  by  estimated 
number  of  units  will  be  determined  per  unit  value,  which,  multiplied  by  number  of 
units  mined  and  sold  during  any  one  year  will  determine  sum  which  will  constitute 
deduction  of  that  year;  deductions  computed  on  like  basis  may  be  made  from  year 
to  year  during  ownership  under  which  Aalue  was  determined  until  aggregate  eu 
bloc  value  as  of  March  1,  1913,  of  mine  or  mineral  deposit  shall  have  been  extin- 
guished.    (T.  D.-2090;  art.  172.) 

Lessee  corporation  not  entitled  to  any  deduction  as  such,  but  if  lessee,  in  addi- 
tion to  royalties,  pays  stipulated  sum  for  right  to  explore,  develop,  and  operate 
mine,  such  sum  may  be  spread  rataidy  over  estimated  niunber  of  units  in  mine, 
and  thus  ascertain  amount  of  invested  capital  or  l:)onus  payment  applicable  to  each 
unit;  per  unit  cost  thus  ascertained  will  be  multiplied  by  number  of  units  removed 
from  mine  during  any  one  year,  and  result  will  be  amount  that  may  be  deducted 
"  from  gross  income  of  that  year  as  return  of  capital  inA-ested;  in  case  of  both  mine 
owner  and  les.see,  no  deduction  for  depletion  or  return  of  capital  will  be  allowed 
when  invested  capital  has,  through  the  aggregate  of  all  such  deductions,  been 
extinguished;  for  purpose  of  computing  this  deduction  in  case  of  lessee  company 
actual  amount  of  bonus  paid  and  not  value  as  of  March  1,  1913,  will  be  considered 

70420°— 21 11 


J;g2  DBRRECIATIOIT. 

iGcome  taxes— Net  income— Contii\ued. 
capital  invested  fo  be  returned  througii. aggregate  of  amuial  deductions.     (T.  D. 
2890;  art.  172.) 

Operator  of  mining  properties,  or  lessee  thereof,  required  to  attach  to  his  rei urn 
statement  setting  out  certain  specified  data.     (T.  D.  2690;  art.  172.) 

Corporations  o\vning  timber  land  and  logging  off  the  timber  and  manufacturing 
it  into  lumber,  Avill,  if  timber  was  acquired  prior  to  March  1 ,  1913,  be  permitted  to 
exclude  from  gross  income  either  through  deduction  from  gross  receipts  or  through 
charge  into  cost  of  manufacturing  timber  into  lumber,  an  amount  equivalent  to 
fair  market  price  or  value  of  standing  timber  as  of  March  1,  1913;  corporations  must 
set  up  on  their  books  as  of  March  1, 1913,  the  fair  market  price  en  blcc,  of  all  timber 
tlien  owned  by  them,  and  then,  by  dividing  such  value  by  estimated  mimber  of 
feet  in  entire  holdings,  per  imit  value  oi-  price  v,-ill  be  ascertained,  which,  per  unit 
price  or  value  will  be  basis  for  measuring  amount  to  be  added  to  cost  of  manufac- 
tm-e,  or  deducted  from  gross  income,  until  en  bloc  value  of  entire  holdings  shall  have 
been  extinguished;  same  rule  applies  to  timber  or  timber  lands  purchased  subse- 
quent to  March  1,  1913,  onlv  difftn-ence  being  that  actual  cost  shall  be  substituted 
for  en  bloc  price  or  value.    '(T.  D.  :289i);  art.  173.) 

There  is  no  substantial  distinction  as  applied  to  amine  between  depreciation 
which  %vas  sought  by  mine  owners  under  the  acts  of  August  5,  1909,  and  October  3, 
1913,  and  the  depletion  which  was  allowed  bv  the  act  of  September  8,  191G.  (T.  D. 
3001;  Apr.  15,  1920.     Ct.  Dec.) 

The  lessee  of  a  mine  is  not  entitled  to  a  deduction  for  depletion  under  the  act 
of  September  8,  1916.     (T.  D.  3001;  Apr.  15,  1920.     Ct.'Dec.) 

The  allowance  for  depletion  in  the  case  of  mines  pertains  to  a  consumption  of 
capital  assets  rathei- than  to  a  business  loss.     (T.  D.  3001;  Apr.  15,  J920.    Ct.  Dec.) 

The  fact  that  the  lessee  of  a  mine  is  imder  an  affirmative  obligation  to- remove  or 
atleast  to  pav  for  a  fixed  amount  of  ore  does  not  change  the  genei'al  rule  as  to  deple- 
tion in  the  case  of  lessees.     (T.  D.  3001 ;  Apr.  15,  1920.     Ct.^Dec. ) 

Fair  market  price  or  value  of  timberlands  as  of  ?ilarch  1,  1913,  is  price  at  which 
property  in  its  then  condition,  and  with  circumstances  then  surrounding  it,  could 
have  been  sold  for  casli  or  its  equivalent;  such  value  must  not  be  speculative,  but 
must  be  determined  without  taking  into  account  any  })ro.?pective  profits  that  may 
result  by  manufacturing  the  timber  into  lumber;  value,  once  determined,  must  be 
set  up  on  books,  and,  as-measui'oof  sUimpage  deduction,  must  remain  confstantaud 
can  not  be  increased  except  a^  new  purchases  are  made  at  higher  average  cost; 
value  so  set  up  vvill  be  subject  toapproval  of  Commissioner.     ("T.  D.  2690;  ai-t.173.) 

Wliere  entire  market  price  or  value  for  l)oth  timber  and  lands  as  of  March  1,1'913, 
or  entire  cost,  if  acquired  subs-equeilt  to  that  date,  is  extinguished  throiTgh  deduc- 
tion from  grass  income  fen-  timber  used,  or  throughpei-  unit  cliarge  to  ccfst  of  manu- 
facturing luniber,  entire  aTnount  l'e.^li7,ed  from  fegged-off  lands  or  other  salvage  will 
be  returned  as  income  nf  ye.ar  in  v.'liich  such  lands  are  sold  or  disposed  of;  if  timber 
or  1  hnber  lands  are  ssld  en  bloc,  gain  or  la=?3  will  be  ascertained  on  basis  of  difference 
between  fair  market  ptice,  or  cost,  and  s?'lling  price,  accordingly  as  prapetty  was 
acquii-ed  prior  orsubsoqitentto  March  1,  Wl'3.'    (T.  D.  269);art"  173.) 

Rsserve  of  corperartiojoi . 

Dividend  paid  from  depletion  reserve  considered  a  liquidating  dividend  and  dce^ 
not  constitute  tajcabie  income,  except  to  extent  tJiatamtrant  so  received  is  in  excess 
of  capital  actually  invested  by  stockholder  in  shares  of  stockand  v/ithre.^ect  to 
which  distribution  was  made;  no  dividend  will  be  deemed  to  have  bee. i  paid  from 
such  reserve  except  to  extent  that  dividend  exceeds  siu-plusand  undividt^d  profits 
of  corporation  at  time  of  payment,  and  unless  books,  etc.,  of  coqDorat ion  clearly 
indicate  corresponding  reduction  of  capital  assoLs  resulting  from  pavmeiit.  (T.  D. 
2690;  art.  4.)  ^  =  i    . 

JDESBSCIATIOH. 

CorpoiTation  excise  tax. 

I nsiu-ance  companies  owning  fjecurities  itakea  at  market  \m!j;e  may;3iot,  nmdcr 
section  38  of  the  act  of  August  5,  l!n09,  <l:educt  from  gross  income  as 'depreciation 
the  net  decrease  in  market  value  of  such  so: r.ri ties;  sums  due  the  United  Btatei 
mre  a  valid  offset  as  .against  amount  fomad  due  taxpaver  in  suit  agaimt  collector, 
though  included  therein  are  itemts  whichtlemmissioner-did  not  claim  to  be  due:  the 
United  States  when  considering  the  return  for  assessment ^.pmpoges.  (T.  D..28S2; 
July  3,  19ig. )  XI' 

A  steamghip  edH^pany  is  entitled  to  deduct  from  gross 'iuexDme  in  annual 'tax 
returns  requu-ed  by  eeffti(m  36  of  the  act  of  August  #,  180©,  >a«immts  ptiid  ou  t  for  *n-d  i- 


DEFRECIATIOi^.  163 

Corporation  excise  tax— Coutiuued. 
narv  and  neceasary  repairs  in  the  maintenance  and  operation  of  ite  Ijusiness  and  proji- 
orty,  and  in  addition  a  rcasoual)le  allowance  for  depreciation  of  proj)erty,  if  any, 
(T.*  D.  2773;  Nov.  8,  1918.    CI.  Dec. ) 

Decrease  in  the  value  of  nasets  of  an  insurance  coin])any  through  amortization 
of  premiums  on  l>oudB  are  mere  book  adjustments  and  are  not  deductible  as  an 
it<;m  of  depreciation.     (T.  D.  3057;  Aug.  l(i,  1820.     Ct.  Dec.) 

Definition. 

The  expression  "depreciation  of  property,"  as  used  in  corpoi-at ion-tax  act  of 
Au'i^ust  o,  1909,  is  used  in  its  ordinary  and  usual  sense,  as  under-stood  by  business 
men.     (T.  D.  2436;  Jan.  19,  1917.    Ct.  Dec.) 

'■Depreciation' '  as  used  in  sections  5  (a)  and  12  (a)  of  act  of  September  8,  1910, 
comoreheuds  loss  due  to  exhaustion,  wear  and  tear  of  ph^^sical  property  other  than 
natural  deposdts.     (T.  D.  2446;  Feb.  7,  1917.) 

Excess  profits  tax — Invested  capital. 

Rides  for  valuation  of  tangible  properly,  subject  to  ref|uirements  of  article  42  of 
He;:;ulations  No.  41  as  to  allowance  tor  dei)letion,  depreciatinn,  and  obsolescence, 
stilted ;  presumed  tliattangU)le  assets  were  acquired  with  cash  either  paid  in  directly 
or  deriAcd  from  trade  or  business,  but  tax])ayer  entitledlo  skowtlMitsuchassets  were 
jmid  in  as  tangible  property.     (T.  D.  2694;  art.  67.) 

Where  through  failure  to  provide  for  depletion,  depreciation,  obsolescence,  or 
other  expenses  or  los.scs,  or  where  for  anycanse  books  of  account  of  taxpayer  do  not 
show  true  paid-in  oi-  earned  surplus  and  undivided  profits,  in  computation  of 
invested  capital  such  adjustments  shall  be  inadeasare  necessary  to  arrive  at  correct 
amount;  where  taxpayer  claims  additions  to  capital  account,  books  of  account  will 
be  pi-esumed  to  show  true  facts,  and  burden  of  proof  will  rest  upon  taxpayer,  and 
such  additions  will  be  accepted  onlv  to  extent  and  under  certain  specifically  stated 
conditions.     (T.  D.  2694;  art.  64.) 

Basis  of  computation  of  in^'o.■^ted  caj)ital  is  found  in  amount  of  cash  and  other 
property  paid  in,  which  computation  must  take  properly  into  account  surplus  and 
xuidivided  profits;  in  computation  of  such  suti-)1us  and  undivided  profits  recognition 
must  first  be  given  expenses  incuiTod  and  losses  sustained  from  original  organi-zatio'A 
of  business  concern  down  to  taxable  year,  including  reasonable  allowance  for  de- 
pletion, deirreciation,  or  obsolescence  of  property  originally  acquired;  if  ^■s,luc 
appreciation  of  kind  not  subject  to  income  tax  (other  than  that  allowed  under 
article  55  of  Regulations  No.  41)  has  been  taken  up  in  accounts,  deduction  must:  be 
made  in  respcr-t  of  such  appreciation;  in  commutation  of  in-vested  capitsl  for  any 
year  full  effect  must  be  given  to  any  liquidation  or  original  capital.  (T.  I>,  2694; 
art.  42.) 

Income  taxes -Net  income. 

Under  paragraiili  7  of  st^ction  5  (a)  of  theactjof  1916  there  may-Ise-claimed a-reason- 
.able  allowaixce  for  depreciation  on  farm  buildings  (other  than  dwellings  occupied 
•by  owner),  farm  macliinery,  and  other  physical  property,  including  slock  pm-cliaspd 
for  breeding  pui:pofies,  but  no  claim  for  depreciation  on  stock  raised  or  pm'chased  for 
resale  wiU'be  allowed.     (T.  D.  2699;  arts.  4,  123.) 

For  purpcis?  cif  income  tax  good  will  is  capable  of  neither  appreciation  nor  depre- 
ciation and  an  amount  claimed  to  represent  its  declime  in  value  is  notan  allowoblc 
deduction  from  gross  income.     (T.  D.  2090;  art.  8.) 

Costumes  purchased  and  used  exclusively  in  production  of  a  play  and  w^liich  are 
not  adapted  ior  oceaaional, personal  use  and  are  not  so  used,  are  i>art  of  the  ecp.iip- 
jnent  of  abusine.-!3,  and,  aefiuch,subject  to  depreciation  in  value  on  account  of  wear 
and  tear  arising  from  then-  use  in  the  ! business;  xeasonable  allj\vauce  for  such 
depreciation. may  be  claimed.     (T.  D.  2699;  art.  8.) 

V.'liere  terms  of  will  or  trust  or  <lecree  of  court  pToaide'foi'ikefqjii:^  gotohb  of  trust 
estate  intact  and  where  pliysical  property  has  suffered  depreciation  through  its 
employment  in  business,  deduction  from  gross  income  to  care  for  this  depreciation, 
v/lierededuction  is  a,pi)lied  or  lield  by  fiduciary  for  making  good  such  deprecia- 
tion, may  be  claimed  by  fiduciary  in  his  return;  contents  oi  return:  l^eaeficiary 
required  in  case  of  truat  estate  to  account  for  actual a,mounts  distributed  or  credited 
to  Mm.    (T.  D.-2690;.avt..29.i 

Lessee  eorj^oration  may  not  deduct  any  depreciation  wiih  respect  to  buildings 
erected  ijy  it  on  leased  ground,  but  cost  of  incidental  repairs  necessary  to  keep 
buildings  in  efficient  condition  for  purpose  of  their  use  may  be  deducted  as  expense 
of  oper-ation  and  maintenance;  if  life  of  imijrovement  ifiiessihan  life  of  lease,  depro- 


164  DEPRECIATION. 

Income  taxes— Net  income     rontinucd. 
ciation  may  be  taken  by  lessee,  based  upon  cost  and  life  of  improvement.     (T.  D . 
2ti90:  art.  140.) 

Where  stock  has  been  purchased  for  any  purpose  and  afterwards  dies  from  diseise 
orinjury  or  is  killed  by  order  of  authorities  of  State  or  United  States,  and  -cost  thereof 
has  not' been  claimed  as  an  item  of  expense,  actual  purchase  price  of  such  stock, 
less  any  depreciation  which  may  have  been  previously  claimed,  may  be  deducted 
as  a  loss.     (T.  D.  '2t)9();  art.  4.) 

When  improvements  under  lease  or  rental  contract  become  part  of  real  estate, 
difference  between  cost  thereof  and  allowable  depreciation  during  lease  term  is 
piin  or  profit  to  lessor  at  end  of  lease  term,  and  must  be  accounted  for  as  income  at 
that  time.     \T.  D.  2690;  art.  4.) 

When  loss  is  claimed  through  destruction  of  property  by  fire,  flood,  or  other 
casualty,  amount  deductible  will  be  difference  between  value  as  of  March  1,  1913, 
or  cost  of  property  and  sah'age  value  thereof,  including  in  the  latter  value  the  amount, 
if  any,  that  has  been  or  should  have  been  set  aside  and  deducted  in  current  or 
previous  years  from  gross  income  on  account  of  depreciation  and  which  has  not  been 
paid  out  in  making  good  the  depreciation  sustained.     (T.  D.  2690;  art.  147.) 

Loss  due  to  voluntary  removal  or  demolition  of  old  buildings,  scrapping  of  mach- 
inerv,  equipment,  etc.,  incident  to  renewals  and  replacements  will  be  deductible 
in  amount  representing  difference  between  cost  of  such  property  and  amount  meas- 
uring reasonable  allowance  for  depreciation  which  property  had  undergone  prior 
to  its  demolition  or  scrapping.     (T.  1).  2690;  art.  155.) 

Corporations  disposing  of  patents  by  sale  should  determine  profit  or  loss  by  com- 
puting difference  between  selling  price  and  value  as  of  March  1,  1913,  if  acquired 
prior  to  that  date,  or  between  selling  price  and  cost,  if  acquired  subsequent  to 
such  date;  profit  or  loss  thus  ascertained  should  be  increased  or  decreased,  as  case 
may  be,  by  amount  deducted  on  account  of  depreciation  of  such  patents  since 
March  1,  1913,  or  since  date  of  purchase  if  acquired  after  that  date.  (T.  D.  2690; 
art.  157.) 

Deduction  for  depreciation  authorized  by  item  second  of  section  12  should  be 
amount  of  loss  occurring  during  year  to  which  return  relates,  estimated  on  cost  of 
physical  property  with  respect  to  which  such  deduction  is  claimed,  which  loss 
results  from  wear  and  tear  due  to  use  to  which  property  is  put  and  which  loss  has 
not  been  made  good  through  expenditures  for  renewals,  replacements,  and  repairs 
deducted  under  heading  of  expense  for  maintenance  and  operation;  within  purview 
of  this  item  depreciation,  to  amount  measuring  decline  in  value  due  to  exhaustion, 
wear  and  tear  of  property  arising  out  of  its  use,  is  a  loss,  which  loss,  in  order  to  con- 
^■titute  allowable  deduction,  must  be  charged  off;  manner  of  charging  off  loss  is 
not  material,  except  that  the  amount  must  be  either  deducted  directly  from  book 
value  of  assets  or  credited  to  a  depreciation  reserve  account  and  as  such  shall  be 
reflected  in  annual  balance  sheet.     (T.  D.  2690;  art.  159.) 

WTiere  corporation  at  end  of  year  distributes  net  income  as  dividends,  without 
providing  for  depreciation,  it  will  be  estopped  from  claiming  in  its  returns  for  such 
year  any  deduction  on  account  of  depreciation  unless  it  is  shown  conclusively  that 
property  account  has  been  reduced  by  amount  of  depreciation  claimed  or  unless 
such  amount  has  been  credited  to  a  depreciation  reserve  account  and  such  amount 
was  in  fact  a  reasonable  allowance;  a  depreciation  reserve  accoiuit  authorized  by 
section  12  can  not  be  diverted  to  payment  of  dividends;  fact  that  no  reserve  was  made 
for  depreciation  indicates  that  there  was  no  lo.'-s  on  th's  account  to  be  provided 
for.     (T.  D.  2690;  art.  161.) 

Though  no  definite  rate  has  been  fixed  by  which  deduction  on  account  of  depre- 
ciation in  value  of  property  subject  to  wear  and  tear  is  to  be  computed,  it  is  con- 
templated that  such  allowance  shall  be  computed  upon  basis  of  cost  of  property 
and  probable  number  of  years  constituting  its  life;  deduction  relates  solely  to  loss 
due  to  use,  wear,  and  tear,  and  matter  of  obsolescence  is  not  relevant.  (T.  D.  2690; 
art.  162.) 

There  is  no  substantial  distinctioii  as  applied  to  a  mine  between  depreciation 
which  was  sought  by  mine  owners  under  the  acts  of  August  5,  1909,  and  October  3, 
1913,  and  the  depletion  which  was  allowed  by  the  act  of^September  8,  1916.  (T.  D. 
3001;  Apr.  15,  1920.     Ct.  Dec.) 

Deduction  on  account  of  depreciation  in  case  of  buildings  shall  not  include  any 
allowance  for  estimated  loss  due  to  lessening  of  rental  value,  nor  shall  computation 
of  deduction  be  influenced  by  changed  environment  after  period  of  vears  nor  by 
Its  lack  of  adaptability  to  use  originally  intended  nor  to  anv  other  outside  influence 
affecting  its  value;  but  an  allowable  depreciation  shall  be'determined  solely  upon 


DErRECIATION.  165 

Income  taxes — Net  income— Continued.  -  -   .  •  :? 

o:^timate(l  life  of  such  buildinj^s  after  making  due  allowance  for  ordinary  repairs, 
cost  of  which  may  be  deJuctel  as  exp:?ns..'s  for  maintenance  and  operation.  (T.  D  . 
2(i90;  art.  1(32.) 

Assets  of  any  charar-ter  whatever  which  are  not  affected  by  use,  wear,  and  tear 
(except  patents,  copyrights,  etc.)  are  not  subjer;t  to  depreciation  allowance;  real 
(!state  as  such,  and  as  distinct  from  improvements  thereon,  is  not  reducerl  in  value 
by  reason  of  wear  and  tear,  and  therefore  allowance  contemplated  as  offset  to  depre- 
ciation in  case  of  real  estate  corporations  does  not  apply  to  the  ground,  but  is  intended 
to  mea'sure  the  decline,  by  reason  of  wear  and  tear,  in  value  of  improvements. 
(T.  1).  2690;  art.  162.) 

Where  actual  cost  of  buildings  or  improvements  at  time  they  wore  taken  over  by 
corporation  can  not  be  detinitely  determined,  it  will  be  sutHcient  for  ])urp!)S('  of 
determining  rate  of  depreciation  to  be  used  in  computing  amount  taxable  to  esti- 
mate actual  value  at  time  acquired  of  buildings  or  improvement  if  acciuired  after 
March  1,  1913,  or  fair  market  price  or  value  as  of  that  date  if  property  was  a'^qaired 
prior  thereto,  value  in  either  case  to  be  reduced  by  amount  of  depreciation  pre- 
viously s-Htained.     (T.  D.  2690;  art.  163.) 

Depreciation  set  up  on  books  and  deducted  can  not  be  used  for  any  ]nirpose  other 
than  in  making  good  loss  sustained  by  reason  of  "wear  and  tear  of  property  with 
respect  to  which  it  is  claimed;  if,  however,  investment  is  made  in  extensions, 
additions,  or  betterments  of  company's  own  property,  representing  part  or  whole 
of  credit  balance  of  depreciation  reserve  account,  such  investment  will  not  be 
considered  a  misuse  or  diversion  of  the  depreciation  deduction  otherwise  allowable. 
(T.  D.  2690;  art.  164.) 

Where,  Vjy  reason  of  underestimating  life  of  property  or  overestimating  rate  of 
deterioration,  an  amount  in  excess  of  yearly  depreciation  has  been  taken,  rate 
applicable  to  future  years  should  at  once  be  reduced  and  balance  of  cost  of  property 
not  provided  for  through  a  depreciation  resever  should  be  spread  over  estimated 
remaining  life  of  property.     (T.  D.  2690;  art.  165.) 

Good  will  represents  value  attached  to  business  over  and  above  value  of  physical 
property  and  is  such  an  intangible  asset  that  it  is  not  subject  to  wear  and  tear  and 
no  claim  for  depreciation  on  account  of  it  can  be  allowed;  any  loss  resulting  from 
or  on  account  of  investment  in  good  will  can  be  determined  only  when  property 
or  business  to  which  good  will  attaches  is  sold  or  disposed  of,  in  which  case  proht 
or  loss  will  be  determined  upon  basis  of  value  of  assets,  including  good  will  if  acquired 
prior  to  March  1,  1913,  or  their  cost  if  acquired  subsequent  to  that  date.  (T.  U. 
2690;  art.  167.) 

No  deduction  will  be  allowed  for  depreciation  of  trade-marks  and  trade  brands; 
if  such  assets  shall  have  been  purchased  at  a  determined  price  and  shall  be  later 
sold  at  a  price  less  than  cost  or  less  than  their  determined  fair  market  value  as  of 
March  1,  1913,  if  acquired  prior  to  that  date,  amount  by  which  selling  price  is  less 
than  cost  or  value,  as  case  may  be,  will  be  loss  deductible  from  gross  income  of  year 
in  which  such  assets  were  sold.     (T.  D.  2690;  art.  168.) 

Depreciation  computed  on  total  invoice  cost  of  merchandise  in  stock  is  not  an 
allowable  deduction,  except  that  if  portion  of  such  merchandise  is  unsalalde  by 
reason  of  obsolescence  or  damage,  depreciation  deduction  not  in  excess  of  decline 
in  value  during  taxable  year  will  be  allowed.     (T.  D.  2690;  art.  169.) 

If  individual  or  corporation  charges  expense  of  drilling  wells  or  further  develop- 
ment to  capital  account,  th,e  same,  in  so  far  as  expense  is  represented  by  physical 
proj^erfy,  may  be  taken  into  account  in  determining  reasonable  allowance  for 
depreciation  duririg  each  year  until  property  account  thus  augmented  has  been 
extinguished  through  annual  depreciation  deductions,  after  which  no  further 
deduction  on  this  account  will  be  allowed;  in  case  of  a  going  or  producing  business, 
cost  of  drilling  nonproductive  wells  may  be  deducted  from  gross  income  as  operating 
expense.    (T.  D.  2690;  art.  170.) 

Ownership  of  mine  content  at  time  for  which  computation  is  made  is  an  essential 
prerequisite  to  an  allowable  deduction  for  depletion  under  section  5  (a)  and  section 
12  (a)  of  Title  I  of  the  act  of  September  8,  1916,  as  amended;  deduction  in  case 
of  lessee  limited  to  amount  equal  to  capital  actually  invested  in  lease  without  regard 
to  value  as  of  March  1,  1913,  or  any  other  date;  the  seventh  and  eighth  paragraphs 
of  section  5  (a)  and  the  second  paragraph  of  section  12  (a)  authorize  in  case  of  mine 
owners  two  classes  of  deductions  to  take  care  of  wastingsof  assets,  namely,  deprecia- 
tion and  depletion.     (T.  D.  2690;  art.  171.) 

Where  designs,  drawings,  patterns,  or  models,  for  Avhich  corporation  has  made 
expenditures,  result  in  production  of  goods  which  prove  to  be  salable  for  certain 


1G6       DESCENT   AND  DISTRIBUTION — ^DESTRUCTION    OF    PROPERTY. 

Incoine  taxes — Net  income — Continued, 
length  oi:  time  and  then  beconve  obsolete  and  can  not  be  sold,  amount  .es.pouded 
far  such  designs,  etc.,  less  any  amounts  claimed  as  depreciation  or  as  return  of 
capital  may  be  cliarged  off,  be  included  in  and  deducted  as  loss  incident  to  business, 
jjrovided  full  and  complete  information  is  reported  to  satisfaction  of  Commissioner 
of  Internal  Revenue.     (T.  D.  2690;  art.  177.) 

AMiere  no  depreciation  has  been  charged  off  and  deducted  from  ^oss  income 
of  jirior  years,  amount  allowable  as  deduction  for  year  in  whicli  property  becomes 
obsolete "siiall  be  ascertained  by  deducting  fi-om  property  its  residual  value  plus 
amount  equal  to  depreciation  actually  sustained  during-  the  prior  period  and  which 
might  have  been  deducted  when  computed  ar  rate  applicable  to  same  or  similar 
property;  amount  of  such  depreciation  as  api^licable  to  former  years  may  be  made 
basis  of' amended  returns  and  claim  for  reiuiid  of  taxes  oveipaid  by  reason  of  fact 
that  no  depreciation  deduction  was  claimed  in  those  year's.     (T.  I).  2090;  art.  179.) 

Insm-ance  companies,  other  than  mutuals,  but  including  mutual  life  and  mutual 
marine,  may  add  to  expenses  in  lieu  of  depreciation  of  furniture  and  fixtures,  actual 
cost  of  repairs,  replacements,  and  renewals  of  such  furniture  asis reported  to  State 
insurance  department,  provided  that  in  case  of:an  original  investment  cost  thereof 
shall  be  charged  to  capital  account.     (T.  D.  2690;  art. -2-40. ) 

Expenditures  ior  incidental  repairs  which  do  not  add  to  value  nor  appreciably 
prolong  life  of  property  are  deductible  as  exirenses  by  insurance  companies  other 
than  mutuals,  but  including  mutual  life  and  mutual  marine,  but  expenditures  for 
new  buildings,  permanent  improvements,  or  bettennents,  which  increase  ^'alue  of 
property,  or  fox  restoring  or  replacing  property,  are  not  deductible;  such  expendi- 
tures are  properly  chargeable  to  capital  account,  to'be  extinguished  through  annual 
depreciation  allowance.     (T.  D.  2690;  art.  240.) 

ileasonable  allowance  for  wear  and  tear  of  property  arising  out  ol  its  rise  or  employ- 
ment in  business  or  trade  is  to  be  based  upon  cost  of  such  property  or  on  its  fair 
market  price  or  ^ulne  as  of  March  1,  1913,  if  acquired  prior  thereto;  in  absence  of 
proof  to  contrary  it  ivill  be  assumed  that  such  A-ahie  as  of  March  1,  1913,  is  cost  of 
property,  less  depreciation  up  to  that  date.     (T.  D.  27.54;  Aug.  23,  1918.) 

Munition  manulactiirers'  tax. 

Depreciation  deduction  authorized  hy  the  act  of  September  8,  19ilG,  .relates  to 
loss  due  to  use,  wear,  and  tear  of  physical  property  owned  an.d  used  by  the  manu- 
facturer but  which  is  not  specifically  designed  or  installed  for  purpose  of  nianulac- 
turing  munitions  or  parts  thereof,  and  which,  without  material  alteration  and  change, 
may  be  used  in  any  other  business  in  wliich  personmay  be  engaged;  annual  deduc- 
tion on  this  account  will  be  reasonable  allowance  determined  upon  basis  of  cost  and 
the  probable  number  of  years  constituting  life  of  property;  it  same  building  and 
equipment  are  used  coincidently  for  purpo.ses  other  than  manufacture  of  munitions 
or  parts  thereof,  amount  deductible  willbe  apportioned  in  accordance  with  rule 
for  apportioning  rimning  expenses.     (T.  D.  2384;  art.  20.) 

Neithei"  depreciation  nor  amortizition  deduction  allowable  will  relate  to  property 
used  in  connection  with  any  other  Ixusiness  earned  on  by  .the  mauijiacturer;  amorti- 
zation applies  only  and  particularly  to  tliose  special  plants  and  equipment  wTiose 
life  and  value,  except  s.alvago,  will  terminate  with  the  end  of  the  business  for  whicii 
they  were  erected  and  equipped,  and  it  is  to  ])p  differentiated  from  depreciation 
in  that  the  latter  relates  to  pj^operty  whose  life  and  vialue  is  not  dependent 
upon  or  materially  affected  l>y  its  use  in  manufacture  of  munitions  or  parts  tliereot. 
(T.D.2384:  art.21.) 

BESCSSTT  AUD  BISTKIBUTIQN. 

Sec  "'Estates";  ''Estate  Taxe^";  "Inheritau'c  Taxes." 
.DESTRUCTI02?  OP  PBOi'ERTY. 
CompenBatiGn — ?Exoess  profits  tax. 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  uses,  or  property 
which  has  been  lost  or  destroyed  in  whole  or  in  part  through  ^.var  bazards,  excess 
of  amount  received  =by  owner  as  compeiisation  for  prcFj^erty"  m'er  value  thereof  on 
Mar.  1,  1913,  or  over  its  cost  it  it^was  acquired  after  that  date,  except  bo  far  as  ac- 
tually used  for  Toplacement  of  propertv  in  kind,  is  subject  to  exceas-profitstaKes. 
(T.  D.  2706;  Apr.  25,  1&18.) 

Although  intention  or  obligation  of  owner  of  pi-operty  requisitioned -for  vrar  uses, 
or  lost  or  destroyed  through  war  hazards,  niay  be  to  use  entire  ;ameamt  received  as 
compensation  for  replacement  in  kind  of  such  property,  such  replacement  mav  not 
be  practieabie  ior  a  considerable  time,  owing  to  war  conditions;  in  such  ca^e"  tax- 
ps>'er  may  establish  "'Teplacement  fund"  in  -wMeh  entire  amount  t>f  compensation 


DESTRUCTION  OF  PROPERTY.  167 

Compensation— Excess  profits  tax— Coutiaued. 
shall  be  held,  and  poudinj^  disposiliou  thereof,  accouuling  for  gain  or  loss  may  be 
deferred  for  reasonable  time,  to  be  determined  by  Commissioner  of  Iiiternul  Reve- 
nue.    (T.  D.  2706;  Apr.  23,  1918.) 

Where  property  requisitioned,  lost,  or  damaged,  constitute.^  all  or  i)art  of  security 
under  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund  may,  sub- 
ject to  approval  of  commissioner,  be  amount  of  compensation  received,  less  amount, 
if  any,  %\-iiich  becomes  payable  out  of  such  compensation  imder  terms  of  sucli  in- 
strument or  obligations  tliere'hy  secin-ed;  in  such  case  taxpayer  should  apply  to 
commissioner  for  permission  to  establish  such  fund,  reciting  in  his  application  all 
facts  relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  possi- 
ble to  replace  or  restore  property;  taxpayer  required  to  furnish  bond  with  security, 
or  make  deposit; -when  rei)lacemcut  or  restoration  is  made,  new  or  restored  i)rop- 
erty  sliall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  tiiat  at  which 
the  requisitioned,  damaged,  or  destroyed 'property  was  carried,  except  and  to 
extent  that  such  new  or  restored  property  has  an  increased  productive  capacity. 
(T.  D.  2706;  Apr.  25,  1918.) 

h'orms  of  application  for  permission  to  establish  replacement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733;  June  17,  1918.) 

• Income  taxes. 

Property  destroyed  by  order  of  authorities  of  State  or  of  United  States  may  be 
claimed  as  a  loss;  "if  reimbursement  is  made,  amount  received  shall  be  reported  as 
income  for  year  in  which  reimbursement  is  made.     (T.  D.  2690;  art.  4.) 

Actual  cost  of  property  destroyed  by  order  of  authorities  of  a  State  or  of  the  United 
States  may  be  claimed  as  a  loss;'  but  if  reimbursement  is  made  by  a  State  or  United 
States,  amount  received  shall  be  reported  as  income  for  vear  in  which  reimburse- 
ment is  made.     (T.  D.  2690;  art.  ]23.) 

When  loss  is  claimed  through  destruction  of  property  by  fire,  flood,  or  other 
casualty,  amount  deductible  v/ill  be  difference  between  value  as  of  March  1,  1913, 
or  cost  of  property  and  salvage  value  thereof,  including  in  the  iatrer  value  the 
amount,  if  any,  that  has  been  or  should  have  been  set  aside  and  deducted  in  current 
or  pre\'iou3  years  from  gross  income  on  account  of  depreciation  and  which  has  not 
been  paid  oiit  in  making  good  the  depreciation  sustained.     (T.  D.  2690;  art.  147.) 

Loss  due  to  voluntary  remo\al  or  demolition  of  old  buildings,  scrapping^  of  ma- 
chinery, eqjiipment,  etc.,  incident  to  renewals  a.nd  repUxcements  will  be  deducti- 
ble, in  "amount  represjating  differenf-e  ii?twesni  cost  of  such  property  and  amount 
measuring  reasonai)le  allowance  for  depreciation  whicii  property  had  undergone 
))rior  to  its  demolition  or  scrapping.     (T.  D.  2690;  art.  155.) 

When  corporation  buys  real  estate  upon  whicli  is  located  building  or  buildings, 
which  it  ])roceed8  to  raze,  with  view  to  erecting  thereon  other  building  or  buildings, 
it  will  be  held  that  corporation  has  sustained  no  deductible  loss  by  reason  of  demo- 
lition of  old  building  or  buildings;  in  such  case  it  will  be  considered  that  value  of 
real  estate,  exclusive  of  old  improvements,  is  equal  to  purchase  price  of  land  and 
buildings.     (T.  D.  2690;  art.  156.) 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  uses,  or  property 
v;hich  has  been  lost  or  destroyed  in  whole  or  in  yjart  through  war  hazards,  exces.s 
of  amount  received  by  owner  as  compe-.isation  for  property  over  value  thereof  on 
i\Iarch  1.  193  3,  or  over  its  cost  if  it  was  acquired  after  that  date,  except  so  far  a.s 
actually  used  for  replacement  of  property  in  kind,  is  subject  to  income  and  war 
income  taxen.     (T.  D.  2706;  Apr.  25,  1918.) 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  uses, 
or  lost  or  destroyed  through  war  ha^cards,  may  be  to  use  entire  amount  received  as 
compensation  for  re])lacement  in  kind  of  such  property,  such  replacement  may 
not  be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case 
taxpavcr  may  e-;'ubli:ih  ■replacement  fund"  in  which  entire  amount  of  compe;i- 
sation  shall  be  lield,  and  pending  disposition  tliercof,  accounting  for  gain  or  loss 
may  be  defeiTod  for  reasonable  time,  to  be  determined  by  t'ommissioncr  of  Internal 
Revenue.     (T.  D.  2706;  Apr.  25,  1918.) 

Where  property  requisitioned,  lost,  or  damaged,  constitutes  all  or  part  of  security 
under  mortgage  or  trust  indenture,  amount  carried  to  replacement  tuiid  may,  sub- 
ject to  approval  of  commissioner,  be  amount  of  compensation  received,  less  amount, 
if  any,  which  becomes  payable  out  of  such  compensation  under  terms  of  such  in- 
strunient  or  oi)ligations  thereby  secured;  in  such  case  taxpayer  should  apply  to 
commis.sioner  for  pt*mis3ion  toestablisli  such  fund,  reciting  in  his  application  all 
facts  relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  possible 
to  replace  or  restore  projjcrty;  taxpayer  required  to  furnish  bond  with  security,  or 
make  deposit;  wdicn  replacement  or  "restoration  is  made,  new  or  restored  property 


168  DISCLOSURE DISCOUNTS. 

Compensation     ronlimied. 

■ Income  taxes — ('ontinued. 

ehall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  tliat  at  which 
tlie  requisitioned,  damaged,  or  destroyed  property  was  carried,  except  and  to  extent 
that  such  new  or  restored  property  lias  an  increased  productive  capacity.  (T.  D. 
2706;  Apr.  2?,  1918.) 

Forms  of  application  for  permission  to  establish  replacement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733:  June  17,  1918.) 

DISCLOSUHE. 
Income  tax  retuins. 

See  "Inspection."' 

Copies  of  returns  on  file  in  Commissioner's  office  may  not  be  sent  to  any  person, 
except  corporation  itself  or  to  its  duly  authorized  attorney;  duly  authorized  attorney 
for  this  purpo.se  is  one  possessing  properly  executed  power  of  attorney  in  writing  by 
corporation,  which  designation  shall  be  signed  by  two  officers  of  corporation  and 
bear  impress  of  the  seal.     [T.  D.  2tJ9U;  art.  226.) 

Disclosure  by  collector,  deputy  collector,  agent,  clerk,  or  other  officer  or  em- 
ployee of  the  United  States  to  any  person  not  legally  authorised  to  receive  same  of 
any  information  whatever  contained  in  or  set  forth  by  any  return  of  annual  net  in- 
come made  pursuant  to  the  law,  is,  by  the  act,  made  a  misdemeanor,  and  is  punish- 
able by  fine  not  exceeding  $1,000,  or  by  imprisonment  not  exceeding  one  year,  or 
both,  in  discretion  of  the  court,  and  if  offender  is  an  officer  or  employee  of  the  United 
States  he  shall  be  dismissed  and  be  incapable  thereafter  of  holding  any  office  under 
the  United  States  Government.     (T.  D.  2690;  art.  229.) 

DISCOUNTS. 

Estate  tax. 

Discounts  allowed  on  original  payment  of  tax  not  allowed  on  payment  of  addi- 
tional assessment.     (T.  D.  2570;  Nov.  6,  1917.) 
Excise  taxes. 

A  discount  for  cash  or  other  discount  made  subsequently  to  sale  can  not  be  de- 
ducted in  computing  price  for  purpose  of  tax  imposed  by  section  600  of  the  act  of 
October  3,  1917.     (T.  D.  2719;  Art.  III.) 
Income  taxes — Net  income. 

Where  shares  of  capital  stock  are  sold  at  a  discount,  amount  of  discount  is  not  a 
loss  deductible  from  operating  income.     (T.  D.  2690;  art.  97.) 

Where  banks  or  other  corporations  loan  money  by  discounting  bills  or  no^es,  one 
of  two  methods  shall  be  used  in  determining  amount  of  disco\mt  to  be  reported  as 
income,  namely,  (1)  if  bank  or  corporation  makes  practice  of  crediting  discount 
directly  to  "discount  account"'  or  to  profit  and  loss,  total  amount  thus  credited 
during  year  shall  l.'e  considered  income,  regardless  of  fact  that  portion  may  represent 
discount  paid  in  advance;  (2)  if  bank  or  corporation  follows  practice  of  crediting 
discount  to  "unearned  discount  account,"  and  later,  as  discount  becomes  earned, 
debits  unearned  account  and  credits  "earned  discount  account"  with  amount  so 
earned,  total  amount  credited  to  "earned  discount  account"'  during  vear  shall  be 
considered  income.     (T.  D.  2690;  art.  114.) 

Discount  on  bonds  issued  and  sold  prior  to  1909,  if  such  discount  was  then  charged 
against  surplus  or  against  income  of  year  in  wliich  bonds  were  sold,  not  deductible 
from  income  of  subsequent  years,  for  reason  that  charging  off  prior  to  January  1,  1909, 
of  entire  amount  of  discount  constitutes  closed  transaction.     (T.  D.  2690;  art.  149.) 

Where  corporation  having  sold  its  bonds  at  discount,  discount  having  been  de- 
ducted from  gross  income,  later  repurchases  or  redeems  the  bonds  at  a  price  less  than 
])ar,  difference  between  price  at  which  they  are  redeemed  and  their  par  value  will 
be  returned  as  income;  if  bonds  are  sold  at  premium,  premium  must  be  returned  as 
income.     (T.  D.  2690;  art.  150.) 

Where  corporation  sells  its  bonds  at  discount  plus  commission  for  selling,  amount 
of  such  discount  and  commission,  together  with  other  expenses  incidental  to  issuing 
bonds,  constitute  a  loss,  aggregate  amount  of  which  will,  for  purpose  of  income-tax 
return,  be  ))rorated  over  life  of  bonds  sold,  and  amount  thus  apportioned  to  each 
year  will  be  deductible  from  gross  income  of  each  vear  until  bonds  shall  have 
been  redeemed.     (T.  D.  2690;  art.  150.) 

Where  bonds  were  sold  subsequent  to  January  1,  1909,  at  a  discount,  and  amount 
of  discount  was  charged  off  on  books,  either  against  earnings  or  surplus,  but  not 
deducted  in  corporation's  return  of  net  income,  such  discount  as  was  not  then  de- 
ducted may  be  spread  over  life  of  the  bonds  and  an  aliquot  part  of  the  discount  may 
be  deducted  from  gross  income  of  each  year  until  bonds  mature  or  are  redeemed. 
(T.  D.  2690;  art.  150.) 


DISMISSAL   OF   ACTIONS— DISTILLED   SPIRITS,  1G9 

DISMISSAL  OF  ACTIONS. 

Income  taxes — Claims. 

Wlioro  Kuir  lor  taxes  not,  abalcil  as  inicollectible  is  dismisspd  upnn  ledinical  <1('feot 
ill  procLH'dinj^s,  or  when  adverse  verdict  is  rendered  on  soin(^  icchnical  <i;round  not 
rf'achinjj;  merits  of  case,  and  ri>jhl  to  new  trial  er  to  appeal  has  elapsed  and  tax  can 
not  be  collected  by  distraint  or  by  suit  in  equity  to  subject  real  estate  to  sale,  claim 
lor  abalement  should  be  made  on  Form  53.     (T.  D.  2690;  art.  254.) 

DISSOLVED  CORPORATIONS. 
Income  taxes. 

« 'orpiration  which  was  dissolved  in  1917,  prior  to  passage  of  act  of  October  3,  1917, 
issubject  to  tax  under  act  of  September  8,  1910,  as  amended,  and  alsD  to  war  income 
tax  and  war  excess  profits  tax  imposed  by  act  of  October  3,  1917.  (T.  D.  2690; 
art.  61.) 

Returns. 

Corporation  which  was  dissolved  in  1917,  prior  to  passage  of  the  a'^t  of  October  3, 
1917,  will  make  return  on  Form  1031,  revised,  covering  period  in  191/  during  which 
it  was  in  business  prior  to  its  dissolution:  if  it  .shall  have  previously  made  return 
foveriuir  this  period  and  shall  have  paid  any  excess-prolits  tax  under  act  of  March 
3,  1917,  it  .shall  be  entitled  to  credit  f.ir  amount  of  tax  so  paid  against  any  excess 
prortts  tax  assessed  against  it  under  Title  11  of  the  act  of  October  3,  1917.  (T.  D. 
2690;  art.  61.) 

All  corporations  having  existence  as  such  dujing  all  or  any  portion  of  year,  unless 
spec-itically  exempt,  are  required  to  make  returns;  corporations  dissolved  during 
year  ancl  whose  fiscal  year  coincides  with  calendar  year  will  make  returns  covering 
period  from  January  1  to  date  of  dissolution,  and  such  corporations  having  fiscal 
year  other  than  calendar  ytar  will  make  returns  covering  period  from  beginning 
of  tisfal  year  to  date  of  dissolution,  and  new  corporations  will  make  returns  for 
period  from  date  of  organization  to  December  31,  unless  fiscal  year  is  designated  in 
proper  manner,  in  which  case  returns  for  period  from  date  or  organization  to  close 
of  (is  -al  year  so  established,  in  no  case  to  exceed  12  mouths,  will  be  tiled.  (T.  D. 
2690;  art.' 203.) 

Corporation  going  into  liquidation  during  any  tax  period  may  at  lime  of  siich 
liquidation  prepare  final  return  covering  income  received  or  accrued  to  it  during 
fi-actional  part  of  year  during  which  it  was  engaged  in  business  and  immediately 
file  same  with  collector  of  district  in  which  corporation  has  principal  place  of  busi- 
ness; before  distributing  assets  dissolving  corporation  should  reserve  funds  suffi- 
cient to  pay  any  income  tax  assessable  against  it;  otherwise  tax  may  be  collected 
by  suit  against  stockholders.     (T.  D.  2690;  art.  205.) 

DISTILLED  SPIRITS. 

See  "Rectified  Spirits." 

Act  published. 

Fxtrart  from  act  of  September  S,  1910.  relating  to  tax  on  distilled  spirits,  publishc_d 
for  information  .of  internal-rev(>mie  ofiirers  and  others  concerned.  (T.  D.  2365; 
Sept.    11,    1916.) 

Alaska. 

Extracts  from  act  of  l•^?bruary  14,  1917,  prohibiting  manufacture  and  sale  of 
alcoholic  liquors  in  Alaska,  published  for  information  of  internal-revenue  officers 
and  others  concerned.     (T.  D.  2466;  Mar.  27,  1917.) 

B  averages — B  onds. 

Persons,  firms,  or  corporations  (except  distillers  and  proprietors  of  bonded  ware- 
houses, making  deliveries  in  original  tax-paid  jiackages,  who  are  already  required 
to  give  bonds)  desiring  to  use  or  sell  or  to  use  and  sell  distilled  spirits  for  other  than 
beverage  purposes,  must  apply  for  permit  and  file  bond  with  corporate  surety  or 
with  two  personal  sureties  who  qualified  on  Form  33,  to  be  approved  by  collector; 
bond  with  personal  sureties,  without  justification  by  the  sureties  on  Form  33,  may 
be  accepted  on  certain  condition,s;  single  bond  authorized  where  same  person  or 
'  orporation  is  operating  number  of  drug  stores  in  same  city.  (T.  D.  2559;  Oct.  26, 
1917.     T.  D.  2570;  Nov.  10,  1917.    T.  D.  2788;  Feb.  6,  1919.) 


170  DISTILLED   SriKITS. 

Beverages— Bonds— Continued. 

Holders  of  jiermits  for  use  of  nonbeverage  distilled  spirits  and  wines  issued  prior 
to  November  1,  1919,  required  to  give  new  bond  not  later  than  December  31,  1919; 
however,  no  new  bond  need  be  tiled  where  satisfactorv  bond  was  filed  prior  to 
November  1,  1919,  on  latest  revised  Form  738  published  in  T.  D.  2788  or  T.  D.  2840, 
in  sufficient  penal  sum  to  meet  requirements  of  T.  I).  2940,  and  in  no  case  less  tlian 
§1,000;  existing  permits  expire  on  December  31,  1919,  unless  new  bond  is  furnished 
as  required.     (T.  D.  2946;  Nov.  13,  1919.) 

Applicant  for  permit  to  use  nonbeverage  distilled  sinrits  or  wines  must  furnish 
bond,  in  duplicate,  conditioned  that  he' shall  comply  with  laws  and  regulations 
restricting  sale  or  use  of  distilled  spirits  or  wines  for  other  than  beverage  puiposes; 
bond  must  have  corporate  siu-ely  or  two  personal  sureties  and  must  be  approved  by 
prohibition  enforcement  oflicerof  the  State;  personal  bond  may  be  accepted  also 
if  Government  bonds  in  amount  equal  to  penal  sum  of  bond  offered  shall  be  duly 
assigned  to  Commissioner  of  Internal  Revenue  and  deposited  with  prohibition 
enforcement  ofHcer  as  collateral  securitv;  contents  of  bond ;  signatures;  alterations  and 
erasures;  forms;  cancellation.     {T.  D.*2940;  Oct.  29,  1919.)'' 

Basis  of  penal  sum  of  bond  covering  use  or  sale  of  nonbeverage  spirits  is  $4.20  per 
proof  gallon  on  quantity  of  spirits  which  will  be  received  during  any  quarterly 
period  of  calendar  year,  plus  amount  of  nonbeverage  spirits  on  hand  at  end  of  i)re- 
ceding  quarter;  penal  sum  of  bond  covering  wines  will  be  computed  at  rate  $100 
for  each  200  gallons,  or  any  fractional  part  thereof;  penal  sum  of  bond  covering  both 
nonbeverage  spirits  and  wines  shall  be  aggregate  sum  of  amounts  required  for  each; 
provided,  iiowever,  that  penal  sum  of  any  bond  shall  be  not  less  than  ?],000,  iva- 
more  than  $100,000.     (T.  D.  2946;  Nov.  13,  1919.) 

. Books  and  ti&miciipts. 

Distillers  and  storekeepers  requii-ed  to  make  certain  entries  on  their  records 
when  packages  of  distilled  spirits  are  sent  out  from  distillery;  rectifiers  required  to 
make  certain  entry  in  record  when  spirits  are  received  for  rectification;  wholesale 
liquor  dealers  required  to  make  entiy  on  book  52  and  on  monthly  transcripts. 
(T.  D.  2559;  Oct.  26,  1917.    T.  D.  2788;  Feb.  0,  1919.) 

■ Brandy. 

Distillers  of  l^raudy  made  from  grape  cheese,  sweetened  as  provided  in  the  act 
of  September  8.  1916,  arc  exemj^t  from  same  provisions  of  law  from  which  distiller.s 
of  brandy  from  other  fruits,  vnne,  and  fruit  pomice  residuum  have  been  exempted, 
as  set  forth  in  Regulations  No.  7,  re^'ised  July  10,  1914;  seven  pounds  of  unsweet- 
ened grape  cheese  deemed  a  gallon;  records;  u-se  of  brandy  in  fortification  of  sweet 
wine;  notice  on  Form  27^?  and  new  i)ond  on  Form  30 J;  survey;  records  and  returns; 
samples  of  sugar  solution  and  of  mash.     (T.  D.  2373;  Sept.  28,  1916.) 

There  is  no  provision  in  the  act  of  September  8,  191G,  for  refund  of  tax  on  brandy 
used  in  fortifying  wines  or  redistillation  of  such  wines;  since  act  of  September  8, 
1916,  is  amendatory  of  the  act  of  October  22,  1914,  refunding  provision  of  latter  act 
is  not  applicable.  '  (T.  D.  2387;  Oct.  30,  1916.) 

Installation  of  metal  or  wooden  seal  locked  tanks  for  reception  of  l)randy  or  sing- 
lings  required;  construction  of  distillery  and  of  brandy  room  or  building;  pipes; 
trj'-boxes;  stills;  worms;  Vai  spirit  met<?rs  and  inspection  thereof;  sample  boxes. 
(T.  D.  2491 ;  May  21,  1917.    T.  D.  2514;  July  24,  1917.) 

Only  brandy  produced  from  gcanes  may  be  fermented  and  distilled  for  fortifying 
sweet  wines  after  September  8,  1917.     (T.'  D.  2520;  Aug.  30,  1917. ) 

Fermenting  and  distilling  cf  any  materials  for  production  of  beverage  brandy 
after  September  8,  1917,  is  prohibited;  brandy  produced  from  grapes  may  be  dis- 
tilled for  fortifying  sweet  wines  under  act  of  September  8,  1916,  and  act  of  August 
10, 1917;  brandy  m.av  be  produced  from  materials  fermented  after  September  8, 1917, 
for  nonbeverage  purposes.     (T.  D.  2559;  Oct.  26,  1917.     T.  D.  2788;  Feb.  G,  1919.) 

Compromise  of  violation  of  la-w. 

Any  violation  of  law  or  regulations  which  is  violation  of  act  of  August  10,  1917, 
only,  can  not  be  made  subject  of  compromise  by  Commissioner  of  Internal  Revenue, 
under  section  3229,  Revised  Statutes',  which  section  is  anplicable  to  offenses  arisiug 
under  internal-revenue  law?  only.     (T.  D.  2559;  Oct.  26^  1917.) 

Any  \iolation  of  the  law  or  regulations  which  is  a  violation  of  the  act  of  August 
10,  1917,  or  the  act  of  November  21,  1918,  can  not  be  made  the  subject  of  compromise 
by  the  Commissioner  of  Internal  Revenue  under  section  3229,  Revised  Statutes, 
which  section  is  applicable  to  offenses  arising  under  the  internal-revenue  laws  only. 
(T.  D.  2788;  Feb.  6,  1919.),  . 


DISTILLiED  SPIKITS.  171 

Beverages— Continued. 

Flavoring  extracts. 

Nonl)everage  di;3till(Hl  spirits  taxable  at  rate  of  $2.20  per  proof  gallon  may  be  used 
by  manufacturers  of  liavoring  extracts  where  such  extracts  are  unfit  for  use  as  a 
beverage,  and  fluch  extracts  may  iu  turn  be  iwed  in  manufacturing  beverages. 
(T.  D.'256S;  Get.  27,   1917.) 

Distilled  spirits  used  in  manufacture  of  ordinary  flavoring  extracts  are  subject 
only  to  additional  tax  of  $1.10  per  proof  gallon  imposed  by  section  303  of  act  of 
October  3,  1917.     (T.  D.  25M;  Nov.  20,  1917.) 

Labels. 

Distilled  spirits  manufactured  for  other  than  beverage  purposes  from  foods, 
fruits,  etc.,  fermented  after  September  8,  1917,  wJien  entered  into  warehouse  must 
bear  printed  label,  to  be  provided  by  distiller  bearing  stated  legend;  manner  of  alfix- 
ing  label  and  form  thereof  stated;  pasting  on  metal  packages;  signatures;  advertL«ing 
matter;  changing  spirits  from  one  container  to  another;  effacement  and  obliteration. 
(T.  D.  2559;  Oct.  26,  1917.     T.  J).^78S.;  Feb.  G,  1919.) 

Materials  used  in  production.. 

Foods,  fruits,  food  materials,  or  feeds  prohibited  for  use  in  producing  beverage 
spirib,  include  all  cereals,  tubers,  fi'uits,  molasses,  grape  cheese,  apple  cheese, 
fruit  parings,  cannery  refuse,  ])eet-sugar  molasses,  sour  wine,  and  all  other  foods, 
feed,  fi-uits,  food  materials,  and  the  by-products  thereof.  (T.  D.  2520;  Aug.  30, 
1017.    T.  D.  2523;  Sept.  11,  1917.     T.  I).  27SS;  Feb.  G,  1919.) 

Section  15  of  the  act  .of  August  10,  1917,  contemplates  that  where  foods,  fruit^s, 
food  materials  or  feeds  are  xised  in  manufacture  of  distilled  spirits  for  be^'erage 
purposes  all  fermentation  mustl^e  finished  not  later  than  11  o  'clock  p.  m.  of  Septem- 
ber 8,  1917.     (T.  D.  2520;  Aug.  30,  1917.     T.  D.  2523;  Sept.  11,  1917.) 

Dilute  saccharine  liquid  derived  irom  sawdust,  woodwaste,  pulp,  and  like  bases 
is  material  from  which  the  in'oduction  of  distilled  spirits  for  beverage  .purposes 
is  prohibitftd  by  section  15  of  the  food-control  act  of  August  10,  1917.  (T.  D.  .2523; 
Sept. -25,  1917.) 

IManufacturc  of  distilled  spirits  fi-om  foods,  fruits,  food  materials,  or  feeds  for 
beverage  purposes  prohibited  after  September  8,  1917;  use  of  distilled  spirits  manu- 
factured from  such  materials  after  September  8,  1917,  in  manufacturing  or  pre- 
paring beverages  or  sale  of  such  spirits  for  beverage  purposes  forbidden;  materials 
])rohibited  for  use  in  producing  beverage  spirits  held  to  include  cereals,  tubers, 
fruits,  cannery  refuse,  sour  wine,  etc.;  production  of  grape  spirits  solely  for  use  in 
fortification  of  s^'eet  wines  under  act  of  September  8,  1916,  not  within  prohibition. 
(T.  D.  2559;  Oct.  26,  1917.     T.  D.  2788;  Feb.  0,  1919.) 

Internal-revenue  storekeeper-gangers  and  storekeeper^gaugers  assigned  as  gangers 
will  ])e  guided  by  act  of  jfugust  10,  1917,  and  regulations  and  rulings  therA?under 
and  will  not  permit  the  use  in  the  production  of  beverage  spirits  of  any  material 
held  by  T.  D.  2559  to  be  foods,  fruits,  food  material,  or  feed.  (T.  D.  2576;  Nov.  10, 
1917.   "T.  D.  2788;  Feb.  6,  1919.) 

Under-  act  August  19,  1917,  no  beverage  distilled  spirits  may  be  manufactured 
from  foods,  fruits,  food  materials  or  feeds  for  export  or  domestic  use.  (T.  D.  2788; 
Feb.  6,  1919.) 

Nonbeverage  products  and  purposes. 

Spirits  manufactured  for  other  than  beverage  purposes  from  prohibited  materials 
after  September  8,  1917,  required  when  entered  into  Vv^areliouse  to  bear  printed 
label,  to  be  provided  by  the  distiller,  bearing  stated  legend,  such  labelto  be  pasted 
and  tacked  to  the  container,  to  be  rectangular  in  form,  and  to  be  printed  in  letters 
easily  legible.  (T.  D.  2520;  Aug.  30,  1917.  T.  D.  2523;  Sept.  11,  1917.  T.  D. 
2559;  Oct.  26,  1917.     T.  D.  27SS;  Feb.  6,  1919.) 

Distilled  spirits  for  other  thaii  beverage  purposes  may  be  used  only  in  the  art.^, 
Eciences,  and  trades,  v.dierc  circuinstances  are  such  that  there  can  bo  no  probability 
that  the  spirits  v.ill  be  used  or  sold  for  beverage  purposes  or  iii  the  manufacture  or 
production  of  uny  article  intendc.l  for  nse  as  a  beverage;  medicinal,  culinary, and 
flavoring  extracts;  cosmetics  and  toibt  preparations;  proprietary  medicines;  pota- 
ble proof  spirits.     (T.  D.  2559;  Oa.  26,  1917.     T.  D.  2788;  Feb.  G,  1919.) 

Distillers  producing  nonbevcrage  spiritA  under  act  of  August  10,  1917,  required 
to  conserve  aniir-.al  feed,  contained  in  residue  or  slop,  after  distillation  of  spirits 
;from  cereab.     (T.  D.  2j82;  .Nov.  17,  1917.) 

So-called  .nonbevemgc .alcohol  taxable  at  rate  S2.20  per  proof  gallon  rnurt  not  bo 
dispernjed  under  phA-sIcian'i^  pre-^eription,  unles.'^  in  com^jounding  thereof  earn e_  is 
8o  medicated  a-?  to  rcii-ier  it  absolutely  unfit  for  use  asa  beverage;  in  case  of  preacarip- 


li'Z  DISTILLED   SPIRITS. 

Beverages — Continued. 

Nonbeverage  products  and  purposes— Continued. 

tion  ('o.iioomi'Ung  drugsist  will  be  held  responsible  as  to  euffi(?icncy  of  tncHoatinn. 
(T.  1).  2o93;  y,ux   27,  1917.) 

Dif-tillers  i>roduoiug  alcohol  exclusively  for  other  than  bevpraa;e  pur()o«r-g  may 
0)>erate  on  Sundays,  and  eoUectors  may  require  storokoeper-2;augers  and  storekeepei-- 
irani^'-rs  in  capacity  of  <;aas^pry  to  remain  on  duty;  notation  to  be  made  on  vouchers 
"for  monthly  compensation  to  effect  that  d.istilleries  wero  in  operation  under  pro- 
visions of  se 'tion  '.W2  of  act  of  October  :i,  1917;  distillers  manufact  urine;  ethyl  alcohol 
for  nonbeveraL^e  ])urpo?ies  exclusively  may  be  <;ranted  ptirniissi-)n  to  till  fermenting 
tub.s  in  sweet  niash  distillery  not  •iftoner  than  every  4S  hours.  (T.  D.  2638;  Jan. 
21,  1918.) 

Distilled  spirits  heM  by  manufacturers  and  intended  not  for  sale  as  spirits,  but 
for  maruifa'-ture  into  nonbeverage  i)rnducto.  arc  not  subject  to  taxation  under  sec- 
tion ?,d:i  of  act  of  October  3,  1917.     (T.  D.  20i3;  .Tan.  28,  1918.) 

Apothecaries  are  allowed  to  carry  distilled  spirits  and  wine  in  stock  and  use 
them  in  preparation  of  tinctures  and  other  U.  S.  P  preparations  and  in  compound- 
ing of  bona  hde  pres -riptions  without  payinsr  special  tax.     (T.  D.  27G0;  Oct.  9,  1918.) 

Standards  adopted  by  Bureau  of  Internal  Revenue  for  alcoholic  preparations  in 
which  nonbeverage  alcohol  may  be  used  stated;  these  preparations  include  V.  S.  P. 
and  X.  F.  preparations,  medicinal  preparations,  tincture  of  Jamaica  ginger,  flavor- 
ing extracts;  perfumes,'  toilet  waters,  etc.     (T.  D.  2940;  Oct.  29,  1919.) 

Dealer  or  user  who  has  received  permit  and  posted  same  may  make  application 
for  withdrawal  or  to  purchase  from  dealers  duly  qualifipd  specific  quantities  of  ais- 
tilled  spirits  or  wines  for  nonbeverage  purposes;  requisites  of  application,  which 
must  be  made  in  triplicate,  stated;  approval  of  application;  signatures;  form  of 
apjdication.     (T.  D.  2940;  Oct.  29,  1919.) 

After  December  ],  1919,  vendor  of  nonbeverage  distilled  spirits  or  wines  mtist, 
under  no  circumstances,  deliver  wiues  (except  for  sacramental  purposes),  or  non- 
beverage spirits,  unless  on  receipt  of  application  Form  789,  dtily  certified  by 
prohibition  enforcement  officer,  until  December  1,  1919,  approval  of  prohibition 
enforcement  officer  on  Form  739  will  not  be  required  prior  to  shipment  of  wines  or 
s]>iiits.  iT.  D.  294(i;  Nov.  13,  1919.) 
— - —  Penalties  for  violating  la^v  and  regulations. 

Storekeeper-gangers,  storekeepcr-gaugers  assigned  as  gaugers,  and  deputy  col- 
lectors required  to  report  to  immediate  superiors  and  revenue  agents  and  collectors 
required  to  report  to  com;:iissioner  violations  of  law  and  regulations  of  date  of  Octo- 
ber 26,  1917;  penalty  for  Aiolation  of  regulations  stated;  violation  of  law'  or  regula- 
tions which  is  violation  of  act  of  .\upust  10,  1917,  only,  not  subject  of  compromise 
bv  commissioner  under  sjction  3229,  Revised  Statutts.  (T.  D.  2559;  Oct.  28,  1917. 
T.  D.  2788;  Feb.  6,  1919.) 

\Mien  there  is  evidence  that  wine  or  liquor  obtained  acttially  or  ostensibly  for 
sicraniental,  medicinal,  or  nonbeverage  purposes  has  been  used  for  beverage 
jiurposes  it  shall  be  reported  to  the  ('ommissioner  for  assertion  of  additional 
tax  liabilitv,  and  to  the  I'nited  States  attorney  for  prosecution.  (T.  D.  2881; 
July  3,  1919. 

Fact  that  occupation  or  the  ])rodticiion  or  sale  of  a  be\  erage  is  prohibited  does 
not  relieve  those  engaged  in  such  occtipation  or  prodticing  or  selling  the  beverage 
from  tax  lialnlity;  payment  of  tax  in  no  way  conveys  any  right  to  act  contrary  to 
or  to  be  be  exempt  from  liabilities  iiujiosed  by  the  prohibition  legislation;  result 
of  statutes  im)>osing  taxes  and  ])rohibiting  traff'c  is  that  same  person  may  incur 
liability  to  tax  and  at  same  time  be  liable  to  prosecution  under  the  prohibition 
laws.     (T.  D.  2S81;  July3.  1919.) 

The  Department  of  Ju.stice  has  exclusive  jurisdiction  to  enforce  the  prohibition 
pro-.isions  of  the  act  of  November  21.  1918,  and  intiuiries  as  to  such  act  should  be 
ad<iressed  either  to  the  Attorney  General  or  local  L'ltited  States  attorney;  apparent 
violations  of  the  act  should  be  reported  to  the  local  officers  of  the  Department  of 
Justice.     (T.  D.  2881 ;  Jidy  3,  1919.) 

Permits. 

All  persons,  firnss,  or  corporations  desiring  to  us^e  or  sell,  or  to  use  and  sell  distilled 
spirits  for  nonbeverage  purposes  required  to  tile  application  for  permit;  all  persons 
forbidden  to  sell  or  deliver  distilled  spirits  for  use  or  sale  or  for  use  and  sale  for  nim- 
beverage  purposes,  if  'produced  subsequent  to  September  8.  1917,  or  tax  paid  at 
rate  of  $2.20  })er  proof  gallon  to  any  person,  etc.,  not  qualified,  and  then  only  upon 
delivery  of  application  therefor  in  due  form;  contents  of  application;  to  whom 
I>ermi.fs  will  be  issued;  recall  of  permits.  (T.  D.  2559;  Oct.  2f),  1917.  T.  D.  2576: 
Nov.  10,  1917.     T.  D.  2788;  Feb.  G,  1919.     T.  D.  2i54:  June  3    1919  ) 


DISTILLED  SPIRITS.  173 

Beverages — ronfinuod. 
Peiinits — Conliimrd. 

Inf^tru(•fitMlf•  with  rcfenMics  to  permit  to  niako  United  Statos  rharmacopd-ia  or 
National  Formulary  products;  also,  with  ri'f(^ronce  to  aU-ohflio  niediciiial  com- 
pounds not  in  oonformit}'  to  United  States  rhariuaeopfeia  or  National  !''orniiilary; 
Htatement  required  of  manufacturerH;  demand  for  for.nula  and  process  liy  which 
article  is  nianiifactured;  reference  of  matter  of  whether  eonipo\iiul  is  be\erage  to 
<'ommis^ionor  of  Internal  Revenue.  (T.  1).  2o7(J;  Xov.  10,  1917.  T.  D.  278S; 
Feb.  0,  1919.) 

Pmhibition  enforcement  officers  must  not  issue  permit  for  u.^e  of  nonbeverage 
distilled  spirits  or  wines  snbsecinent  to  November  1,  1919,  \\ilhout  first  receiving 
approval  of  ("onimissioner  of  Internal  Re\eiiue;  new  ])erniits  will  be  issued  under 
provisions  of  T.  D.  2788  until  November  1 ,  J 91 9;  permits  issued  prior  to  November 
1,  1919,  must  be  renewed;  if,  before  application  fdr  renewal,  permit  holder  desires 
to  have  permit  extended  to  cover  preparation  not  heretofore  aiii)roved,  jirohibition 
enforcement  officer  will  forward  copy  of  old  jiermit,  together  with  new  application, 
for  approval  of  the  Commissioner.     (T.  D.  2940;  Oct.  29,  1919.) 

All  persons,  firms,  or  corporations  iexce]tt  distilleries  and  ]»ro])rietors  of  bonded 
warehouses,  bonded  wineries,  and  bonded  storerooms,  making  deliveries  in  original 
packages),  desiring  to  use  for  manufacturing  pur))Oses  or  sell  distilled  spirits  (ir 
wines  for  medicinal  or  nonbeverage  piui)oses,  required  to  (jualify  by  tiling  ap})li- 
oation  for  permit  and  bond;  duly  licensed  practitioners  of  medicine  ma\  seciu'e 
permit  without  giving  bond  for  purchase  of  not  in  excess  of  two  quarts  of  alcohol 
or  alcoholic  preparations  during  period  of  one  year  by  tiling  Form  737  and  executing 
sworn  statement  that  such  alcohol  or  preparations  are  to  be  used  in  their  practice; 
form  of  ai)plication  and  data  to  be  included  therein;  serial  number;  approval  of 
application;  posting  of  permits  by  holders.     (T.  D.  2940;  Oct.  29,  1919.) 

\Miere  manufacturing  pharmacists  or  manufacturing  chemists  who  have  obtained 
permit  subsequent  to  November  1,  1919,  to  use  nonbeverage  spirits  or  wines  in 
manufacture  of  certain  preparations,  desire  to  use  such  spirits  or  wines  in  manu- 
I'acturii'g  other  preparations  according  to  private  formuUe  submitted  to  them  by 
others,  they  must  file  su}iplemental  application,  if  total  quantity  i>roduced  during 
ninety  days  exceeds  five  gallons,  but  if  total  quantity  does  not  exceed  five  gallons, 
special  permit  will  not  be  required,  but  manufacturer  will  be  held  responsible  as 
to  sufficiency  of  medication;  additional  application  must  be  made  where  it  is 
desired  to  use  nonbeverage  spirits  or  wines  in  marufacture  of  additional  prepara- 
tions not  stated  in  original  permit.     (T.  D.  2940;  Oct.  29,  1919.) 

\Miere  manufacturer  desires  to  discontinue  manufacture  of  certain  jireparations 
without  having  his  entire  permit  revoked,  he  shoidd  notify  the  prohibition  enforce- 
ment officer,  who  in  turn  should  notify  the  Commissioner;  names  of  siich  prepara- 
tions will  then  be  stricken  out  on  all  copies  of  permit.     (T.  D.  2940;  Oct.  29,  1919.) 

The  commercial  labels  that  are  placed  on  containers  of  all  preparatiors  other 
than  U.  S.  P.  or  N.  F.  must  be  filed  with  application  for  pennit  for  use  of  nonbev- 
erage distilled  spirits  or  wines,  otherwise  permit  will  not  be  granted.  (T.  D.  2940; 
Oct.  29,  1919.) 

Full  names  of  individuals  must  be  signed  to  ap])lication  for  ]iermit  for  use  of  non- 
beverage distilled  spirits  or  wines,  written  exactly  as  in  heading  thereof;  in  case 
of  copartnership  firm  name  must  be  signed  preceding  names  of  members,  and  any 
member  authorized  may  sign  the  firm  name;  in  case  of  corporation  the  corporate 
name  must  be  written,  followed  by  name  and  title  of  officer  duly  authorized  to 
sign  for  the  company,  together  with  imi)ression  of  corporate  seal'.  (T.  1>.  2910; 
Oct.  29,  1919.) 

Residue  from  industrial  distilleries. 

lk;-i'lue  from  industrial  distilleries  containing  less  than  one-half  of  1  per  cent  of 
alcohol  by  volume,  used  in  making  nontaxable  beverages,  may  bo  manipulated 
by  cooling,,  flavoring,  carbonating,  settling,  and  filtering  on  the  distillery  premises 
or  on  the  bre\very  premises,  or  transferred  from  distillery  premises  to  other  prem- 
ises for  bottling  by  means  of  unstamped  packages  unlike  those  ordinarily  used  for 
containing  fermented  liquor,  or,  if  like  packages  are  used,  both  heads  to  ])e  equipped 
with  metal  plate,  securely  attached,  and  painted  in  solid  color  with  certain  letter- 
ing.    (T.  I).  25U4;  Oct.  26,  1917.) 

Bonds. 

Execution  of  new  bonds  required  whcre\er  specific  acts  of  Congress  or  rates  of 
taxation  necessitate  such  bonds.     (T.  D.  2')25;  Sept.  24,  1917.) 

Instructions  with  reference  to  requiring  new  bonds  in  cases  where  old  bonds  are 
inadequate  because  of  increased  rates  imposed  by  act  of  October  3,  1917,  upon 
liiauufacture  and  salt  of  distilled  spirits.    (T.  D.  2578;  Oct.  31,  1917.) 


174  DISTTIiLEB  SnEEES. 

Bonds — Continued. 

All  bonds  except  Form  432  must  be  written  in  penal  sum  sulficiitnt  to  cover  tax 
on  distilled  q>idt6  at  rate  of  •$t5.'20^)er  <rallon  whCTe  t^piriti^  wem  proclucecl  jirior  to 
September  9,  IfllT.  an*^!  v.-here  produced  sabsequent  ta*u"h  date,  penal  sum  to  be 
based  ujiau  tax.at  .ra/to  of  |!2.20  per  .gallon;  w.h-ere  spirite  covered  iby  bond  (Form 
432)  were  produced  -prior  to  Bepteaiber  9,  1917,  penal  smii  must  be  in  sWa'Scient 
amount  to  cover  tOT.ce  the  tax  at  rate  of  i;'3,20,  and  v.diere  spirits  were  produced 
subseqaent  to  such  date,  \iei\sil  sum  must  be  Kufiicient  to  covTea- tax  ut  twifie  the 
amount  of  $2.20  per  gallon;  in  case  cf  lo.=?es  rate  of  tax  will  be  13.20  per  gallon  in 
all  cases;  recital  or  condition  of  bond  must  fix  tax  to  he  assertsd  accordiiig  to  'Maws 
ot  the  Ujiited  State.-^.' '     (T.  D.  2614;  .Tan.  2%  191S.) 

Bonds  covering  tax  on  distilled  spidtB  requiied  to  be  writteii  in  penal  :6um 
sutiicient  to  cover  tax  at  rate  of  |6.4f)  per  gallon  on  spirits  produced  prior  to-Septem- 
bei'  9,  1917;  where  spirits  produced isubsequent  to^uch  date,  penal  sum  of  bond  will 
be  bsised  upon  tax  atra-te  of  $2.20  per  gallon:  penal -sum  of  bond  Form  432  will  be  in 
amount  equal  to  $4.40  per  gallon  on  all  alcoliol  charged  under  the  b-5Kid.  (T.  D. 
2S21:  Apr.  10,  1919.)  ^  " 

Special  instructions  r^ardingeauGellation  of  bonds  (Form  73S;:in  case.?  where  it  is 
impossible  to  surrender  the  permit  err  to  furnish  satisfaetorv  evidence  of  its  destruc- 
tion.    (T.  D.  2854;  June  3,  1919.  i 

Eottling. 

Under -section  4D5  of  ±he.act  of  SeptcJiibei-  8,  1916, .gin  olnot  less  t^a.SOpei-  cent 
proof  may  be  bottled  in  "bond  hi  bottling  warehouse  on  distillery  premises'for  export 
at  any  time  within  eight  years-after  .en  try  in  bond  in  distillery  Vvaxehouso;  except 
as  herein  provided.  Regulations  Xc.  23,  reAdsed  December  21,  1912,  ami  Pi«gula- 
tious  Xo.  29,  revised  Aagisst  18, 1914,  are  made -applicable-  to  v.dthdraiv.al.and  bot- 
tling in  bond  for  export  before  expiration  of  iour  years  after  entry  in  bonded  dis- 
tiller}- warehouse;  spirits  withdrawri  tax  pxrid.and  fejiirits  witlidrawn 'for  export 
c^n  riot  be  pcTTcitted  iiv  bottlins:  win-ehou?e  of  distillerv  at  sametiriU'.  (T.  D.  2371 ; 
Sept.  lo,  3910.) 

When  whisky  bottled  in  bond  is  fouiud  on  the  market  the  actual ..pix-of  of  which 
does  not  exceed  101°,  .0-iUcc.cf  Commisiibner  of  Juteriial  Jlcvenue  will  not  regard 
such  overproof  arvcausc;  for  detention  of  spirits ;  when  proof  of  sjiirits  battled  in  bond 
is  found  on  market  to  be  o\erT0n.3"°  facts  should  l>e  reported  to  Office  of  Comniis- 
sioner  of  Interiad  Pievsnue,  in  ordrr  that  whero  di^ciiied  nect-jssary  an  investigation 
mav  be  made  of  bottliue:  v.a.rchoiisc  v.liere  .spirits  xrerc  bottled.  (T.  I).  24:J2;  Jari. 
B,  1917.) 

Spirits  removcfd  to  bottling  houses  must  be  immediately  bottled,  tiased,  and 
removed  from  the  premises;  one  day  conisidercd  ."^ufficit^at  time  within  which  to 
liottle  contents  of  ca-Zn  tank,  unless  dis.tilier  is  filling  Lotties  IcavS  Ihaai  qoai-t  in 
capafdtv,  in  which  case  time  mav  bo  cxt^mded,  but  in  no  case  to  exceed  three 
cousecntri-e  days.     (T.  53.  24'?10;  Aj^r.  fi,  1917.) 

Ptcquii-cment  of  article  .34,  rv(^ula1ions  No.  23,  requiiing  iMnie  ef  domestic  port 
of  clearance  and  port  of  foreign  destination  to  be  marked  en  cases  of  distilled ^spir its 
bottled  in  bond  for  export,  waived;  distillers,  however,  required  to-maxk^n  "Gov- 
ernment side"  of  the  cases  the  words  "For  export  iron;  U.  S.  A."  (T.  'D.  2.4S(i; 
Apr.  21, 1917.) 

Prai'tiee  cf  uaderiilliiig  bottles  or  using  undersized  bottles  wil!  not  (x?  tolerated; 
vvhere  quarts  do  not  vain'  in  capacity  more  than  one-litilf  oimjce  from  the  standard 
of  32  ounces  and  other  sizes  in  like  proportion,  same  will  not  be  noticed,  hut  it 
bottles  are  found  upon  either  the  distillers'  premises  or  the  o))en  market  uoiioi'mly 
to  contain  31 J  ounces  as  to  quarts  and  other  sizes  in  like  proportion,  and  bottles  are 
found  to  contain  less  than  31-\  ounces  of  sq^irits  asto  quarts  and  otlier  sizes  in  like 
propoTlzLon,  -such  spirit?  T.ill  be  subject  to -seizure;  allowance  foi*  variation  of  one- 
half  ounce  from  standard  of  32  onnces  will  net  be  made  luites  there  dvAl  bf;  as 
man  v  bottles  running  324  oi!n  ees  as  tlierc  are  thast;  tlist  rn  n  Hlh  oanoes  as  to  qiiartc! 
and  ofliersizes  in  like,  proportion.  (^'.  D.  24§B:  Mav  ^,  l^a?"  T.  J).  249P:  \rune 
(i,  1917.) 

'iiarks  and  brands  imprinted  or.  eiabossed  on  a  locse  sh'oetto'be.attaclied  to'"  Gov- 
ernment side"  of  case  permitted, -provided  that  suitahie  paste  er.glu^  is  used  v.'liich 
will  protect  the  loose  sheet  after  it  has  been  attached  to  the  ease  ircm'tlie  effects 
of  moisture.     (T.  D.  2492;  May  28,  1917.) 

Claims  fcT  abatement  or  refund. 

-Pro-visions  of  T.  D.2688  don&tgo-vernin  case  of  claims -for  retund  or  abatement  of 
ta-xes  on  distilled  spirits,  .fermerlted  liquors,  and  .wines.    ;(T.  'D.  2926;  Sept.  29, 1919.) 


PISTIOLL^D   SPIRITS.  If? 5 

Containers. 

Molal  packages  for  containing  distilled  spuits  for  export  not  recjiiirod  to  be 
equippeci  Vs-itli  ^voodou  suriucos  for  receiving-  the  marke,  Ijrands,  and  stamps,  jiro- 
A idcd  fitamps  are  Becurely  attached  to  metal  head  by  imper\ious  paste  and  protectod 
by  coating  of  varnisli,  and  provided  the  required  marks  are  stenciled  on  the  heads  by 
use  of  permanent  stenciling  material.     (T.  D.  2822;  April  19,  1919.) 

Metal  packages  for  containing  nonbeveragc  distilled  spirits  for  domestic  nsc  are 
not  reqxiired  to  be  equipped  wilJi  U'oodeii  eui'faces  for  receiving  the  marks,  bi-ands, 
and  stamps,  provided  stamps  are  securely  attached  to  metal  head  liy  impervious 
paste  and  protected  by  coaling  of  varnish,  and  provided  tliat  marks  are  stenciled  on 
heads  by  use  of  permanent  stenciling  material.     (T.  1).  2894;  July  21,  1919.) 

Cordials. 

Cordials  are  taxable  under  the  act  of  September  8,  191(>,  only  when  containing 
v.ine  fortiGed  under  that  act;  mixing  of  Vvine  not  6o  foriificd  with  distilled  spirits 
in  the  manufacture  of  cordials  is  within  prohibition  of  paragrajjh  (i)  of  section  -102 
of  such  act.     (T.  D.  23S7;  Oct.  30,  1916.     T.  D.  2788;  Feb.  6,  1919.) 

Artificial  or  imitation  wines  can  not  be  fortified  under  the  provision  of  paragraph 
(c)  of  section  402  of  the  act  of  September  8,  1916,  and  if  containing  distilled  spirits 
can  not  be  used  in  the  manufacture  of  cordials,  (T.  D.  2387;  Oct.  30,  1916.  But 
see  T.  D.  2403;  Nov.  29,  1916.) 

Any  domestic  wines  may  be  used  in  manufacture  of  liqueurs,  cordials,  and  similar 
compounds,  provided  no  "distilled  spirits  are  added;  prohibition  against  mixing  of 
distilled  spirits  with  wines  does  not  applj'  to  limited  use  of  alcohol  in  making  of 
fluid  extracts  from  herbs  which  may  he  used  in  manufacture  of  cordials;  quantity 
or  percentage  of  alcohol  permitted  in  prei")aration  of  such  extracts  for  manufacture 
of  cordials  must  in  all  cases  conform  to  United  States  Pharmacopoeia.  (T.  D. 
2387;  Oct.  30,  1916.) 

So-called  cordials,  if  in  fact  wine,  or  if -sold  as  wine,  although  containing  distilled 
spirits, -are  taxable  as  wine.     (T.  D.  2387;  0.ct.  -30,  1916.) 

Denatured  atlcohdl. 

See  "Alcohol." 
Exportation  in  tanks  or  tank  cars. 

Each  tank  or  tank  car  will  be  regarded  as  an  original  package,  and  an  export 
stamp,  to  be  procured  bv  tlie  shipper,  will  be  affixed  "to  each  sijch  tank  or  tanlv  car. 
(T.  B.  2368;   Sept.  11,  1016.) 

When  alcohol  or  other  distilled  spirits  are  to  be  withdrawn  imm.  distilleiy  bonded 
warehouse  free  of  tax  for  export  in  tanks  or  tank  cars,  metal  storage  tariksinust  be 
provided  in  such  wareliouse  to  be  constructed  and  arranged  with  proper  pipe  con- 
nections and  suitable  weighing  tanks,  as  prescribed  in  Kegulations  T'.'o.  30;  when 
withdrawals  are  to  be  made  direct  from  recei"/ing  cisterns  into  tanks  or  tank  cars, 
sl.n-dge  tanks  meed  not  be  provided  in  such  warehous?,  in  winch  case  the  weighing 
tanks  will  be  located  in  the  distillery  cistern  room.     (T.  B.  2368;   Sept.  11,  1916.) 

Applications  for  withdrawal  of  alcohol  or  other  distilled  spirits  for  exportation  in 
tanks  or  tank  cars,  and  bonds  covering  tax  on -spirits  to  be  v,ithdrawn,  will  be  same 
as  for  spirits  contained  in  original  packages,  except  that  in  distributing  the  spirits 
the  serial  number  of  the  storage  tank  will  be  given,  or  if  withdrav.'al  is  to  be -made 
direct  from  receiving  ci-stern,  application  and  bond  wiil  so  state.  (T.  D.  236S;  Sept. 
11.1916.) 

13  onded  carriers  to  wliicli  shipments  of  spirits  in  tanl^s  or  tank  caiB  are  delivered 
for  transportation  for  export  reqiurod  to  procure  certain  seals  for  securing  cars  for  use 
until  such  time  as  Commissioner  of  Internal  Revenue  may  adopt  a  suitable  seal; 
ordering,  numbering,  and  afhxing  of  seals;  duty  of  collector  of  customs  where  seals 
are  fornid  to  be  intact  at  frojitier  point;  duties  of  customs  iitspector  where  seals  are 
found  to  be  broken  or  tampered  with.     (T.  D.  2308;   Sept.  11,  1916.) 

-Monthly  report  of  spirits  withdrawn  from  receiving  cisterns  required  to  be  made 
x)n  .supi3lem.ental  Form  9-1  A;  contents.     (T.  U.  2368;   Sept.  11,  1916.) 

Exportation  of  alcohol  or  otlier  distilled  spirits  in  tanks  or  tanic  cars  real ricted  to 
shipments  bv  railroad  destined  for  points  in  contiguous  foreign  territoi'v.  (T.  D. 
2368;  Sept.  11,  1916.) 

Alcohol  or  othor  distilled  spirits  of  not  leas  than  180°  proof-may  ^he  duiwn  froin  re- 
ceiving cisf:erns  at  any  distillery  or  from  storage  tanks  in  distillery '-wtirohouse into 
tanks  or  tank  carsioreJvportirom^United -States.     (T.  D.230S;   Sept.  11,1910.-) 


176  DISTILLED   SPIRITS. 

Fermentation  time  limit. 

Manufacturers  of  alcoliolic  niOilicinal  preparations  listed  in  T.  D.  2544  can  not 
Ic'^fally  use  in  such  manufacture  distilled  spirits  )>rod need  from  materials  fermented 
af'fer  Seplember  8,  1917,  nor  distilled  spirits  taxalde  at  the  rate  of  $2.20  per  gallon. 
(T.  D.  2544;   Oct.  19,  1917.) 

Floor  tax. 

All  distilled  spirits  in  possession  of  mamilacturing  chemists,  pharmacists,  or  any 
other  person  held  for  sale,  although  not  for  sale  as  distilled  spirits  on  October  4,  19i  7, 
are  subject  to  additional  floor  tax  at  $1.10  or  $2.10  per  proof  p;allon  as  case  may  be; 
distilled  spirits  in  possession  of  manufacturers  on  October  4,  1917,  which,  in  legiti- 
mate processes  of  manufacture,  had  been  rendered  mifit  for  use  as  beverages,  are  not 
subject  to  additional  floor  tax.  (T.  D.  25(3K;  Oct.  27,  1917.  But  see  T.  D.  2643; 
.Tan.  28,  1918.) 

All  vermuths,  cordials,  and  other  compounds,  in  which  distilled  spirits  exclusively 
have  not  been  used,  but  which  contain  spirits  produced  by  fermentation,  and  these 
produced  by  distillation,  will  be  considered  as  having  15  per  cent  alcohol  by  volume 
produced  by  natural  fermentation,  and  additional  tax  of  $2.10  per  proof  gallon  will 
be  due  only  on  alcoholic  content  in  excess  of  15  per  cent.  (T.  D.  2579;  Nov.  5, 
1917.) 

All  vermuths,  cordials,  and  other  compounds  made  exclusively  from  distilled 
spirits  are  subject  to  so-called  floor  tax  of  $2.10  additional  on  each  proof  gallon  or 
fraction  of  a  gallon  of  full  alcoholic  content  thereof;  where,  hmvever,  such  com- 
pounds are  manufactured  with  mixture  of  wine  and  spirits,  additional  tax  of  $2.10 
per  proof  gallon  will  be  due  only  on  distilled  spirits  contained  therein,  and  not  on  the 
spirits  contained  in  the  fermented  wines  used.     (T.  D.  2579;   Nov.  5,  1917.) 

AVhere  satisfactory  bonds  have  not  been  given  for  extension  of  time  for  making 
payment,  notice  and  demand  should  be  mailed  as  provided  by  section  3184, 
Revised  Statutes,  which  notice  and  demand  should  be  served  on  Form  1-17,  and 
should  be  followed  in  order  by  Form  1-21  and  Form  69  within  intervals  of  10  days  of 
each  other;  notice  where  rerpiired  bonds  have  been  given;  penalties;  suits  on 
bonds.     (T.  D.  2648;    Jan.  28,  1918.) 

All  notices  required  to  perfect  lien  against  parties  liable  to  tax  should  be  issued 
promptlv,  including  notice  on  Form  668,  which  should  be  filed  in  office  of  proper 
clerk  of  "United  States  district  court,  or  in  office  of  proper  re^strar,  or  recorder  of 
deeds,  where  State  law  authorizes  such  filing;  notice  should  always  be  filed  in 
doubtful  cases  where  large  sums  are  involved  as  soon  as  practicable,  and  collector  is  of 
opinion  that  such  action  is  necessary  to  protect  interests  of  Government.  (T.  D. 
2648;  Jan.  28,  1918.) 

Where  stock  of  goods  upon  which  floor  tax  has  not  been  paid  is  depleted  by  being 
sold  or  removed  in  such  manner  as  will  result  in  jeopardizing  collection  of  taxes 
same  should  be  seized  under  provisions  of  section  3453,  Re\-ised  Statutes,  without 
awaiting  result  of  distraint  proceedings.     (T.  D.  2648;   Jan.  28,  1918.) 

Under  section  1003  of  act  October  3,  1917,  tax  on  spirits  in  hands  of  bankruptcy 
court  June  1,  1917.  shall  be  collected  from  purchaser  thereof  by  trustees  in  bank- 
ruptcy or  their  agent,  and  quantity  sold  and  amount  of  tax  collected  during  any 
calendar  month  shall  be  reported  to  collector  of  district  in  which  sales  are  made  not 
later  than  10th  day  of  month  succeeding,  which  report  shall  be  transmitted  to 
(Jommissioner's  office,  whereupon  assessment  Avill  be  made  and  tax  collected  in 
ordinary  course;  person  collecting  tax,  whether  it  is  specifically  charged  as  such  to 
person  to  whom  spirits  are  delivered  or  not,  will  be  held  liable  for  same.  (T.  D. 
2749;  July  29,  1918.) 

Section  303.  revenue  act  of  1917.  imposing  floor  taxes  on  distilled  spirits,  applies 
to  distilled  spirits  held  on  V>oard  American  ships  and  intended  for  sale,  whether 
the  vessel  on  which  thr-y  were  hold  was  at  dock  in  this  country,  on  the  higli  seas, 
or  in  foreign  waters.     (T.  D.  3098;  Dec.  7,  1920.) 

Gauging. 

Iti8tructio!!S  with  reference  to  assignment  to  distilleries  of  storekeeper-gangers  in 
place  of  storekeepers  and  gangers:  bonds;  hours  of  work;  duties;  compensation. 
(T.  D.  2438;   Jan.  29,  1917.     t.  D.  2456;   Mar.  16,  1917.) 

General  storekeeper-gauger  will  be  designated,  assigned,  and  compensated,  and 
will  perform  service  as  provided  by  Regulations  7  and  2,  and  T.  D.  2408,  with  the 
reservation  that  in  the  discretion  of  the  collector  of  internal  revenue,  or  of  the  com- 
missioner, any  distillery,  general,  or  special  bonded  warehouse  may  be  placed  in 
charge  of  an  officer  thus  designated  whenever  withdrawal  of  spirits  is'inconsiderable 


DISTILLED   SriRiTS.  177 

Ganging — Continued. 

or  wiienever  the  collector  or  the  rommissioner  dconis  fiucli  course  to  be  for  tlie  beat 
interest  of  the  (iovernment.     (T.  D.  2444;    Feb.  0,1917.) 

Inylructions  with  reference  to  assignment  of  {xauger.s  to  distilleries  producing 
]()()  gallons  per  day;  storekeeper-gaugers  assigned,  when;  recommendations  .for 
assignments  on  Form  241 :  compensation;  hours  of  labor;  duties  as  to  records,  reading 
meters,  etc.     (T.  D.  2491 :  May  21,  1917.     T.  D.  2514;  July  24,  1917.) 

Form  108  abolished;  J''orm  109  required  to  be  filed  with  Form  150  in  collectors' 
offices;  verification  of  gallons  reported  on  Form  150  required;  revenue  agents  on 
accounts  retjuired  to  verifv  gallons  gauged  as  shown  by  Form  l(jO  with  T'orm  59  and 
Form  109  and  to  report  discrepancies.     (T.  D.  2464;  Mar.  23,  1917.) 

Maximum  limit  of  wantage,  after  Septeinlx-r  1,  1917,  in  ail  packages  of  distilled 
spirits  of  a  proof  of  150  and  upward,  when  lilied  at  distillery  warehouses,  at  fruit 
distilleries  whose  daily  producing  capacity  exceeds  100  proof  gallons,  and  at  recti- 
fying houses,  stated;  schedule;  regulations  on  paces  2(i-28  of  the  Gangers'  Manual 
(1913)  and  on  pages  150,  151,  of  No.  7,  revised  July  10,  1914,  modified.  (T.  D. 
2515;  Aug.  ft),  1917.) 

Instruction  with  reference  to  change  in  price  of  standard  gauging  rod  or  any  part 
thereof,  and  as  to  making  applications  and  sending  remittances  therefor.  (T.  U. 
2617;  Dec.  13,  1917.) 

Kate  of  pay  of  oflicers  assigned  in  dual  capacity  of  storekeeper-gaugers  to  dis- 
tillery warehouses  at  distilleries  having  registered  capacity  of  more  than  20  bushels 
and  to  special  lionded  and  general  bonded  wareliouses,  fixed  at  $'4  per  day;  this 
rate  to  be  applicable  in  case  of  distillery  warehouse  whether  distillery  is  being 
operated  or  is  under  suspension,  and  as  to  all  warehouses  irrespective  of  quantity 
of  spirits  stored  therein;  when,  however,  quantity  of  spirits  in  warehouse  is  5,0r00 
gallons,  or  less,  rate  of  pay  will  be  hxed  at  $4  per  day  for  such  days  only  as  officer 
is  required  to  visit  warehouse  for  necessary  purposes:  this  rate  of  pay  to  be  effective 
on  and  after  February  1,  1920.     (T.  D.  2980;  Feb.  11,  1920.) 

Ginger  brandy. 

Cauffman's  ginger  brandy  is  an  alcoholic  compound  bcA'orage,  and  no  distilled 
spirits  fermented  after  1 1  o'clock  p.  m.  of  September  8,  1917,  may  be  used  in  its 
manufacture;  additional  floor  lax  on  product  must  be  paid  after  inventory  and 
return  in  same  manner  as  floor  taxes  on  distilled  spirits.     (T.  D.  2536;  Oct.  13,  1917.) 

Inventories. 

Where  tax-paid  whisky  belonging  to  customers  of  distillers  is  held  by  the  latter 
for  shipping  instructions,  an  inventory  covering  such  spirits  should  be  furnished 
by  the  owner  thereof  and  not  by  the  distiller,  the  distiller  being  required  to  furnish 
the  collector  with  a  statement  showing  the  name  and  address  of  the  owner,  serial 
numbers  of  packages,  and  proof-gallon  contents,  time  of  shipment  to  owner,  etc. 
(T.  D.  2522;  Sept.  10,  1917.) 

Loss. 

("laims  for  remission  of  tax  on  spirits  lost  in  transit  for  export  not  required  wliere 
spirits  are  shipped  in  sealed  cars  and  the  seals,  on  arri\al  of  cars,  are  found  intact, 
and  where  loss  reported  does  not  exceed  4  wine  gallons  as  to  any  one  package,  pro- 
vided average  loss  does  not  exceed  2  wine  gallons  per  package  as  to  all  packages 
gauged ;  requisites  of  application  for  relief  where  loss  reported  exceeds  amount  stated; 
certificate  setting  forth  whether  spirits  were  insured  in  excess  of  market  value  there- 
of, exclusive  of  tax;  regulations  applicable  to  spirits  lost  when  shipped  in  unsealed 
cars,  except  that  loss  in  excess  of  1  proof  gallon  per  package  will  be  regarded  in 
euch  cases  as  excessive.     (T.  D.  2461;  Mar.  16,  1917.) 

Collectors  directed  to  require  immediate  withdrawal  of  packages  showing  on  regauge 
loss  of  26  per  cent  or  more  over  statutory  allowance,  where  such  excessive  loss  ex- 
ceeds 2  proof  gallons ;  packages  showing  excessive  loss  exceeding  25  per  cent  over  max- 
imum  allowance,  where  such  excessive  loss  does  not  exceed  2  proof  gallons,  and 
which  have  remained  in  warehouse  less  than  four  years,  may  remain  in  warehouse 
until  spirits  are  eligible  for  bottling  in  bond;  retention  in  warehouse  not  permitted 
where  condition  of  warcliouse  or  packages  indicates  want  of  proper  care  in  pre- 
venting unnecessary  losses  or  where  loss  is  of  such  extent  as  will  materially  aifect 
tax  security  afforded  by  lien  under  section  3251,  Revised  Statutes.  (T.  L).  2508; 
July  5,  1917.) 

Wliere  loss  occurs  or  is  discovered  on  or  before  October  3,  1917,  tax  due  will  be 
at  rate  of  $1.10  per  proof  gallon;  tax  due  on  spirits  lost  by  casualty,  or  when  loss  by 

7012U°— 21 12 


178  DISTILLED   SPIRITS. 

Loss — Continued, 
casualty  is  discovered  on  or  after  October  4,  1917,  will  be  at  rate  of  $3.20  per  proof 
gallon.     (T.  D.  2539;  Oct.  17,  1917.) 

Kate  of  tax,  in  cases  of  loss  in  transit  for  export,  will  be  determined  by  date  on 
which  spiiits  were  inspected  by  customs  ganger  at  port  of  export;  rate  on  spirits 
inspected  on  or  before  October  3,  1917,  will  be  §1.10  per  proof  gallon,  but  where 
loss  is  discovered  on  or  after  October  4,  1917,  tax  due  on  loss  will  be  at  rate  of  $3.20 
per  proof  gallon.     (T.  D.  2539;  Oct.  17,  1917.) 

Where  losses  occur  from  spirits  covered  by  bond,  rate  of  tax  to  be  asserted  in 
connection  with  such  losses  will  be  $6.40  per  gallon  when  bond  is  written  in  penal 
sum  measured  ])y  that  rate  of  tax;  when  penal  sum  of  liond  covers  tax  at  rate  of 
-$2.20  a  gallon,  assassment  on  account  of  losses  will  be  made  at  that  rate,  unless  it 
shall  appear  thut  spirits  or  any  part  thereof  were  diverted  to  beverage  purposes, 
or  for  use  in  manufacture  or  production  of  any  article  used  or  intended  for  use  as 
a  leverage,  in  which  event  ta?:  mil  be  assessed  at  rate  of  ^G.40  a  gallon.  (T.  I). 
2821;  Apr.  10,  1919.) 

Marks  and  brands. 

Article  No.  34,  Regulations  No.  23,  revised  December  21,  1912,  amended  so  as  to 
to  permit  serial  numbers  of  cases  which  are  to  contain  spirits  bottled  in  bond  for 
domestic  purposes,  to  be  stenciled  thereon  in  black  letters  instead  of  beins  burned, 
imprinted,  or  embo&sed.     (T.  D.  2419;  Dec.  20,  1916.) 

All  products  of  rectification  from  molasses,  spirits,  or  spirits  otlier  than  grain  at 
rectifying  houses,  must  be  marked  and  branded  in  the  same  manner  as  spirits  de- 
rived from  grain.     (T.  D.  2548,  2560;  Oct.  4,  1917.) 

Materials  used  in  production. 

On  and  after  Jamiary  1,  1918,  no  grain  other  than  corn  of  quality  inferior  to  quality 
of  Federal  grade  No.  6  corn  shall  be  used  in  production  of  distilled  spirits;  provided, 
however,  that  malted  barley  or  rye  that  is  required  for  convei-sion  of  starch  may  be 
used ;  violation  of  regulation  carries  penalty  of  fine  not  exceeding  §5,000  or  impris- 
onment for  not  more  than  two  years  or  both.     (T.  D.  2G07;  Dec.  17,  1917.) 

Sound  grain  heretofore  received  on  premises  of  distiller  and  entered  upon  records 
may  be  remo^^ed  for  commercial  purposes,  necessary  credit  being  taken  on  such 
recoixls,  storekeeper-gauger  forwarding  certilicate  and  noting  removal  on  Form  88; 
regulations  as  to  use  of  corn;  requirement  of  new  surveys  of  distilleries  and  reduc- 
tion of  required  vield  per  bushel;  use  of  corn  in  manufacture  of  veast.  (T.  D. 
2642;  Jan.  28,  1918.) 

Mixture  with  wines. 

Under  the  act  of  September  8,  1916,  it  is  illegal  to  mix  distilled  spirits  and  wines 
for  any  purpose  except  in  the  manufacture  of  liqueurs,  cordials,  and  similar  com- 
pounds taxable  under  that  act,  Init  this  does  not  proliibit  tlie  manufacture  of  medici- 
nal extracts  with  tax-paid  nonbeverage  spirits  and  the  subsequent  addition  of 
such  extracts  to  tax-paid  wines  in  the  manufacture  of  j^roprietary  medicines  or 
soft  drinks  which  are  otherwise  manufactured  in  accordance  with  the  law  and 
regulations;  thit?  pro^asion  i-emoves  an  apparent  conflict  pertaining  to  the  mixture 
oi' distilled  spiiits  and  wines  a?  contained  in  T.  D.  2387  and  T.  D.  2403.  (T.  D. 
2788;  Feb.  6,  1919.) 

NonpajTineat  of  tax — ^Forfeiture. 

Nonparticipation  of  ov/ner  of  automobile  in  its  use  in  transporting  distilled  s-pivita 
ui)on  which  the  tax  had  not  been  paid  is  iw  bar  to  proceeding  in  rem  for  its  iorfei- 
ture.     (T.  D.  2776;  Dec.  11,  1918.) 

Distilled  spirits  seized  ]>ecause  of  filing  of  incorrect  return  or  failurc  to  file  return 
not  willful  may  be  released  on  payment  of  tax  and  compi'omise  offer  of  25  per 
cent;  payment  of  tax  and  compromise  offer  of  100  per  cent  reqnired  in  case  of  false 
return  or  willful  failure  to  fde  return.  Acceptance  of  -such  offers  is  in  lieu  of  for- 
feitureonly.     (T.  D,  2877;  Jime27,1919.) 

Under  section  3450,  Revised  Statutes,  automobiles  used  in  transporting  spirit- 
uous liquors  on  which  tax  has  not  been  paid,  l^orrowed  from  purchaser  thereof, 
who  had  given  his  note  secured  !\y  deed  of  trust  thereon  for  impaid  purchase  price, 
is  subject  to  forfeiture  as  against 'seller,  though  under  terms  of  deed  and  the  State 
law  the  seller  could  require  the  trustee  to  seize  such  automoliile  and  sell  it  in  sat- 
isfaction of  his  deed,  and  thoug^ii  he  had  no  Imowledge  of  any  intention  to  use 
such  automobile  for  an  illegal  purpose.     (T.  D.  2789;  Feb.  10,  1919.     Ct.  Dec.) 


DISTILLED  SPIRITS.  179 

^.lysicians'  prescriptions — ^Pharmacists. 

Pharniacista  who  hold  permit  and  have  given  bond  perniittod  to  sell  noubevorage 
alcohol  without  ])hysician's  prescription  to  persons  who  do  not  hold  permits  and  who 
have  not  given  bonds,  in  quantities  not  exceeding  1  pint,  but  not  in  advance  of 
orders,  provided  they  first  medicate  same  in  accordance  with  any  one  of  certain 
formulas;  container  of  such  alcohol  to  bear  "Poison"  label.  (T.  D.  257G;  Nov.  10, 
1917.     T.  D.  278S;  Feb.  6,  1919.) 

Apothecaries  may  carry  distilled  spirits  and  wines  in  stock  and  use  them  in 
preparation  of  tinctures  and  other  U.  S.  P.  preparations  and  in  compounding  of 
bona  fide  prescriptions  without  payment  of  special  tax.     (T.  1).  27(10;  Oct.  9,  1918.) 

Physicians  may  prescribe  liquors  for  internal  or  external  uses,  but  in  every  such 
case  each  prescription  shall  be  in  duplicate,  and  both  copies  be  signed  in  physi- 
cian's handwriting;  quantity  prescribed  for  single  patient  at  given  time  sliall  not 
exceed  one  quart,  and  in  no  case  shall  physician  prescribe  alcoholic  liquors  imless 
patient  is  under  his  constant  personal  super\-ision;  all  prescriptions  shall  indicate 
cleai-ly  name  and  address  of  patient,  condition  or  illness  for  which  prescribed, 
and  name  of  phannacist  to  whom  prescription  is  to  be  presented  for  filling.  (T.  I). 
2881;  Julys,  1919.) 

Nonbeverage  distilled  spirits  or  alcohol  tax  paid  at  rate  of  $2.20  per  gallon  may 
1m?  used  in  filling  physicians'  prescriptions  in  accordance  herewith  whether  spirits 
or  alcohol  is  medicated  or  denatured  so  as  to  render  it  unfit  for  beverage  use  or 
whether  it  is  not  so  medicated  or  denatured;  regulations  or  instructions  incon- 
sistent herewith  revoked.     (T,  D.  2934;  Oct.  10,  1919.) 

Where  the  same  person,  firm,  or  corporation  is  operating  a  number  of  drug  stores 
in  the  same  city,  the  withdrawal  or  ])urchase  for  sale  or  use  of  alcohol  and  wine  for 
nonbeverage  purposes  at  all  of  these  stores  may  be  covered  by  a  single  l>ond,  permit, 
and  serial  number;  the  bond  in  such  case  must  be  in  sufficient  amount  to  cover 
the  operations  at  all  the  different  stores,  and  the  name  and  location  of  each  store 
where  sales  are  to  be  made  must  be  sta,ted  in  the  appropriate  spaces  in  the  bond; 
the  original  permit  will  be  posted  at  the  main  store,  and  a  copy  of  the  same  must  be 
posted  at  each  of  the  other  stores,  with  a  notation  in  the  margin  thereof  setting  forth 
the  fact  that  the  original  is  posted  at  the  main  store,  giving  the  street  address  where 
the  same  is  located ;  applications  for  withdrawal  or  purchase  for  use  or  sale  for  other 
than  beverage  purposes  will  be  made  by  the  person,  firm,  or  corporation  to  whom 
the  permit  is  issued,  the  entire  quantity  of  spirits  and  wines  involved  being  ac- 
counted for  in  the  appropriate  blank  spaces,  and  so  certified.  (T.  D.  2788;  Feb.  G., 
1919.) 

Physician  shall  keep  record  in  which  separate  page  or  pages  shall  be  allotted 
each  patient  for  whom  alcoholic  liquors  are  prescribed,  and  shall  enter  therein,  under 
patient's  name  and  address,  date  of  each  prescription,  amoxmt  and  kind  of  liquors 
dispensed  by  each  prescription,  and  name  of  pharmacist  filling  same.  (T.  D.  2881; 
July  3,  1919.) 

Pharmacists  should  refuse  to  fdl  prescriptions  if  they  have  reason  to  believe 
that  physicians  arc  dispciasing  for  other  than  strictly  legitimate  medicinal  uses  to 
that  patient  is  securing  quantities  in  excess  of  amount  required  for  legitimare 
uses.     (T.  D.  2881;  July  3,  1919.) 

Any  licensed  pharmacistor  druggist  may  fill  physicians'  prescriptions  (1)  if  his 
name  appears  on  the  prescription  in  the  physician's  handv,'riting,  and  (2)  if  he  has 
made  application  and  received  permit.  Form  737,  in  accordance  with  provisions 
of  T.  D.  2788,  and  (3)  if  he  has  qualified  as  retail  liquor  dealer  by  payment  of  special 
tax;  no  such  prescription  may  be  refilled.     (T.  D.  2881;  July  3,  1919.) 

Wholesale  pharmacists  may  continue  to  qualif\'  for  sale  of  liquors  or  wines  for 
nonbeverage  purposes  in  conformity  v^dth  T.  D.  2788.     (T.  D.  2881;  July  3,  1919.^ 

Druggist  filling  physicians'  i)rcscriptions  shall  preserve  in  separate,  carefully 
guarded  file  one  copy  of  every  prescription  filled  and  once  a  month  shall  transmit 
to  collector  a  list  showing  names  of  physicians,  names  of  patients,  and  total  quantity 
dispensed  to  each  patient  during  the  montli;  whenever  physician  is  prescribing 
more  than  normal  quantities,  or  any  patient  is  ])rocuring  more  than  normal  quan- 
tity,  collector  shall  report  facts  to  Commissioner  and  the  United  States  attorney. 
<T.  D.  2881;  July  3,  1919.) 

Wholesale  or  retail  liquor  dealers  having  stocks  of  wines  or  liquors  on  hand  may 
sell  to  pharmacists  holding  permit,  upon  receipt  of  order  on  Form  739  and  in  con- 
formity with  T.  1).  2788,  until  supplies  are  exhausted:  wholesale  or  retail  dealers 
who  are  not  licensed  druggists  or  pharmacists  will  not  be  permitted  to  qualify,  after 
their  present  stocks  are  exhausted,  to  deal  in  either  beverage  or  nonbeverage  spirits. 


180  DISTILLED   SPIRITS. 

Physicians'  prescrfptions — Pharmacists— rontinucd. 

(T.  1).  2881;  July  3,  1!)19.)     Revoked  in  so  far  as  applicable  to  wholesale  liquor 
dealers  who  are  not  licensed  pharmacists  or  druggists.      (T.  D.  2959;  Jan.  5.  1920.) 

Recovery  from  empty  spirit  packages. 

Distilled  spirits  may  be  extracted  from  empty  spirit  packages  at  central  distilling 
and  denaturing  plants,  established  under  act  of  October  3,  1913,  and  Regulations 
No.  30  and  Supplement  No.  2,  made  in  pursuance  thereof,  Vjy  steaming,  hot  water, 
or  other  processes  on  such  premises;  spirits  thus  recovered  to  be  used  as  distilling 
material;  necessary  capacity  of  distillery  stated;  nature  of  distilling  apparatus 
required;  storekeeper-ganger;  use  of  special  deuaturanTs;  bond  required;  installation 
of  charge  tanks  and  requisites  thereof.     (T.  D.  25(35;  Oct.  27,  1917.) 

Retail  liquor  dealers. 

Retail  liquor  dealers  may  reduce  in  proof  by  addition  of  Avater  to  spirits  drawn 
irom  distiller's  original  package  or  Avholesale  liquor  dealer's  package  containing 
other  than  rectified  spirits,  tax  paid  at  15-cent  rate  by  the  rectifier,  providing  result- 
ing quantity  is  less  than  5  wine  gallons.     (T.  D.  2566;  Oct.  27,  1917.) 

Provision  of  section  304  of  the  act  of  October  3,  1917,  prohibiting  reduction  in 
proof  or  increase  in  volume  in  any  quantity  by  addition  of  water  or  other  substance, 
rectified  spirits  on  v,-hich  the  15-cent  tax  has  been  paid,  does  not  apply  to  redu(-tiou 
of  proof  by  retailers  made  at  time  of  sale,  but  such  reduction  may  not  be  made  in 
quantity  in  advance  of  sale  of  drinks.     (T.  D.  25U6;  Oct.  27,  1917.) 

Permits  to  use  or  to  sell,  or  to  use  and  sell,  distilled  spirits,  \yill  not  be  issued  to 
retail  liquor  dealers,  except  pharmacists  and  such  other  retail  dealers  as  do  not 
sell  beverage  spirits.     (T.  D.  2576;  Nov.  10,  1917.     T.  D.  2788;  Feb.  6,  1919.) 

Where  wholesale  liquor  dealer  desires  to  empty  into  bottles  or  other  retail  packages 
distilled  spirits  received  by  him,  entry  should  be  made  in  record  52B  to  effect  that 
same  Avere  disposed  of  to  himself  foi"  bottling;  after  spirits  have  been  placed  in 
rnetal  containers  further  entry  should  be  made  in  record  52A  covering  receipt 
thereof  for  bottling,  and  approved  entries  made  in  record  52 B  when  final  disposition 
is  made;  this  does  not  affect  privilege  accorded  wholesale  liquor  dealers,  who  are 
also  retail  liquor  dealers,  to  charge  off  on  record  52 B  as  disposed  of  to  their  retail 
<lepartment.s  spirits  intended  to  be  sold  in  retail  quantities  as  retail  licjuor  dealers. 
(T.  D.  2571;  Oct.  27,  1917.) 

Samples. 

Practice  of  distillers  v,'ho  drav/  samples  from  packages  of  distilled  spirits  after  the 
packages  have  been  regauged  and  while  lying  on  the  gauging  porch  awaiting  arrival 
of  tax-paid  stamps,  is  unauthorized.     (T.'D.  2397;  Nov.  20,  191C.) 

Stamps. 

Revised  Form  92  (applii'ation  for  wholesale  liquor  dealer's  stamp)  required  to 
be  used  to  exclusion  of  all  former  editions,  both  of  Form  92  and  Form  92^-,  on  and 
after  July  1,  1917;  record  of  applications;  requisition  or  competitive  bids  for  equip- 
ment.    (T.  D.  2455;  Mar.  14,  1917.) 

Use  of  distillery  warehouse,  special  bonded  warehouse,  special  bonded  reware- 
house,  general  bonded  warehouse,  general  bonded  retransfer.  and  transfer  brandy 
stamps  discontinued;  effective  Novem.ber  1,  1917.     (T.  D.  2548,  2560;  Oct.  4,  1917.) 

Stills. 

Under  section  3265,  Revised  Statutes,  any  person  who  manufactures  any  still, 
boiler,  or  other  vessel  to  be  used  for  the  purpose  of  distilling  shall,  before  removal 
from  place  of  manufacture,  notify  in  writing  the  collector  of  the  district  in  which 
such  still,  boiler,  or  other  vessel  is  to  be  used  or  set  up,  by  whom  it  is  to  be  used, 
its  capacity,  and  time  when  same  is  to  be  removed  from  the  place  of  manufacture; 
no  such  still,  boiler,  or  other  vessel  shall  be  set  up  without  a  permit  in  writing  from 
the  collector  for  that  purpose.     (T.  D.  2993;  Mar.  22, 1920  ) 

The  provision  in  sei'tion  3265,  Revised  Statutes,  punishing  failure  to  give  notice 
of  intention  to  remove  and  obtain  permit  to  set  up  a  still  in  the  sum  of  $500,  and 
making  apparatus  forfeitable  to  the  Government,  applies  to  any  and  all  stills  of 
whatever  size  or  capacity.     (T.  D.  2993;  Mar.  22,  1920.) 

Under  section  3244,  Revised  Statutes,  all  stills  which  -are  manufactured  can 
be  removed  only  under  permit  from  the  collector,  which  permit  must  be  in  pur- 
suance of  the  notice  by  the  manufacturer  and  must  be  registered  on  Form  26  when  set 
up.     (T.  D.  2993;  Mar.  22,  1920.) 


DISTILLED  SriKITS.  181 

Stills — Continuoil . 

Rejijistry  of  still  or  distilliiij^  apparatus  sot  up,  roqiiirod  by  eoolion  3258,  Rcviaoci 
Statutes,  must  be  made  ou  permit  No.  2(),  in  triplicate,  and  delivered  to  collector, 
who  will  send  one  copy  to  the  Federal  director  of  prohil)ition  for  the  State  and  one 
to  the  Commissioner  of  Internal  Revenue;  this  rcG;istry  must  be  made  immediately 
after  the  still  or  distilling  ai)paralus  comes  into  possession,  custody,  or  under  control 
of  such  person,  whether  it  be  a  new  still  or  distiliinn;  apparatus,  or  whether  one 
party  succeeds  another  in  the  possession,  custody,  control,  or  use  thereof.  (T.  D. 
L'!,>93;  Mar.  22,  1920.) 

The  requirement  of  law  that  all  stills  set  up  must  be  registered,  whether  intended 
for  use  or  not.  applies  to  all  stills,  of  whatever  size  and  for  whatever  purpose  intended, 
whether  for  distillation  of  spirits  or  for  pharmaceutical  or  other  purposes;  and  any 
still  or  distiliinti;  apparatus  not  so  registered  is  subject  to  forfeiture  to  the  United 
States,  together  with  ail  personal  property  in  the  possession  or  custody  or  under  the 
control  of  the  person  having  possession  or  control  of  such  still  or  distilling  apparatus 
and  found  in  the  building  or  in  any  yard  or  inclosure  connected  with  the  building 
in  which  same  may  be  set  up.     (T.  ]).  2993;  Mar.  22,  1920.) 

It  will  be  assumed  that  any  still  is  intended  for  the  production  of  distilled  spirits, 
with  exception  of  retorts  for  the  ])roduction  of  wood  alcohol,  unless  the  manufac- 
turershall  furnish  to  the  collector  of  the  district  evidence  under  oath  to  show  that  the 
still  is  to  be  used  for  other  purposes  than  distilling  spirits,  and  this  evidence  must 
show  affirmatively  the  exact  purpose  for  which  still  is  to  be  used  and  where  it  is  to 
be  set  up  and  used;  upon  filing  of  evidence  in  question  along  with  notice  to  collector 
of  intention  to  remove  the  still  from  the  place  of  manufacture,  the  still  may  be  re- 
moved without  payment  of  tax  thereon  and  v.  ithout  permit  called  for  in  section 
3265,  Revised  Statutes,  but  the  same  must  be  registered  when  set  up;  this  ruling 
does  not  apply  to  glass  laboratory  stills  of  trifling  capacity  used  only  for  chemical 
purposes,     (t.  D.  2993;  Mar.  22,  1920.) 

Storage. 

Storage  on  bonded  premises  of  distilled  spirits  on  which  tax  has  been  paid  is  not 
permissible.     (T.  D.  2387;  Oct.  30,  1916.) 

In.^tructions  with  reference  to  construction  of  disiiliery  warehouses;  materials; 
foundations;  doors  and  windows;  contents  of  application  for  approval  of  warehouse. 
(T.  D.  2431;  Jan.  9,  1917.) 

■ Warehouse  receipts. 

Persons  selling  warehouse  receipts  representing  distilled  spirits  in  storage  are 
liable  to  special  tax  as  they  would  be  on  account  of  the  sale  of  the  spirits  them- 
Belves,  but  in  view  of  section  3244,  Revised  Statutes,  as  amended,  such  liability 
will  not  attach  to  persons  selling  such  certificates  received  as  security  for  or  in 
payment  of  a  debt,  provided  such  certificates  or  the  spirits  represented  thereby  are 
Bold  in  one  lot,  or  the  spirits  are  sold  at  public  auction  in  lots  of  not  less  than  20 
gallons  each;  T.  D.  1278  revoked.     (T.  I).  2784;  Jan  23,  1919.) 

Survey  of  distilleries. 

Instructions  relative  to  making  surveys  of  distilleries  using  the  tiltration-acration 
process  and  operating  on  the  sweet-mash  principle  for  the  commercial  manufac- 
ture of  yeast  only.     (T.  D.  2393;  Oct.  7,  1916.) 

Industrial  distilleries  and  central  distilling  and  denaturing  plants  are  exempted 
from  the  provisions  of  section  3264,  Revised  Statutes,  requiring  that  surveys  of 
distilleries  be  made  to  determine  true  spirit-producing  capacities  thereof  for  a  day 
of  24  hours.     (T.  D.  2728;  June  8,  1918.) 

Time  taxes  effective. 

War  nnenue  taxes  on  distilled  spirits  removed  from  place  of  production  or  storage 
in  bond  took  effect  on  and  after  morning  of  October  4,  1917.     (T.  D.  2547;  Oct.  22, 

1917.) 

Virgin  Islands. 

Distilled  spirits  produced  in  the  Virgin  Islands  and  held  for  sale  in  the  United 
States  on  October  3,  1917,  are  subject  to  additional  taxes  imposed  by  act  of  October 
3,  1917,  as  in  case  of  domestic  spirits.     (T.  D.  2570;  Nov.  6,  1917.) 

Wantage  rod. 

Notice  of  increase  in  price  of  Alexander's  improved  wantage  rod  and  instruction 
ap  to  method  of  procuring  and  using  same.     (T.  D.  2640;  Jan.  28,  1918.) 


182  DISTILLED  SPIRITS. 

Wholesale  liquor  dealers. 

Wholesale  liquor  dealer  maj'  on  making  change  of  package  of  diBtiller's  original 
package  or  any  wholesale  liquor  dealer's  package  containing  other  than  rectified 
spirits"  tax  paid  by  the  rectifier,  reduce  the  proof  by  addition  of  water,  or  nmking 
necessary  changes  in  marks,  brands,  and  stamps,  pursuant  to  application  on  Form  92. 
(T.  D.  2556;  Oct.  27,  1917.) 

Where  wholesale  liquor  dealer  received  distilled  spirits  on  his  premises  he  should 
enter  in  record  52A  information  required  by  section  3318,  Revised  Statutes,  and 
when  spirits  are  disposed  of  by  him,  corresponding  entry  should  be  made  in  record 
52B;  instruction  as  to  entries  where  dealer  desires  to  empty  spirits  into  bottles  or 
other  retail  packages.     (T.  D.  2571;  Oct.  27,  1917.) 

"^Tiolesale  dealers  authorized  to  provide  themselves  with  supplementaiy  Forms 
52,  as  prescribed,  in  which  to  make  necessary  entries  of  receipt  and  disposition  of 
retail  packages;  verified  transcripts  of  supplemental  records  must  be  filed.  (T.  D, 
2855;Feb.  11,  1918.) 

Withdrawals. 

Gangers  required,  in  making  up  Form  59,  reporting  spirits  withdrawn  from  ware- 
house for  export  upon  original  gauge,  to  enter  in  proper  columns  complete  data  as  to 
each  package  appearing  in  Form  59  reporting  the  entry  gauge;  when  such  spirits 
are  shipped  for  export  in  cars  sealed  with  '  'U.  S.  C.  in  bond' '  seals,  ganger  Vv'ill  pre- 
pare separate  Form  59  for  packages  shipped  in  each  car,  and  serial  numbers  of 
seals  will  also  be  stated  in  Forva.  206,  together  with  serial  numbers  of  packages; 
bills  of  lading  for  each  car  required  to  have  seal  numbers  noted  thereon.  (T.  D. 
2473;  Apr.  2,  1917.) 

Distillers  or  owners  of  spirits  permitted  to  execute  continuing  (blanket)  bond, 
under  which  spirits  may  be  withdrawn  from  time  to  time,  in  lieu  of  bond,  Form 
G43,  prescribed  in  Regulations  No.  29,  for  each  specified  lot  of  distilled  spirits,  which 
bond  will  be  executed  in  duplicate  with  satisfactory  sureties  and  in  penal  sum  suffi- 
cient to  cover  125  per  cent  of  estimated  am^ount  of  tax  which  v.dll  at  any  one  time 
constitute  a  charge  against  the  bond  and  in  no  rase  less  than  $1,000;  new  or  addi- 
tional bond;  credit  in  bonded  spirits  accounts.     (T.  D.  2495;  June  8,  1917.) 

Date  of  withdrawal  controls  and  spirits  not  withdrawn  prior  to  inception  of  act  of 
October  3,  1B17,  can  not  lawfully  be  withdrawn  imtil  the  full  tax  under  such  law 
is  paid,  though  distilled  spirits  tax  was  paid  on  October  2,  1917.  (T.  D.  2547;  Oct. 
22,  1917.) 

K,egulations  relative  to  sale  and  use  of  distilled  spirits  for  nonbeverage  purposes 
under  acts  of  August  10, 1917,  and  October  3, 1917,  do  not  apply  to  alcohol  withdrawn 
for  denaturation,  to  alcohol  withdrawn  for  scientific  purposes,  to  distilled  spirits 
■  withdrawn  for  use  of  United  States  fi-ee  of  tax  under  section  34-34,  ReAised  Statutes, 
or  to  spii-its  withdrawn  for  export.  (T.  D.  2559;  Oct.  2ti,  1917.  T.  D.  2788;  Feb. 
G.  1919.) 

Regulations  directing  that  no  regauge  will  be  made  upon  withdrawal  of  packages 
of  distilled  spirits  from  warehouses  when  same  have  not  been  in  warehouse  more 
than  30  days;  when  gauging  officer  notes  that  package  has  been  tampered  with,  or 
when  he  has  reason  to  believe  that  package  contains  more  spirits  than  is  shown  by 
original  gau-ge,  or  materially  less  spirits,  or  distiller  asks  for  regauge,  regauge  will  be 
made  before  withdrawal ;  reason  for  regauge  to  be  noted  in  Form  59  where  regauge 
is  made  upon  withdrawal  of  packages  whicli  have  remained  in  warehouse  not 
exceeding  30  days.     (T.  D,  2562;  Oct.  22,  1917.) 

Applicant  lor  withdrawal  or  purchase  of  nonbeverage  spirits  will  make  out  applica- 
tion in  triplicate,  filling  in  necessary  data  within  his  knowledge;  instructions  with 
relation  to  distribution  of  spirits;  application  to  be  delivered  to  vendor  of  spirits 
who  will  till  in  necessary  data;  disposition  of  triplicates;  approval  of  collector  in 
advance  of  witlidrav/al  or  purchase  not  required;  applicant  must  sign  certificate 
in  prepared  spaces  without  making  affidavit.  (T.  D.  2576;  Nov.  i0,"l917.  T.  D. 
2788;  Feb.  G,l919.) 

Instructions  with  reference  to  withdrawal  of  alcohol  for  use  in  central  denaturing 
warehouses  from  different  distilleries  under  one  bond;  requisites  of  bond;  permit; 
application  for  regauge  and  withdrawal;  order;  storekeeper's  duties;  certificate  of 
ganger.     (T.  D.  2630;  Jan.  17,  1918.) 

Application  for  withdrawal  required  to  be  made  on  Form  543,  which  must  be 
signed  by  head  of  executive  departm,ent  or  head  of  bureau  not  under  control  of  any 
department,  or  by  a  Government  officer  or  employee  designated  by  written  order, 
and  must  indicate  bureau  or  division  and  department  or  independent  bureau  ot 
United  States  for  which  spirits  are  to  be  withdrawn.     (T.  D.  2653;  Feb.  16,  1918.) 


DISTILLED   WATERS DISTRICT   OF    COLUMBIA.  183 

Withdrawals — Continued . 

Biuden.  is  on  plaintiff  in  sr.it  at  law  to  recover  tax  pair!  under  protest,  pursuant 
ti)  assessment  based  on  alleged  transfeiTing,  in  removing  spirits  from  l)ond,  of  portion 
of  contents  of  barrels  coniaining,  respectively,  more  than  reqitiremeuts  of  Carlisle 
allowance  to  barrels  containing,  respectively,  le.ss  tlian  the  minimum  contents  re- 
quired by  Carlisle  allowance,  to  show  v/hat  part  of  assessment  was  wrongful;  burden 
is  not  met  by  proof  that  payment  was  made  in  accordance  with  governmental  regaugc 
nor  does  added  fact  of  long  delay  in  making  assessment  overcome  its  jtrima  facie 
evidentiary  effect.     (T.  D.  2757;  Sept.  5,  iOl.S.     Ct.  Dec.) 

Regulations  concerning  removal  of  tax-paid  alcoluj],  in  tanks  or  tank  car.^  from 
registered  distilleries  to  premises  of  rectifiers  of  spirits;  transfer  to  storage  tanks; 
reports;  labels;  bonds.     (T.  D.  2790;  Feb.  15,  1919.) 

DISTILLED   WATERS. 

See  '"Waters," 

DISTRAINT. 

Floor  taxes — Bonds. 

Collectors  should  use  A-igilance  in  collection  of  taxes  and  issue  distraint  warrant 
wherever  necessary;  if  taxes  secured  by  filing  of  bond  are  not  paid  within  time 
limit,  collector  should  endeavor  to  collect  by  distraint.     (T.  D.  2574;  Oct.  31,  1017.) 

Seizure  of  goods. 

Where  stock  of  goods  upon  which  floor  tax  has  not  been  paid  is  depleted  by  being 
sold  or  removed  in  such  manner  as  will  result  in  jeopardizing  collection  of  taxes, 
same  should  be  seized  under  provisions  of  section  3453,  Revised  Statutes,  without 
awaiting  result  of  distraint  proceediugs.     (T.  D.  2648;  Jan.  28,  1918.) 

Income  taxes — Collection. 

All  property  in  United  States  of  noni-esident  alien  is  subject  to  tlistraint  for  col- 
lection of  tax  and  penalty.     (T.  D.  2690;  art.  13.) 

Amounts  collected  by  distraint  or  otherwise  subsequent  to  institution  of  suit  for 
collection  by  United  States  attorney  should  be  at  once  reported  to  United  States 
attorney  for  his  guidance  in  his  further  prosecution  of  case  in  court.  (T.  D.  2690; 
art.  251.) 

Credit  given  collector  for  taxes  abated  as  uncollectible  will  not  affect  suit  pending 
for  their  recovery,  nor  will  it  relieve  collector  from  duty  of  distraining  any  property 
of  taxpayer  that  may  be  found  at  any  time  before  judgment.     (T.  D.  2690;  art.  252.) 

DISTRICT   OF   COLUMBIA. 
Excise  taxes. 

Taxes  imposed  by  sectioiis  313,  315,  and  GOO  of  act  of  October  3,  1917,  apply  to 
articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory  or  else- 
where in  the  United  States  than  in  a  State,  and  to  articles  sold  in  commerce  between 
United  States  and  -any  of  its  island  or  other  ]>o6sessions  except  the  West  Indian 
Islands  acquh-ed  from  D.-nmaik.     (T.  D.  2739;  June  24,  1918.) 

Facilities  fumished  by  caniers. 
See  "Transportation  Tax." 

Income  taxes — Public  utilities. 

^\^xere  public  utility  constructed,  operated,  or  maintained  by  corporation  under 
contract  with  any  city.  State,  Territory,  or  the  District  of  Columbia,  agrees  that 
portion  of  net  earnings  shall  be  paid  to'  such  city.  State,  Territory,  or  the  District 
of  Columbia,  amount  so  paid  may  be  deducted  l)y  the  public  utility  company  as 
necessary  expense  of  transacting  business.     (T.  D.  28'.)0;  art.  142.) 

Stamp  tax  on  time  drafts. 

General  rule  that  tunr^  drafts  are  subject  to  stamp  tax  imposed  by  act  of  October 
3,  1917,  when  delivered  within  territorial  jurisdiction  of  United  States,  and  not 
otherwise,  is  applicable  to  time  drafts  used  between  the  territorial  jurisdiction 
of  the  United  States  (including  the  States,  the  District  of  Columbia,  the  Territory 
of  Hawaii  and  tbs  Territory  of  Alaska),  and  the  Canal  Zone,  Philippine  Islands, 
the  Virgin  Islands,  or  Porto  Rica,  v/hether  covering  shipments  or  not.  (T.  D. 
2795;  Feb.  26,  1919.) 


2g4  PITCH    COMPANIES — rDIVIDENDS. 

Telegraph,  etc.,  massages— O 95 nal  business 

A!l  telegraph,  telephone,  or  radio  messages  of  officers  and  employees  of  the  Dis- 
trict of  (vilumhia,  on  official  business,  are  exempt  from  tax  imposed  by  section  500 
of  act  of  October  3,  1917,  and  sliould  not  be  reported  in  monthly  return  of  telegraph, 
telephone,  or  radio  company;  officer  or  employee  sending  telegraph  or  radio  mes- 
sage should  certify  thereon  that  it  is  on  account  of  official  business  and  riot  for  pii- 
vale  purposes;  form  of  certificate  indicated.     (T.  D.  2551;  Oct.  22,  1917.) 

Under  section  502  of  act  of  October  3,  1917,  radio  messages,  telegraph  niessages, 
and  telephone  messages  relating  to  Government  business,  which  originate  in 
United  States,  and  which  are  a  charge  against  the  Treasury  of  the  United  States, 
the  District  of  Columbia,  a  State,  Territory,  or  any  political  subdivision  of  a  State 
or  Territory,  and  are  paid  from  funds  thereof,  are  exempt  from  tax  imposed  by  sec- 
tion 500  (e)  of  such  act;  message-s  not  paid  from  such  funds  are  not  exempt  from  tax 
even  though  they  relate  to  Government  business.     (T.  D.  2619;  Dec.  19,  1917.) 

Exemption  from  tax  impos?d.by  section  500,  subdivision  (e),  act  October  3,  1917, 
on  telephone,  telegraph,  and  radio  messages  may  be  claimed  when  amounts  paid 
for  such  mpssages  are  finally  to  be  paid"  by  the  Government  under  a  cost-phis 
contract.  This  does  not  apply  where  contractor  is  doing  work  for  Government  under 
lump-sum  contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 


DITCH  COMPANIES. 

Capital  stock  tax — Exemption. 

I'^avm^'rs'  or  other  mutual  ditch  or  irrigation  company,  income  of  which  consists 
Bolely  of  assessments,  dues,  and  fees  collected  from  members  for  sole  purpose  of 
meetinc  its  exT'enses,  is  exempt  from  tax  imposed  by  section  11  of  Title  1  of  a<t 
September  8,  191(5.     (T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Iiicome  taxes — Exemption. 

Mutual  ditch  or  irrigation  company  is  specifically  exempt  from  income  tax,  pro- 
vided that  their  entire  income  consists  solely  of  assessments,  dues,  and  fees  collected 
Irom  members  for  sole  purpose  of  meeting  expenses  incurred  in  pursuance  of  pur- 
pose for  which  organized;  if  any  such  organization  has  income  from  any  source 
other  than  assessments,  dues,  and  fees,  such  income  is  taxable,  and  organi.'.ations 
receiving  same  will  be  required  to  make  returns.     (T.  D.  2690;  art.  69.) 

DIVIDENDS. 

Sec  "Corporations. " 

Definition. 

The  term  "dividend,"  within  the  income-tax  law,  means  any  distribution 
made  or  ordered  to  be  made  by  a  corporation,  joint-stock  company  or  association, 
or  iufi\irance  company  out  of  its  earnings  or  profits  accrued  since  March  1,  1913,  and 
payalile  to  its  shareholders  whether  in  cash  or  in  stock  of  the  corporation,  joint- 
Btock  company  or  association,  or  insurance  company.     (T.  D.  2690;  art.  106.) 

The  term  "dividend,"  as  used  in  war  excess-profits  tax  regulations,  has  {he 
same  meaning  as  in  section  31  of  the  act  of  September  8,  1916,  as  amended  by  the 
act  of  October  3,  1917,  to  wit,  any  distribution  made  or  ordered  to  be  made  by  a 
corporation,  joint-stock  company,  association,  or  insurance  company,  cut  of  its 
earnings  or  profits  accrued  since  March  1,  1913,  and  payable  to  its  stockhoklers, 
whether  in  cash  or  in  stock,  which  stock  dividends  shall  be  considered  income,  to 
the  amount  of  earnings  or  profits  so  distributed;  unless  otherwise  indicated  by  the 
context,  term  will  be  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D. 
2694;  arts.   1,   9.) 

The  act  of  September  <S,  1916,  and  the  act  of  October  3,  1917,  in  excluding  divi- 
dends declared  out  of  eanings  or  profits  that  accrued  prior  to  March  1,  1913,  are 
not  intended  to  be  dedaatorv  of  the  meaning  of  the  term  "dividends"  in  the  act 
of  October  3,  1913.     (T.  D.  2731;  June  11,  1918.     Ct.  Dec.) 

A  dividend  declared  and  paid  by  one  corporation  in  the  stock  of  another  i.s  not  a 
"stock  dividend' '  within  the  accepted  meaning  of  that  term.  (T.  D.  2732;  Ju.ie  11, 
1918.     Ct.  Dec.) 

Periodical  refunds  by  cooperative  organizations,  which  are  sometimes  called 
"dividends,  "  are  wholly  different  from  ordinary  dividends  based  on  stock  holdings 
and  need  not  be  listed  as  income  by  recipient;  where  recipient  claims  right  to 
deduct  as  business  expenses  any  expenditures  on  which  refund  is  based,  sum  claimed 
as  deduction  must  be  reduced  in  proportion  to  refund  received.  (T.  D.  2737;  June 
19,  1918.) 


DIVORCE — DRAFTS.  185 

Estate  tax. 

See  "Estate  Tax." 
Income  tax. 

-See  "Income  Taxes  (Individuals)." 

DIVORCE. 
Alimony — Income  tax. 

Alimony  or  allowance  based  on  separation  agreement  ia  not  income  to  recipient 
thereof,  nor  is  it  an  allowable  deduction  for  the  person  paying  same.  (T.  D.  2690: 
art.  4.) 

DOCTORS. 

See  "Physicians." 

DOCUMENTARY  STAMPS. 

See  "Stamp  Taxes." 

DOING  BUSINESS. 
Definition. 

The  definition  of  the  term  "doing  business,"  as  used  in  corporation-tax  act  of 
August  5,  1909,  which  lias  been  judicially  approved  is  that  which  occupies  the 
time,  attention,  and  labor  of  man  for  the  purpose  of  a  livelihood  or  profit.  (.T.  D. 
243(];  Jan.  19,  1917.     Ct.  Dec.) 

The  M'ord  "buoiuess,"  as  used  in  act  September  8,  191(1,  is  a  very  coraprehensivo 
term  and  embraces  everything  about  which  a  pert^on  can  be  employed;  fair  test 
as  to  whether  or  not  a  corporaiion  is  doing  business  is  whether  the  corpoiation  has 
reduced  its  activities  to  the  owning  and  holding  of  property  and  the  distribution 
of  its  avaiJs  and  doing  only  the  acts  necessary  to  continue  that  status,  or  is  still 
-  active  and  is  maintaining  its  organization  for  purpose  of  continued  efforts  in  pui-suit 
of  profit  and  gain  and  such  activities  as  are  essential  to  these  purj)0ses.  (T.  D.  2750, 
art.  4;  Aug.  9,  1918.) 

DOMESTIC. 
Definition. 

The  term  "domestic, "  as  used  in  war  excess-profits  tax  regulations,  means  created 
under  the  law  (statutory  or  other)  of  United  States  or  any  State  thereof,  Alaska, 
Hawaii,  or  the  District  of  Columbia,  and  unless  otherwise  indicated  by  the  con- 
text, term  will  be  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D. 
2694;  arts.  1,  3.) 

DOMESTIC  CORPORATIONS. 

See  "Corporations." 

DONATIONS. 

See  "Gifts." 

DRAFTS. 

Stamp  tax— Bill  of  lading  attached. 

Ordinary  sight  draft  with  bill  of  lading  attached  is  not  taxable,  but  draft  expressed 
to  be  payable  at  sight '  'on  arrival  of  car, ' '  or  containing  memorandum  to  hold  until 
arrival  of  car,  is;  sight  draft  accompanied  by  instructions  outside  the  instrument,  as 
"Do  not  present  until  arrival  of  car,"  or  some  such  memorandum,  is  not  taxable. 
(T.  D.  2682;  Mar.  26,  1918.) 

Delivery. 

If  a  draft  drawn  abroad  on  a  foreign  drawee,  with  a  foreign  payee,  pa,sses  through 
a  bank  here  in  the  course  of  collection,  no  tax  is  payable  unless  it  should  be  delivered 
by  an  agent  of  the  drawer  to  an  agent  of  the  payee  within  the  United  States.  (T.  D. 
2682;  Mar.  26,  1918.) 

The  rule  that  a  taxable  draft  or  check  becomes  subject  to  the  tax  imposed  by 
Schedule  A  of  Title  \III  of  the  act  of  October  3,  1917,  if  delivered  within  the 
territorial  jurisdiction  of  tlie  United  States,  means  that  the  tax  does  not  attach  to  a 
draft  drawn  and  accepted  here,  but  delivered  abroad,  whether  before  or  after 
acceptance,  but  docs  attach  to  a  draft  delivered  here,  whether  before  or  after  accept- 
ance, although  drawn  and  accepted  abroad;  in  general,  a  draft  sent  through  the 
mail  is  delivered  wheii  and  where  deposited  in  the  mail  addressed  to  the  payee  or  the 
indorsee  from  the  drawer.     (T.  D.  2682;  Mar.  26,  1918.) 


ISO 


DRAWBACKS. 


Stamp  ta::— Conlimu'd. 

— — Delivery— Continued. 

Payee  or  indorsee  from  drawer  must  see  to  it  tliat  drawer  paj-s  tax  before  delivery; 
the  word  "accept"  is  used  in  section  802  of  tlie  act  in  the  general  sense  of  "re- 
ceive, ■  ■  not  in  the  special  sense  peculiar  to  drafts;  no  drav/ee  accepting  an  unstamped 
undelivered  draft  would  violate  the  law,  but  if  the  draft  has  already  become  taxable 
because  of  a  prior  delivery,  acceptor  must  be  sure  that  stamps  are  affixed.  (T.  D. 
2682;  Mar.  26,  1918.) 

The  general  rule  that  a  taxable  draft  becomes  subject  ta  the  tax  coacurrently 
with  its  delivery  means  that  the  tax  attaches,  not  when  it  is  signed  by  the  drawer 
or  presented  to  the  drawee  for  acceptance,  or  accepted  by  him,  but  when  it  is  deliv- 
ered to  the  payee,  if  drawn  on  a  third  person,  or  negotiated  by  the  drawer,  if  drawn 
to  his  order,  whether  such  delivery  or  negotiation  takes  place  before  or  after  accept- 
ance; if  draft  was  drawn  and  accepted  before  passage  of  act  of  October  3,  1917,  but 
not  delivered  or  negotiated  until  afterwards,  tax  is  payable;  if  draft  is  presented 
to  drawee  for  acceptance  and  discounted  by  him,  stamps  must  be  first  affixed  by 
drawer.     (T.  D.  2682;  Mar.  26,  1918.) 

The  stamp  tax  on  drafts  imposed  by  Schedule  A,  of  Title  VIII,  of  the  act  of 
October  3,  1917,  attaches  to  drafts  at  the  time  of  delivery,  if  delivered  vfithin  the 
territorial  jurisdiction  of  the  United  States  and  expressed  to  be  payable  otherwise 
than  at  sight  or  on  demand,  but  not  to  drafts  not  yet  delivered  or  delivered  in  a 
foreign  country  or  expressed  to  be  payable  at  sight  ar  oa  demand.  (T.  D.  2682 ; 
Mar.''26,  1918.) 

Exports. 

Because  of  the  constitutional  re-striction  that  no  tax  or  dut^-  shall  be  laid  on 
articles  exported  from  any  State,  drafts  with  bills  of  lading  attached  co\'erin,g 
goods  in  course  of  exportation  are  not  subject  to  the  tax.  (T.  D.  2682;  Mar.  20, 
1918.) 

Si^t  draft. 

A  si?ftt  draft  accepted  and  paid  for  the  drawee  by  the  collecting  bank,  which 
holds  it  and  charges  interest  until  the  drawee  takes  it  up,  ia  not  taxable.  (T.  D. 
2682;  Mar.  26,  1918.) 

A  draft  might  be  drawn  stating  no  time  for  payment,  which  would  class  it  as  a 
sight  draft,  and  be  accepted  at  90  days  which  would  change  its  nature;  if  nego- 
tiated or  delivered  before  acceptance  holder  would  be  obliged  to  stamp  thereon 
acceptance,  in  default  of  which  both  he  and  acceptor  would  be  liable  for  statutory 
penalty.    (T.  D.  2682;  I^Iar,  26,  1918.) 

Time  drafts. 

General  rule  that  tim;^  drafts  are  subject  to  stamp  tax  imposed  by  act  of  October 
3,  1917,  when  delivered  within  territorial  jurisdiction  of  United  States,  and  not 
otherwise,  is  applicable  to  time  drafts  used  between  the  territorial  jurisdiction  of 
the  United  States  (including  the  States,  the  District  of  Columbia,  the  Territory  of 
Hawaii,  and  the  Territory  of  Alaska)  and  the  Canal  Zone,  Philippine  Islands,  the 
Virgin  Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.  (T.  D.  2795; 
Feb.  26,  1919.) 

The  stamp  tax  imposed  by  subdivision  (b)  of  Schedule  A  of  the  act  of  October  3, 
1917,  attaches  to  time  drafts  covering  articles  slupped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zoae,  and, 
although  time  drafts  covering  shipments  to  the  Virgin  Islands,  the  Philippine 
Islands,  and  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles 
shipped  to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or  Porto 
Rico  must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified. 
(T.  D.  2782;  Dec.  24,  1918.) 

DRAWBACKS. 
Exports — Alcohol. 

Where  alcohol  Ls  exported  in  its  natural  condition,  drawback  thereon  allowed 
only  when  alcohol  is  exported  in  the  distillers'  original  casks  or  packages,  and 
allowance  is  limited  by  section  3329,  Revised  Statutes,  to  90  cents  j^er  proof  gallon; 
where  the  alcohol  is  used  in  manufacture  of  flavoring  extracts,  medicinal,  or  toilet 
preparations  for  export,  the  drawback  should  include  both  tax  of  §1.10  i>er  proof 
gallon,  and  additional  tax  paid  thereon,  under  act  of  October  3.  1917.  (T.  D.  2572; 
Oct.  24,  1917.) 


DRUGS — DUES.  187 

Exports — Contimied . 

Automobiles. 

There  is  no  (irawbatk  on  exported  automobilea,  automobile  trucks,  etc.  (T.  D. 
2591;  Nov.  24,  1917.) 

Narcotics. 

Manufacturers  of  narcotics  may  lawfully  lurninh  to  any  duly  accredited  special 
agent  or  customs  a<fent  of  the  Treasury  Department,  samples  required  in  order  to 
make  analyses  to  establish  allowance  of  drawback  on  manufactured  drugs  exported 
from  this  (country,  taking  receipt  of  such  officer  therefor,  which  will  be  filed  with 
official  narcotic  order  forms  and  records.     (T.  D.  2487;  Apr.  28,  1917.) 

DRUGS. 

See  "Medicinal  Preparations." 

Narcotics. 

See  "Narcotics." 

DHUGGISTS. 

Sefe  "Pharmacists." 

DUES. 
Advance  payment. 

Where  dties  are  paid  in  advance  for  calendar  year  1917,  the  tax  imposed  by  sec- 
tion 701  of  the  act  of  October  3,  1917,  is  payable  ou  one-sixth  of  the  full  amoxmt 
paid  for  such  calendar  year  and  should  be  collected  at  time  of  first  payment  of  dues 
for  1918.     (T.  D.  2681;  Mar.  2G,  1918.) 

Assessment  dues. 

Tax  imposed  by  section  701  of  act  of  October  3,  1917,  is  10  per  cent  of  any  aniotmt 
paid  as  dues  or  membership  fees  (inchiding  initiation  fees  and  any  payment  requirc'.l 
for  becoming  or  remaining  a  member  as  well  as  extraordinary  dues  or  assessments) 
to  any  social,  athletic,  or  sporting  club  or  organization  where  such  dues  cr  fees  are 
in  excess  of  §12  per  year;  where  all  dues  or  fees  payable  in  any  one  year  aggregate 
more  than  §12,  tax  attaches  to  each  payment  by  member;  if  dues  exchisive  of 
initiation  fee  are  not  in  excess  of  §12  a  year,  no  tax  is  pavable  except  for  members 
paying  such  fee.     (T.  D.  2681;  Mar.  26,  1918.) 

Athletic  and  sporting  clubs. 

Athletic  and  sporting  clubs  include  boating,  tennis,  golf,  boxing,  canoe,  fishing, 
and  hunting  clubs,  and  any  organizations  for  practice  or  promotion  of  athletics  or 
sports;  Commissioner  of  Internal  Revenue  shall  determine  whether  a  club  or  organ- 
ization is  an  athletic  or  sporting  club  within  meaning  of  section  701  of  act  of  October 
3,  1917,  xipon  being  furnished  charter  or  constitution  and  by-laws  of  organization, 
statement  as  to  its  actual  activities  and  practices,  and  such  other  information  as  he 
may  deem  pertinent.     (T.  D.  26S1;  Mar.  26,  1918.) 

Basis  of  tax. 

Tax  imposed  by  section  701  of  act  of  October  3,  1917,  is  10  per  cent  of  any  amount 
paid  as  dues  or  membership  fees  (including  initiation  fees  and  any  payments 
required  for  becoming  or  remaining  a  member,  as  well  as  extraordinary  dues  or 
assessments)  to  any  organization  where  such  dues  or  fees  are  in  excess  of  $12  per 
year;  where  all  dues  or  fees  payable  in  any  one  year  by  a  member  of  a  club  will 
aggregate  more  than  ."^12,  tax  attaches  to  each  payment  by  such  member;  if  the 
dues  exclusive  of  the  initiation  fee  are  not  in  excess  of  $12  a  year,  no  tax  is  payable; 
except  fi-om  members  paving  such  fee;  tax  is  payable  on  life  membership  fees 
when  paid.     (T.  D.  2681;  "Mar.  26,  1918.) 

Boating  clubs. 

Boating  clubs  are  included  within  the  term  "atliletic  and  sporting  clubs,"  as 
used  in  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as 
dues  or  membership  fees,  to  any  athletic  or  sporting  "club.  (T.  D.  2681;  Mar. 
26, 1918.) 


188  DUES. 

Boxing  clubs. 

Boxini^  clubs  are  inchxled  within  the  term  "athletic  and  sporting"  ch  bs,  as  ised 
in  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as  dues 
or  membership  fees,  to  any  athletic  or  sporting  club.     (T.  D.  2681;  Mar.  26,  1918.) 

Business  organizations. 

Tax  imposed  by  sectioji  701  of  act  of  October  3,  1917,  does  not  attach  to  dues 
])aid  to  chambers  of  commerce  or  other  primarily  business  organizations.  (T.  D. 
21)0 1;  Mar.  26,  1918.) 

Due'?  paid  commercial  club  conducted  primarily  for  commercial  objects  are  not 
taxable  for  special  reason  that  chief  social  feature,  that  of  the  restaurant,  besides 
!?cing  maintained  as  an  adjunct  to  the  luncheon  meetings,  is  regularly  opened  to 
the  members,  local  bue^iness  and  civic  organizations,  and  used  by  them  for  purposes 
which  the  chib  is  engaged  in  fiuthering".     (T.  D.  2795;  Feb.  26,  1919.) 

Dues  paid  for  membership  privileges  in  chamber  of  commerce  or  other  primarily 
commercial  organization  are  taxaljle  if  privileges  include  clubhouse  facilities  such 
as  are  afforded  by  ordinary  city  social  club.  ^{T.  D.  2795;  Feb.  26,  1919.) 

Canoe  clubs. 

Canoe  clubs  are  included  within  the  term  "athletic  and  sporting"  chibs,  as  used 
in  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as  dues 
or  membership  fees,  to  any  athletic  or  sporting  club.     (T.  D.  26S1;  Mar.  26,  1918.) 

Chambers  of  commerce. 

Tax  imposed  by  section  701  of  act  of  October  3,  1917,  does  not  attach  to  dues  paid 
to  chambers  of  commerce  or  other  primarily  business  organizations.  (T.  D.  2681; 
Mar.  26,  1918.) 

Clubs  included  within  "social,  athletic,  or  sporting." 

Commissioner  of  Internal  Revenue  shall  determine  whether  a  club  or  organiza- 
tion comes  within  scope  of  words  "social,  athletic,  or  sporting,"  as  used  in  section 
701  of  the  act  of  October  3,  1917,  upon  being  furnished  charter  or  constitution  and 
by-laws  of  the  organization,  statement  as  to  its  acttial  acti\-ities  and  practices,  and 
such  other  information  as  he  may  deem  pertinent  to  the  determination;  "social 
chib"  defined;  what  clubs  are  included  within  "athletic  and  sporting  clubs"; 
tax  does  not  attach  to  dues  paid  to  chambers  of  commerce  or  other  primarily  btisi 
ness  organizations;  dues  and  fees  paid  by  residents  of  United  States  to  clubs  located 
in  foreign  coimtry  and  having  fto  branches  or  organization  liere,  not  taxable.  (T.  D. 
2681;  Mar.  26,  1918.) 

Collection  of  tax. 

Where  dues  are  paid  in  advance  for  calendar  year  1917,  tax  is  payable  on  one- 
sixth  of  full  amount  paid  for  such  calendar  year,  and  shoTild  be  collected  at  time  of 
first  payment  of  dues  for  1918.     (T.  D.  2681;  Mar.  26,  1918.) 

Commercial  clubs. 

See  "Business  organizations,"  ante. 

Computation  of  tax. 

Tax  imposed  by  section  701  of  act  of  October  3,  1917,  is  10  per  cent  of  any  amount 
paid  as  dues  or  membership  fees  (including  initiation  fees  and  any  payments  re- 
(juired  for  becoming  or  remaining  a  member,  as  well  as  extraordinary  dues  or  assess- 
ments) to  any  organization  where  siich  dues  or  fees  are  in  excess  of  $12  per  year; 
where  all  dues  or  fees  payable  in  any  one  year  by  a  member  of  a  chib  will  aggregate 
more  than  $12,  tax  attaches  to  each  payment  by  stich  member;  if  the  dues  exclu- 
sive of  the  initiation  fee  are  not  in  excess  of  $12  a  year,  no  tax  is  payable  except 
from  members  paving  such  fee;  tax  is  payable  on  life  membership  lees  when  paid. 
(T.  D.  2681;  Mar."  36,  1918.) 

T.iability  to  the  tax  imposed  by  section  701  of  the  act  of  October  3,  1917,  depends 
upon  the  period  for  which  the  dues  are  paid ;  tax  must  be  paid  unon  all  dues  repre- 
sentmg  membership  privileges  for  the  time  elapsing  after  October  31,  1917,  regard- 
less of  time  of  payment,  except  in  case  of  life  membership  fees  paid  before  November 
1,  1917;  in  case  of  diies  paid  in  advance  for  calendar  vear  1917,  tax  is  pavable  on 
one-sixth  of  lull  amount  paid  for  such  calendar  year'and  should  be  collected  at 
time  of  first  payment  of  dues  for  1918.     (T.  D.  26S1;  Mar.  20,  1918.) 


DUES.  189 

Date  tax  effective. 

Liability  to  the  tax  impwoil  hy  section  701  of  th^  act  of  O'tobor  3,  1017,  depoads 
vipOM  th^  perio;l  for  whieli  th;3  dues  are  p.iid;  fax  must  b:j  piid  up)!i  all  dues  repre- 
eenting  membership  privileges  for  the  time  elapsing  after  October  31,  1917,  regard- 
less of  time  of  payment,  except  in  case  of  life  membership  fees  paid  before  Novenil)er 
1,  1017;  in  case  of  dues  paid  in  advance  for  calendar  year  1917,  tax  is  payable  ou 
one-sixth  of  full  amount  paid  for  such  calendar  year  and  should  be  collected  at 
time  of  first  payment  of  dues  for  JOIS.     (T.  D.  2t>Sl;  Mar.  2G,  1018.) 

Exemptions. 

Dues  or  fees  paid  to  fratoriial  orders  not  falling  within  the  express  exemption  of 
section  701  of  the  act  of  October  3,  1917,  are  not  subjact  to  the  tax  imposed  by  that 
section,  if  the  purposes  and  practices  of  the  order  to  which  they  are  paid  are  religious, 
benevolent,  or  educational,  and  any  social  activities  of  the  order  are  incidental  and 
subordinate;  where  the  purposes  or  practices  of  any  fraternal  order  are  primarily 
social  in  character,  dues  or  fees  paid  to  it  are  subject  to  the  tax.  (T.  D.  26SI;  Mar. 
2G,  1918.) 

Fishing  clubs. 

i^^ishing  clubs  are  intended  within  the  term  "athletic  and  sporting"  clubs,  as 
used  in  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as 
dues  or  membership  fees,  to  any  athletic  or  sporting  chib.  (T.  D.  2681;  Mar.  26, 
1918.) 

Foreign  clubs. 

Dues  and  fees  paid  by  residents  of  United  States  to  clubs  located  in  foreign 
country  and  having  no  branches  or  organi/ations  here,  are  not  subject  to  tax  im- 
posed by  section  701  of  act  of  October  3,  1917,     (T.  D.  2681;  Mar.  26,  1918.) 

Fraternal  orders. 

Dues  or  fees  paid  to  fraternal  orders  not  falling  within  the  express  exemption  of 
section  701  of  the  act  of  October  3,  1917,  are  not  subject  to  the  tax  imposed  by  that 
section,  if  the  purposes  and  practices  of  the  order  to  which  they  are  paid  are  reli- 
gious, benevolent,  or  educational,  and  any  social  aclivities  of  the  order  are  inci- 
dental and  subordinate;  where  the  purposes  or  practices  of  any  fraternal  order  are 
primarily  social  in  character,  dues  or  fees  paid  to  it  are  subject  to  the  tax.  (T.  D. 
2681;  Mar.  26,  1918.) 

Golf  clubs. 

Golf  clubs  are  included  within  the  term  "athletic  and  sporting"'  clubs,  as  used 
iu  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as  dues 
or  membership  fees,  to  any  athletic  or  sporting  club.     (T.  D.  2681;  Mar.  26,  1918.) 

Golf  club  dues  for  which  the  member  receives  as  one  of  the  privileges  of  member- 
ship a  season  ticket  for  a  municipal  golf  course  are  subject  to  tax  without  deducting 
part  paid  hy  club  to  city  for  the  season  ticket.     (T.  D.  2782;  Dec.  24,  1918.) 

The  dues  taxable  include  a  sum  paid  by  a  member  in  addition  to  his  regula-r  dues 
to  obtain  privileges  of  the  club  grounds  for  members  of  his  family.  (T.  D.  2795; 
Feb.  26,  1919.) 

Hunting  clubs. 

Hunting  clubs  are  located  within  the  term  "athletic  and  sporting"  clubs,  as 
used  in  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  ou  amounts  paid 
as  dues  or  membershiij  fees,  to  any  athletic  or  sporting  club.  (T.  D.  2681;  Mar. 
26,  1918.) 

Initiation  fees. 

Where  dues,  exclusive  of  initiation  fee,  are  not  iu  excess  of  $12  a  year,  no  tax  ia 
payable  except  from  members  paying  such  fee;  daily  records  required  to  be  kept 
by  clubs  or  organizations  showing  number  of  members  paying  initiation  fees,  and 
the  amount  of  .such  fee3  each  day,  together  with  amount  of  tax;  monthly  return, 
which  shall  be  recapitulation  of  daily  records,  required  to  be  made  in  duplicate  on 
Form  729  and  to  be  transmitted  to  office  ol  collector,  with  amount  of  tax,  on  or  be- 
fore last  day  oi  month  lollowing  that  for  which  return  is  made.  (T.  D.  2681;  Mar. 
26,  1918.) 


190  DUES. 

Initiation  fees— Continued. 

T!ic  rule  of  T.  B.  2616  tkat  a  share  of  stock  requii-ed  as  condition  of  becomiiifr 
member  of  club  is  regarded  as  an  initiation  fee  applies  to  a  club  organized  us  a 
business  corporation  and  having  stockholders  who  are  not  members.  (T.  D.  2795; 
Feb.  26,  1919.) 

Life  membership  fees. 

Tax  imposed  by  section  701  of  act  of  October  3,  1917,  is  payable  on  life  membership 
fees  when  paid;  tax  must  be  paid  upon  all  dues  representing  membership  privilege.^ 
for  any  time  elapsing  after  October  31,  1917,  regardless  of  time  of  payment,  except 
in  case  of  life  membership  fees  paid  before  November  1,  1917.  (T.  D.  2681;  Mar. 
26,  1918.) 

Payment  of  tax. 

Where  dues  are  paid  in  advance  for  calendar  year  1917,  tax  is  payable  on  one- 
sixth  of  full  amount  paid  for  such  calendar  year,  and  should  be  collected  at  time  of 
"first  payment  of  dues  for  1918.     (T.  D.  2681;  Mar.  26,  1918.) 

Penalties. 

In  addition  to  penalties  provided  by  section  1004  of  the  act  of  October  -3,  1917, 
for  failure  to  make  the  return,  other  punishment  for  failure  to  comply  with  law  aiul 
Regulations  is  prescribed  by  section  3176,  Revised  Statutes,  as  amended,  and  Ijy 
otlier  sections  of  internal-revenue  laws.     (T.  D.  2681;  Mar.  26,  1918.) 

Records. 

Daily  records  shall  be  kept  by  clubs  or  organizations  showing  classes  of  member- 
ships, number  of  members  paying  dues  or  initiation  fees,  and  amoimt  of  such  dues 
or  initiation  fees  each  day  under  each  classification,  together  with  amount  of  tax, 
which  daily  record  shall  remain  on  file  for  two  years,  in  such  manner  as  to  be  readily 
accessible  to  internal-revenue  officers.     (T.  D.  2681;  Mar.  26,  1918.) 

Returns — Monthly  returns. 

Monthly  returns,  which  shall  be  a  recapitulation  of  daily  records,  kept  by  clubs  or 
organizations  required  to  be  made  in  duplicate  on  Form  729,  and  to  be  transmitted 
to  office  of  collector,  with  amount  of  tax,  on  or  before  last  day  of  month  following 
that  for  which  return  is  made:  copies  of  returns  shall  remain  on  file  for  two  years, 
in  such  manner  as  to  be  readily  accessible  to  internal-revenue  officers.  (T.  D, 
2681;  Mar.  26,  1918.) 

— —  Penalties  for  failure  to  make. 

In  addition  to  penalties  provided  by  section  1004  of  the  act  of  October  3,  1917,  for 
failure  to  make  the  return,  other  punishment  for  failure  to  comply  with  law  and 
Regulations  is  prescribed  by  section  3170,  Revised  Statutes,  as  amended,  and  by 
other  sections  of  internal-revenue  laws.    {T.  D.  2681;  Mar.  26,  1918.) 

• Persons  required  to  make. 

Every  person,  corporation,  partnership,  or  association,  receiving  any  paymenti? 
for  dues  or  fees  must,  at  the  time,  collect  the  tax  from  the  persons  making  such 
payments,  including  in  such  collection  the  amount  of  unpaid  tax,  if  any,  on  dues, 
or  fees  received  prior  thereto,  covering  any  period  since  October  31,  1917,  and  make 
monthly  return  and  payment  of  collections,  to  collector  of  district,  as  provided  in 
section  503  of  the  act  of  October  3,  1917.    <T.  D.  2681;  Mar.  26,  1918.) 

Social  clubs. 

Any  organization  which  maintains  quarters  or  arranges  periodical  dinners  <)r 
meetings  for  purpose  of  affording  its  members  opportunity  of  congregating  for  social 
intercourse,  is  a  social  club  within  the  meaning  of  section  701  of  the  act  of  October 
3,  1917,  unless  its  social  features  are  subordinated  and  merely  incidental  to  the 
furtherance  of  business  or  other  special  interests;  Commissioner  of  Internal  Revenue 
shall  determine  whether  club  or  organization  comes  vrithin  words  "social,  athletic, 
or  sporting,"  upon  being  furnished  charter  or  constitution  and  by-laws  of  organi- 
zation, statement  as  to  its  actual  activities  and  practices,  and  such  other  information 
as  he  may  deem  pertinent.     (T.  D.  2681;  Mar.  2{5,  1918.) 

Dues  or  fees  paid  to  fraternal  orders  not  falling  within  the  express  exemption  of 
section  701  of  the  act  of  October  3,  1917,  are  not  subject  to  the  tax  imposed  by  that 
section,  if  the  purposes  and  practices  of  the  order  to  which  they  are  paid  are 


DUTCH  ADMINISTRATION"  OFFICES — EDUCATIOIs^AL  INSTITUTIONS.    191 

Social  clubs — Continued, 
religious,  benevolent,  or  educational,  and  and  social  activities  of  the  order  are 
incidental  and  subordinate;  where  the  pui'poses  or  practices  of  any  fratx^rnal  order 
are  primarilv  social  in  chai'acter,  dues  or  feea  paid  to  it  are  subject  to  the  tax. 
(T.  D.  2681  f Mar.  2G,  1918.) 

Those  social  facilities  afforded  by  a  commercial  club  -which  are  kept  open  freely 
to  the  public  and  not  limited  to  members  are  not  suflicient  to  constitute  the  club  a 
social  cluh  for  purposes  of  the  dues  tax.     (T.  D.  2782;  Dec.  24,  1918.) 

Tennis  clubs. 

Tennis  clubs  are  included  within  th<^  term  "athletic  and  sportinj»"  clubs,  as 
used  in  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as 
dues  or  membership  fees,  to  any  athletic  or  sporting  club.  (T.  D.  2681;  Mar.  20, 
1918.) 

DUTCH  ADMINISTRATION  OFFICES. 
Income  taxes. 

Dutch  administration  ofliccs  as  the  ro_^isLered,  but  not  the  actual,  owners  of  stock 
of  domestic  or  other  resident  corporations  in  the  I'nited  States,  required  to  dis- 
close identity  of  actual  owners  of  said  stock  for  purposes  of  the  withholding  7)rovi- 
sions  of  section  13  (f)  of  act  of  September  8,  1916,  as  amended  by  act  of  October  3, 
1917;  returns;  forms;  certificates;  T.  D.  2386,  revised.     (T.  D.  2669;  Mar.  9,  1918.) 

EDUCATIONAL  INSTITUTIONS. 

Admissions  to  entertaiiunents  for. 

Where  proceeds  of  admissions  inure  exclusively  to  benefit  of  educational  insti- 
tutions, societies  or  organizations,  admissions  are  not  taxable;  character  of  organi- 
zation for  which  benefit  is  given  and  not  purpose  of  particular  benefit  is  controlling; 
admissions  to  any  entertainment  for  charity  are  taxable  if  funds  are  administered 
by  any  persons  or  organization  other  than  religious,  educational,  or  charitable 
institutions,  societies,  or  organizations;  admissions  to  school  or  college  atlilctic 
contests  and  other  college  entertainments  are  not  taxable  if  proceeds  zo  to  the  school 
or  to  the  college.     (T.  D.  2681;  Mar.  26,  1918.) 

Every  institution,  society,  or  organization  claiming  exemption  from  collecting 
tax  on  admissions  by  reason  of  being  educational,  required  to  file  with  collector  or 
district  affidavit  upon  stated  form,  prior  to  conducting  any  entertainment  of 
amusement  or  permitting  either  to  be  conducted  for  its  benefit;  unless  affida^•it 
shall  be  filed  sufficiently  before  date  of  entertainment  to  permit  of  full  adATinco  in- 
vestigation of  circumstances  and  a  decision  thereon,  managers  of  entertainmeiJt  shall 
keep  and  exhibit  to  internal-revenue  officers  complete  record  of  admissions  to  e^cli 
performance,  and  will  be  held  responsible  for  collection  of  tax  in  case  claim  for  ex- 
emption is  not  allowed.     (T.  D.  2681;  Mar.  26,  1918.) 

Alcohol  withdrawn  for  use  in. 

See  "Alcohol." 

Capital  stock  tax. 

Corporation  or  association  organized  and  operated  exclusively  for  educational 
purposes,  no  part  of  net  income  of  which  inures  to  benefit  of  any  pri^-ate  stockholder 
or  individual,  is  exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8, 
1916.     (T.  D.  2383;   Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Income  tax — Exemptions. 

Corporations  or  associations  organized  and  operated  exclusi\-ely  for  educational 
purposes  are  not,  as  such,  exempt  from  tax ;  exemption  is  conditional  on  filing  with 
collector  affida^'it,  setting  out  character  and  purpose  of  organization,  and  showing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individ- 
ual, and  that  such  income  is  used  exclusively  to  promote  purposes  for  wliich  organ- 
ized as  indicated  in  particular  paragrapii  under  which  exemption  is  claimed.  (T.  1) . 
2690;  art.  67.) 

Exemption  from  filing  returns  and  paying  income  tax  of  corporations  or  associa- 
tions organized  and  operating  exclusively  for  tHlucalional  purposes  is  conditional 
upon  such  an  organization  filing  affidavit  showing  character  and  purpose  of  orgauiza- 
tion,  source  of  income  and  disposition  of  same,  whether  or  not  any  of  its  income  is 


192  EDUCATIONAL  PURPOSES — EMPLOYEES. 

Income  tax— Exemptions — Continued, 
credited  to  surpius  or  inures  to  benefit  of  any  private  stockholder  or  individual,  tOi 
which  affidaAdt  should  be  attached  copy  of  charter  or  articles  of  incorporation  and 
by-laws;  where  collector  is  in  doubt  as  to  taxable  status  of  organization,  upon  re- 
ceipt of  attidavit,  etc.,  he  will  refer  affidavit  and  accompanying  papers  to  Commis- 
sioner of  Internal  Revenue  for  decision;  if  it  is  held  that  corporation  itself  is  exempt 
from  income  and  excess-profits  taxes  it  is  not,  however,  exempt  from  the  the  with- 
holding requirements  nor  from  furnishing  information  in  accordance  with  provisions 
of  act  of  October  3,  1917.     (T.  D.  2693;  Apr.  8,  1918.) 

Net  income. 

Donations  made  for  purposes  connected  with  operation  of  property  Avhen  limited 
to  charitable  institutions,  hospitals,  or  educational  institutions,  conducted  for 
benefit  of  employees  or  their  dependents,  may  be  deducted  as  ordinary  and  necessary 
expense;  such  deduction  should,  however,  be  reduced  by  any  amount  repaid  to 
corporation  by  tlie  employees.     (T.  D.  2690;  art.  134.) 

■ Salaries  under  Smith-Lever  Act. 

Where  employees  of  universities  receiving  salaries  paid  in  part  or  in  whole  from 
funds  received  under  the  Smith-Lever  Act  of  May  8,  1914,  are  officers  or  employees 
of  a  State,  they  are  not  required  to  include  in  their  income  tax  returns  as  taxable  in- 
come the  salaries  so  received;  if  organization  of  college  is  one  which  belongs  to 
State  and  which  State  governs,  legislature  may  vacate  offices,  elect  new'  professors, 
and  do  whatever  it  thinks  necessary  in  management  of  the  college,  but  if  colleges 
are  governed  by  trustees  not  directly  responsible  to  State  legislatures,  employees 
receiving  salaries  paid  in  part  from  Smith-Lever  funds  are  not  employees  of  the 
St-ate,  and  are  not  exempt  from  tax  on  that  ground.     (T.  D.  2668;  Mar.  9,  1918.) 

EDUCATIONAL   PURPOSES. 

Movirig-picture  films — Excise  taxes. 

There  is  no  exemption  from  tax  imposed  by  section  600  of  the  act  of  October  3, 
1917,  in  the  case  of  films  used  exclusively  for  educational,  charitable,  or  religious 
purposes.     (T.  D.  2719;  Art.  XU.) 

ELECTIONS. 

Campaign  contributions — Income  tax. 

Contributions  by  corporations  for  campaign  expenses  are  not  an  ordinary  and 
necessary  expense  in  the  operation  and  maintenance  of  the  business,  and  are  there- 
fore not  deductible.     (T.  D.  2690;  art.  143.) 

EMBEZZLEMENT. 

Income  taxes — ^Deduction  of  losses. 

Losses  of  insurance  companies  other  than  mutuals,  but  including  mutual  life  and 
mutual  marine,  for  agency  balances  or  other  amounts  charged  off  as  worthless,  and 
losses  by  defalcation,  premium  notes  voided  by  lapse,  provided  such  notes  have  at 
some  time  been  included  in  gross  income  for  income  tax  purijoses,  may  be  deducted. 
(T.  D.  2690;  art.  240.) 

EMPLOYEES. 
Admissions. 

Bona  fide  employeen  when  admitted  free  are  no.  taxable  under  section  700  of  act 
of  October  3,  1917;  employees  include  persons  necessary  to  the  production  of  the 
performance  or  entertainment  who  are  not  admitted  as  spectators  and  who  do  not 
occupy  seats  or  space  intended  for  the  use  of  spectators,  except  where  such  occu- 
pancy is  necessary  to  the  performance  of  duties  of  such  persons;  baseball  reporters 
and  tele^aphers  are  exempt,  as  are  employees  of  management  or  of  concessionaires 
selling  refreshments  to  patrons,  and  newsboys  selling  newspapers;  persons  recover- 
ing or  aiding  in  custody  of  property  necessary  to  performance  may  be  admitted  tax 
free,  but  newspapers  critics  and  reporters  occupying  space  in  audience  must  pay 
tax;  doctors  and  attorneys  for  theaters  are  exempt  v.-hen  entering  theater  in  course 
of  employment.     (T.  D.  2681;  Mar.  20,  1918.) 


EMn.OYKES.  193 

Contrat;ts  for  sar/ices     Sta'np  tax. 

Ooniracts  for  perf'jnn.ince  of  aerviccs  aro  not  subject  to  stamp  tax.  (T.  D.  2o99; 
Dec.  6,  1917.) 

Fidelity  ingurance. 
See  "Insurance." 

Goveraaiaatal  — SxeTiotion  of  cliargaa  for  serx^^ices  farnislied  by  carriers. 
See  "Transportation  Tax." 

Income  tax — Accident  compensation. 

Payments  made  to  injure;!  euiployee  by  corporation  under  the  a-'cident  com- 
pen.sation  laws  of  the  several  States  constitute  taxable  income  of  the  emj)lovee. 
(T.  D.  2570;  Nov.  6,  1917.) 

Amount  received  by  individual  as  remit  of  suit  or  compromise  for  personal 
injuries  sustained  by  him  throii:.?h  accident  is  not  iucouie  taxable  under  Title  I 
oi  act  Siaptember  8.  1916,  as  amended  by  Title  XU  of  act  October  3,  1917,  and  of 
Title  I  of  act  October  3,  1917.     (T.  D.  2747;  July  12.  1918.) 

Proceeds  of  accident  insurance  policy  received  by  individual  on  account  of 
personal  injuries  sustained  throujz;h  acci'.lent  are  not  ini^orae  taxable  \indcr  Title  I 
of  act  September  8,  19H).  as  amended  by  Title  XII  of  act  October  3,  1917,  and  of 
Title  I  of  act  October  3,  1917.     (T.  D.  2747;  July  12,  1918.) 

— —  Compenaatlon  for  services. 

( •ompensation  for  service  paid  for  on  percentage  of  net  profiibs  is  income  to  em- 
ployee and  must  be  accounteil  for  as  such;  where  service  is  rendered,  for  stipulated 
price,  wa2;e,  or  salary,  and  paid  with  something  other  than  money,  stipulated  value 
of  service  in  terms  of  money  is  value  at  which  thing  taken  in  payment  is  to  be  con- 
sidered for  purpose  of  tax;  in  absence  of  stipulation  as  to  value  of  service,  payment 
being  made  with  something  other  than  money,  market  or  reasonable  value  of  thing 
taken  in  payment  is  amount  to  be  included  as  income.     (T.  D.  2690;  art.  4.) 

In  case  of  compensation  for  service,  where  no  determination  of  compensation  is 
had  until  completion  of  service,  amount  received  is  income  to  be  accounted  for 
as  for  calendar  year  of  receipt;  where  service  and  payment  period  is  divided  by 
end  of  taxable  year,  compensation  for  period  so  dixdded  will  be  accounted  for  as 
income  for  year  in  which  jiayment  is  actually  received;  where  compensation  is  by 
f(>e,  or  is  of  such  nature  that  no  pan  of  fee  or  compensation  becomes  due  until  com- 
pU'tion  of  service,  entire  amount  received  should  be  accounted  for  as  for  year  of 
rot-eipt;  persons  having  salary  by  the  year  and  in  addition  commissions  on  sales, 
salary  to  be  paid  at  time  commissions  are  determined,  and  determination  thereof 
is  in  succeeding  calendar  year,  entire  amount  should  be  accounted  for  as  income 
of  calendar  year  of  receipt.     (T.  D.  2690;  art.  4.) 

Deductions. 

Amounts  expende.l  by  corporations,  partnerships,  or  individuals  engaged  in 
business,  in  paying  all  or  portions  of  regular  compensation  of  officers  or  employees, 
who  have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces 
of  the  United  States,  or  have  undertaken  services  for  the  Government  at  reduced 
or  nominal  compensation,  constitute,  during  the  continuance  of  the  war,  ordinary 
and  necessary  expenses  of  doin<j;  business  and  are  allowable  as  deductions  in  com- 
puting net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

Amounts  paid  from  salary  received  from  all  services  rendered  are  deductible  as 
busiii.ess  expense  when  expenditures  are  occasioned  by  the  service  in  resp(;ct  of 
which  salary  is  paid.     (T.  1).  2(i90;  art.  8.) 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made  in  good 
faith  and  as  additonal  com[)enBatiou  for  services  acfually  rendered;  if,  when  addcsd 
to  salaries,  they  do  not  exceed  reasonable  compensation  for  ser\ices,  they  will  bo 
regarded  as  part  of  the  wage  or  hire,  and  therefore  an  ordinary  and  necessary  ex- 
pense of  operation  and  mainkuiance,  and  as  such,  will  be  deductible.  (T.  1).  2690; 
art.  8.) 

Salaries,  etc.,  and  rents  paid  by  domestic  corporations,  resident  individuals,  or 
partnerships,  to  nonresident  alien  employees  for  services  rendered  entirely  in  a 
foreign  country,  and  forprof)er1y  loraled  in  a  foreign  country,  are  not  subj(\-t  io 
dedu'tion  and  withholding  of  the  normai  tax,  and  such  payments  of  in.'oaic  v.ill 

10420°— 21 13 


;l^94  EMPLOYEES. 

Income  tax — Continued. 

Deductions — Contiuued, 

not  be  subject  to  tax  in  hands  of  recipient  as  from  source  within  United  States. 
(T.  D.  2690;  art.  32.) 

Donations  made  for  purposes  connected  with  operation  of  property  when  limited 
to  charitable  institutions,  hospitals,  or  educational  institutions,  conducted  for 
benefit  of  employees  or  their  dependents,  may  be  deducted  as  ordinary  and  nec- 
essary expense;  such  deduction  should,  however,  be  reduced  by  any  amount 
repaid  to  corporation  by  the  employees.     (T.  D.  2690;  art.  134.) 

Donations  made  to  employees  and  others,  and  which  do  not  have  in  them  the 
element  of  compensiation,  arc  considered  gratuities  and  are  not  allowable  deductions 
from  gress  income  as  expenses  of  operation  or  maintenance  or  under  any  other  item. 
(T.  D.  2690;  art.  135.) 

Amounts  paid  for  pensions  to  retired  employees  or  to  their  families  or  other  de- 
pendent on  them,  or  on  account  of  injuries  received  by  employees,  or  lump-sum 
amounts  paid  as  compensation  for  injuries,  are  proper  deductions  as  ordinary  and 
necessary  expenses;  such  deduction  sliall  be  limited  to  amount  not  compensated 
for  by  insurance  or  otherwise;  no  deduction  shall  be  made  for  contributions  to 
pension  fund  resources  of  which  are  held  by  corporation,  amount  deductible  in 
such  case  being  amount  actually  paid  to  employee.     (T.  D.  2690;  art.  136.) 

When  amount  of  salaiy  of  officer  or  employee  is  paid  for  limited  period  after  his 
death  to  his  ^ndow  or  hairs  in  recognition  of  services  rendered  by  individual,  no 
service  being  rendered  by  widow  or  heirs,  such  payment  is  not  ordinary  and  neces- 
sary expense  of  transactin';!;  business  and  may  not  be  deducted.  (T.  D.  2690;  art. 
137.) 

Gifts  or  bonuses  to  employees  constitute  allovrable  deductions  when  made  in 
good  faith  and  as  additional  compensation  for  services  actually  rendered  by  em- 
ployees; if,  Avhen  added  to  stipulated  salaries,  they  do  not  exceed  a  reasonable 
compensation  for  servdces  rendered,  they  will  be  regarded  as  a  part  of  the  wage  or 
hire  of  the  employee  and  are  deductible  as  an  ordinary  and  necessary  expense  of 
operation  and  maintenance.     (T.  D.  2690;  art.  138.) 

Where  salaries  of  ofHcers  or  employees  who  are  stockholders  ar  found  to  be  out  of 
proportion  to  volume  of  business  transacted  or  excessive  when  compared  with 
salaries  of  like  officers  or  employees  of  other  corporations  doing  similar  kind  or 
volume  of  business,  amount  so  paid  in  excess  of  reasonable  compensation  for  serv- 
ices will  not  be  deductible,  but  will  be  ti'eated  as  distribution  of  profits.  (T.  D. 
2690;  art.  138.) 

Special  pajTnents  made  to  officers  or  employees  who  are  stockholders,  in  guise 
of  additional  salaries  or  compensation,  amount  of  which  is  based  upon  or  bears 
close  relationship  to  stockholdings  of  such  officers  or  employees,  or  capital  invested 
by  them  in  business  of  company,  will  be  regarded  as  special  distribution  of  profits 
or  compensation  for  capital  invested,  and  not  payment  for  services  rendered;  pay- 
ments under  such  latter  conditions,  being  in  nature  of  dividends,  will  not  be  de- 
ductible.    (T.  D.  2690;  art.  138.) 

Compensation  paid  employee  in  capital  stock  of  corporation  may  be  deducted  as 
expense  if  so  charged  on  books  at  actual  value  of  such  stock.     (T.  D.  2690;  art.  240.) 

Premiums  paid  on  life  insurance  jjolicies  covering  lives  of  officers,  employees, 
or  those  financially  interested  in  any  trade  or  business,  conducted  by  an  individual, 
partnership,  corporation,  joint-stock  company  or  association,  or  insurance  com- 
pany, shall  not  be  deducted  in  computing  net  income  of  insurance  companies  other 
than  mutuals,  but  including  mutual  life  and  mutual  marine.  (T.  D.  2690;  art. 
240.) 

Information  at  source. 

Bills  paid  to  employees  for  board  and  lodging  while  traveling  under  orders  or 
when  employee  is  emploved  on  a  salary  basis  do  not  require  reports  of  information. 
(T.  D.  2670;  Mar.  11,  1918.) 

Payments  made  by  branches  of  business  houses  located  in  foreign  coTintries  to 
alien  employees  serving  in  foreign  countries  need  not  be  reported.  (T.  D.  2670; 
Mar.  11,  1918.) 

Payments  made  to  employees  in  factories  where  the  brass  check  or  number  system 
was  in  use  in  1917  and  a  record  of  sufficient  detail  does  not  exist  and  can  not  1)0 
obtained  because  employees  are  not  longer  in  the  employ  of  the  company  do  not 
require  reports  of  inf ormatioii ;  in  all  sitch  cases  an  accotmtins;  system  must  be 
installed  tliat  will  enable  such  employers  to  keep  an  accurate  check  so  that  fall 
information  can  be  given  in  the  future.     (T.  D.  2670;  Mar.  11,  B18.) 


ENDOWMENTS.  195 

Income  tax — Continued. 

—  Infonmation  at  source — Continued. 

Retarna  of  information  will  not  be  required  from  disbursing  officers  of  payment 
made  to  civilian  employees  of  the  United  States  Government.  (T.  D.  2670;  Mar.  11, 
1918.) 

Hcada  of  branch  offices  and  subconti-actors  employing  labor  and  keeping  the  only 
complete  record  of  payments  should  file  returns  of  information  direct  with  Com- 
missioner of  Internal  Revenue,  Sorting  I)i\'i8ion,  Washington,  D.  C;  when  record 
is  kept  of  payments  at  both  main  office  and  branch  ofHce  rettivn  should  be  filed  by 
forraor;  wlien  no  address  is  available,  last-known  post-office  address  must  be  given, 
as  well  as  street  and  number  when  possible;  information  as  to  whether  employee 
is  single,  head  of  afamilv,  or  married  should  be  given  when  possible.  (T.  D.  2G70; 
Mar.  11,  1918.) 

When  living  quarters,  such  as  camps,  are  furnished  for  the  convenience  of  the 
employer  only,  the  cost  need  not  be  added  to  the  compensation  of  the  employee; 
'li\T.ngq\iarters"  referred  to  in  paragraph  235,  Regulations  No.  33,  revised,  are  quar- 
ters furnished  for  the  benefit  and'  convenience  of  employees  only.  (T.  D.  2670; 
iiar.  11,  1918.) 

In  case  of  emploj'er  having  large  number  of  employees  who  are  moved  fi'om 
place  to  place  and  who  consequently  has  no  complete  record  of  anmial  payments 
to  them  at  any  one  place,  salary  of  two  representative  months  may  be  taken  to 
establish  a  fair  monthly  wage,  and  unless  yearly  payment  based  on  this  estimate 
in  the  case  of  an  employee  amounts  to  $890  or  more  no  return  of  payments  to  such 
employee  is  required  for  1917.     (T.  D.  2370;  Mar.  11.  1918.) 

Salary,  wages,  and  other  compensation  for  services  rendered  in  December,  1917, 
but  paid  in  1918,  need  not  be  reported,  unless  the  amount  was  fully  due  and  passed 
to  the  credit  of  the  individual  in  December,  1917.     (T.  D.  2C70;  Mar.  11,  1918.) 

Everj^ person,  corporation,  etc.,  pajdng  compensation,  wages,  etc.,  of  $800  or  more 
in  any  ta.\able  year,  or,  in  case  of  stich  payment  made  by  the  United  States,  the 
Dfficers  or  employees  oi  the  United  States  having  information  as  to  siicli  payments, 
authorized  and  required  to  render  trtie  and  acc-arate  return,  setting  forth  the  am.otmt 
of  such  compensation,  wages,  etc.,  and  the  name  and  address  of  the  Tocipients 
thereof.     (T.  D.  2690;  art.  34.) 

Where  a  person  receives  a  cash  compensation  for  services  rendered  and  in  addition 
thereto  living  quarters,  the  value  to  such  persDn  of  the  quarters  furnished  con- 
stitutes income  subject  to  tax,  and  return  under  section  28  is  required  in  each  case 
where  cash  compensation  received  plus  tlie  value  of  living  qxiarters  fumisbed  eouala 
or  exceeds  §800  for  a  tax  year.     (T.  D.  2G90;  art.  34.) 

Mutual  protective  associations. 

Associations  composed  of  employed  or  others  who  band  tbx3maelvcs  together  for 
mutual  protection  in  issuing  life  and  casualty  insurance  are  subject  to  tax  under 
paragraph  (c)  of  section  504  of  act  of  October  3,  1917,  Unless  exempted  under  para- 
gi-aph  (d)  of  such  section.     (T.  D.  2588;  Nov.  21,  1917.) 

Treasury  Department. 

Collection  of  money  from  oflicers  and  employees  of  Treasurj'^  Department  in  field 
service  for  giving  of  personal  gifts  to  officers  and  eiaployees  holding  office,  or  to  in- 
coming or  retiring  officials,  prohibited ;  decision  as  to  whether  subscription  lists  may 
be  circulated  for  worthy  national  institutions  rendering  service  to  military  and 
naval  forces  of  Government,  such  as  Red  Cross,  rests  with  head  of  each  office  in  field 
service.     (T.  D.  2862;  June  12,  1919.) 

Wines  furnished  ranch  hands. 

Wines  furnished  ranch  hands  or  boarders  are  not  exempt  from  tax  under  section 
402(b)  of  act  September  8, 1916,  as  being  for  family  use.     (T.  D.  2765;  Oct.  21,  1918.) 

ENDOWMEJTTS. 
Income  taxes. 

Tliere  should  be  reported  as  payments  on  policies  by  insurance  companies  other 
than  mutuals,  but  including  mutual  life  and  mutual  marine,  all  death,  disability, 
or  other  policy  claims  (other  than  dividends)  paid  within  year,  inchidiug  tire,  acci- 
dent and  liability  losses,  matured  endowments  and  annuities,  payments  on  install- 
ment policies,  surrender  values,  and  all  claims  actually  paid  under  the  terms  of 
policy  contracts.     (T.  D.  2690;  art.  240.) 


196  EN^BOTIES   OF   UNITED   STATES — ESTATES. 

ENEMIES  OF  UNITED  STATES. 

See  "Alien  Property  Custodian." 
Income-tax  returns. 

Extension  of  time  granted  for  siieh  period  as  may  be  necessary,  not  exeeeding 
90  days  after  proclamation  by  President  of  end  of  war  with  Germany,  for  filing 
returns  of  income  for  1917  and  subsequent  years,  under  sections  6  (c),  8  (b)  (c),  and 
J3  (b)  (c)  of  act  of  September  8,  IftlG,  as  amended,  and  under  war  income-tax  act 
of  October  3,  1917,  by  or  for  enemies  or  allies  of  enemies,  as  defined  by  section  2  of 
the  trading-with-the-enemy  act  of  October  6,  1917,  not  holding  license  granted  under 
such  act;  return  of  information  required;  duties  of  persons  controlling  money  or 
property  for  any  euch  enemy  or  ally  of  enemy.     (T.  D.  2673;  Mar.  18,  1918.) 

ENTERTAINMENTS. 

See  "Admissions";  "Occupational  Taxes." 

ENTIRETIES. 

Estate  tax. 

If  property  conveyed  to  husband  and  wife  is  taken  by  each  in  entirety  and  in 
suih  manner  that  each  was  owner  of  all,  and  upon  deatH  of  either  no  new  interest 
or  title  vested  in  survivor,  one-half  of  property  thus  jointly  owned  should  be  returned 
as  portion  of  gross  estate  of  decedent  husband  or  wife  as  case  might  be;  wherever 
public  records  show  property  in  name  of  decedent,  presumption  is  that  it  was  sole 
property  of  decedent,  and  burden  of  showing  that  surviving  spouse  owned  any 
interest  therein  is  upon  such  spouse.     (T.  D.  2450;  Feb.  14,  1917.) 

Thirty-day  notice  (Form  705)  must  be  filed,  within  30  days  after  death  of  der-edent 
whose  estate  is  taxable,  by  fiduciaries  holding  property  of  any  kind,  jointly  or  in 
entirety,  for  decedent  and  another  or  others.     (T.  D.  2454;  Feb.  28,  1917.) 

ESSENCES. 

See  "Extracts." 

Excise  taxes. 

Concentrated  ess?nces  said  to  druggists  and  manufacturers  for  making  toilet 
articles,  but  not  for  use  as  such,  are  not  subject  to  tax  imposed  by  section  600  (g) 
of  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XVIII.) 

ESTATES. 
Income  taxes — Claim. 

('laim  for  refund  of  assessed  tax  and  penalties  should  be  made  in  name  of  party 
as8?ssed,  if  living,  but  if  dead,  claim  shoTild  be  made  in  name  of  executor  or  admin- 
istrator, and  certified  copies  of  letters  of  administration  or  letters  testamentary  or 
other  similar  e\'idence  should  be  affixed  to  claim  to  show  that  claimant  is  adminis- 
trator, etc.     (T.  D.  2690;  arts.  265,  266.) 

■ Collection  and  payment. 

Tax  is  to  be  paid  tipon  notice  from  collector  of  internal  revenue  of  amoTint  of  tax 
diie,  and  at  all  events  not  later  than  June  15;  as  to  tax  unpaid  on  June  15  and  for 
10  days  after  notice  and  demand  therefor  penalty  is  5  per  cent  of  amount  of  tax  unpaid 
and  interest  at  rate  of  1  per  cent  per  month  upon  such  tax  from  time  same  became 
due,  except  from  estates  of  insane,  deceased,  or  insolvent  persons;  collectors  should 
issue  Form  17  for  purpose  of  fixing  definitely  date  when  penalty  accrues  and  interest 
begins  to  run,  and  copy  of  notice  should  be  filed.     (T.  D.  2690;  arts.  39,  41.) 

Exemptions. 

Where  husband  or  wife  having  taxable  income  dies  within  calendar  year,  and 
full  exemption  for  year  is  used  by  personal  representative  in  making  return,  if  sur- 
vivor is  also  required  to  make  return  at  close  of  year  for  income  received  within  that 
year,  the  full  personal  exemption,  according  to  marital  status  of  survivor  at  close  of 
year,  may  be  claimed  in  return  of  income.     (T.  D.  2690:  art.  14.) 

Where  person  having  taxable  income  dies  within  calendar  year,  his  personal 
representatives  in  making  return  for  him  may  claim  full  exemption  granted  by 
statutes  for  calendar  year.     (T.  D.  2690;  art.  14.) 


■     ESTATES.  ,   i'O? 

Income  taxes     rV)ii(itniPfl. 
Gross  income. 

AdmiiiiHtratorH  or  executors  may,  upon  final  a'^counfino;,  file  return  for  ineome 
of  eattitc  for  ralendar  yi^ar  in  which  atlminiKtration  was  dosed,  attaching  thereto 
copy  of  certificate,  under  seal,  netting  forth  fact  of  final  accounting  and  dincharge; 
liability  for  return  in  fixed  as  of  December  31,  and  return  will  ha  required  in  ac- 
cordance with  provisions  of  law  existing  on  that  date.     (T.  1).  2(590;  art.  2G.) 

Administrators  or  executors  should  pay  tax  found  l)y  return  for  calendar  year  in 
which  administration  was  closed  to  be  due  immediately  upon  receipt  of  notice 
and  demand  for  payment  of  such  tax.     (T.  D.  2t)90;  art.  26.) 

Where,  during  period  of  administration,  executor  converts  estate  into  money  to 
settle  estate  and  close  administration,  realizing  a  profit  which  with  other  income 
exceeds  $1,000,  return  should  be  made  covering  period  of  administration,  in  which 
should  be  included  all  gains,  profits,  and  income  during  such  period.  (T.  D.  2690; 
ftrt.  29.) 

Liability  for  tax  due  from  deceased  person,  or  from  his  estate,  attaches  to  estate 
it«self,  and  when  by  n^ason  of  distribution  of  estate  and  discharge  of  executor  or 
administrator  it  shall  appear  that  collection  of  tax  can  not  he  made  from  executor 
or  administrator,  collector  will  make  demand  on  distributees  for  their  proportionate 
share  of  tax  due  and  unpaid.     (T.  D.  2690;  art.  29.) 

Where  income  imder  the  provisions  of  section  2  (b)  of  the  act  of  September  8, 
1916,  is  accounted  for  in  return  by  the  executor,  administrator,  or  tiusteo,  and  the 
tax  shall  have  been  assessed  and  paid,  income  is  thereby  freed  of  all  tax  liability; 
return  on  Form  1040  or  1040A,  subject  to  all  deductions  and  exemptions,  shall  be 
made  by  executor  or  administrator  for  estate  during  period  of  administration,  and 
entire  tax  paid  thereon.     (T.  D.  2690;  art.  29.) 

Liability  for  payment  of  income  tax  attaches  to  the  person  of  an  executor  or  ad- 
ministrator up  to  and  including  date  of  discharge,  regardless  of  fact  that  time  in 
which  claim  is  made  and  filed  against  estate  has  expired,  or  where,  prior  to  distri- 
bution and  discharge,  executor  or  administrator  had  notice  of  obligations  to  Federal 
Government,  or  where  he  failed  to  exercise  due  diligence  in  determining  whether 
or  not  such  obligations  existed.     (T.  D.  2690;  art.  29.) 

Proceeds  of  life  insurance  policies  payable  to  estate  of  decedent,  when  received 
by  exeinitor  or  administrator  are,  in  amount  by  which  they  exceed  the  premium 
or  premiums  paid  by  decedent,  income  of  the  estate  to  be  accounted  for  under  sec- 
tion 2  (b)  of  the  act  of  September  8,  1916;  return  should  be  made  on  Form  1040  or 
1040A.     (T.  D,  2690;  art.  29.) 

Net  income. 

Appraised  value  at  time  of  death  of  testator  is  basis  for  determining  gain  or  profit 
upon  sale  subsecpient  to  death  after  March  1,  1913.     (T.  I).  2690;  art.  4.) 

Expenses  of  administration  of  estate,  such  as  court  costs,  attorneys'  fees,  execu- 
tor's commissions,  etc.,  are  chargeable  against  corpus  of  estate  and  are  not  allowable 
deductions.     (T.  D.  2690;  art.  8.) 

Bate. 

Income  of  estates,  in  process  of  administration,  or  in  trust  for  accumulation  of 
iucome,  is  taxed  as  for  an  unmarried  person.     (T.  D.  2690;  art.  3.) 

■ Returns. 

Where  net  income  of  decedent  from  January  1  to  date  of  death  within  year  waa 
$1,000  or  over,  if  unmarried,  or  $2,000  or  over,  if  married,  return  must  be  made  by 
executor  or  administrator,  who  may  claim  all  deductions  and  exemptions  to  which 
decedent  would  have  been  entitled;  executors  and  administrators  whose  duty  con- 
sists of  administering  on  estate  for  purposes  of  its  distribution  stand,  during  period 
of  administration,  in  stead  of  their  principal  and  must  make  returns  of  income  for 
estate  and  pay  tax  due.     (T.  D.  2()90;  art.  4.) 

Ancillary  administrator  is  merely  an  agent  of  the  domiciliary  administrator  and 
should  transmit  to  him  all  information  as  to  income  of  estate  received  by  ancillary 
administrator,  so  that  original  administrator  may  make  return  covering  entire 
income  of  estate.     (T.  D.  2690;  art.  26.) 

Returns  of  individual  can  not  be  accepted  prior  to  close  of  calendar  year;  excep- 
tion in  cases  of  closed  a  hmnist ration  is  matter  of  convenience  to  those  concerned 
and  is  granted  bei'ause  period  to  be  covered  by  return  has  completely  elapsed. 
(T.  D.  2690;  art.  26.) 


198  •  ESTATE  TAX. 

Income  taxes — Continued. 

Returns— Continued. 

Inspection. 

An  executor  acts  for  his  principal  and  not  for  tlie  beneficiaries  of  the  estate  of  his 
principal,  and  beneficiaries  are  not  entitled,  as  such,  to  inspect  returns  filed  by 
such  executor.     (T.  D.  2690;  art.  26.) 

Return  of  individual  is  open  to  inspection  by  administrator,  executor,  or  trustee 
of  taxpayer's  estate,  or  by  duly  constituted  attorney  in  fact  of  such  administrator, 
executor,  or  trustee,  where  maker  of  return  has  died;  and,  in  discretion  of  Com- 
missioner, by  one  of  the  heirs  at  law  or  next  of  kin  of  deceased  person  upon  showing 
that  he  has  a  material  interest  which  will  be  affected  by  information  contained  in 
the  return.     (T.  D.  2961;  Jan.  7,  1920.) 

Copy  of  income  return  may  be  furnished  by  the  Commissioner  to  person  who 
makes  the  return  or  to  liis  duly  constituted  attorney,  or  if  person  is  deceased,  to 
his  executor  or  administrator,  or,  if  entity  is  in  hands  of  receiver,  trustee  in  bank- 
ruptcy, guardian,  or  similar  legal  custodian,  to  the  receiver  or  other  custodian 
upon  written  application  for  same,  accompanied  by  satisfactory  evidence  that 
applicant  comes  within  this  provision;  ''person  who  made  the  return,"  as  herein 
used,  refers  in  case  of  an  individual  return  to  the  indi\idual  whose  return  is  de- 
sired, and  in  case  of  return  of  corporation,  etc.,  or  fiduciary,  to  the  corporation,  etc., 
or  fiduciary,  a  copy  of  whose  return  is  desired;  corporation  may  also  designate 
ofScer  or  individual  to  whom  copy  made  by  corporation  may  be  furnished,  and 
upon  sufficient  evidence  of  such  action  and  of  identity  of  officer  or  individual, 
copy  may  be  furnished  to  such  person;  copy  of  partnersliip  return  will  be  furnished 
to  partners  only  in  case  all  the  partners  join  in  the  request  therefor,  and  if  partner- 
ship has  been  dissoh^ed  tlie  members  sur%'i\ing  may  be  furnished  a  copy  if  all  the 
members  surA'iving  join  in  the  request.     (T.  D.  29G2;  Jan.  7,  1920.) 

Inheritance,  etc.,  taxes. 
See  ' '  Inheritance  Taxes. ' ' 

ESTATE   TAX. 
Act  published. 

Sections  200  to  212  of  act  of  September  8,  1916,  relating  to  tax  on  estates,  pub- 
lished for  information  of  internal  revenue  officers  and  others  concerned.  (T.  D. 
2361;  Sept.  11,  1916.) 

AdmirListrator  or  executor,  absence  of. 

Where  the  circumstances  are  such  that  Government  can  not  proceed  against 
administrator  or  executor  for  satisfaction  of  requirements  of  act  of  September  8, 
1916,  there  shall  be  no  failure,  because  of  inability  to  hold  others  in  possession 
responsible,  to  collect  whole  tax  due;  if,  after  expiration  of  year  from  decedent's 
death ,  it  has  not  been  ascertained  that  administrator  or  executor  has  been  appointed, 
collector  will  proceed  to  secure  return  and  tax  payment  from  beneficiary  or  bene- 
ficiaries, in  accordance  with  Articles  XVI  and  XVIl  of  Regulations  No.  37.  (T.  D. 
2454;  Feb.  28,  1917.) 

Banks — ^Release  of  property. 

Banking  institutions  holding  money  of  nonresident  decedents  on  deposit  or  for 
any  specific  purpose,  so  long  as  title  rests  in  nonresident  decedent,  his  estate,  or  his 
heirs,  may  not  release  to  foreign  administrator  or  executor  or  foreign  beneficiary 
such  money  until  either  tax  due  has  been  paid  or  ancillary  letters  have  been  taken 
ont  or  otherwise  provision  has  been  made  by  estate  for  satisfaction  of  tax  lien. 
(T.  D,  2454;  Feb.  28,  1917.) 

Brokers — Release  of  property. 

Brokers  holding  as  collateral  securities  belonging  to  nonresident  decedent  may 
not  release  to  foreign  administrator  or  executor  or  foreign  beneficiary  such  securities 
until  either  tax  due  has  been  paid  or  ancillary  letters  have  been  taken  out  or  other- 
wise provision  has  been  made  by  estate  for  satisfaction  of  tax  lien.  (T.  D.  2454; 
Feb.  28,  1917.) 

Carriers— Release  of  property. 

Ruling  that  local  agent,  representative,  etc.,  may  not  release  to  foreign  adminis- 
trator or  executor  or  foreign  beneficiary  any  property  within  this  country  at  time 
of  decedent's  death  until  either  tax  due  has  been  paid  or  ancillary  letters  have 
been  taken  out  or  otherwise  provision  has  been  made  for  satisfaction  of  tax  lien  ' 
does  not  apply  to  carriers  of  property  of  nonresident  decedent  while  such  property 
is  in  their  charge  for  purpose  of  transit.     (T.  D,  2454;  Feb.  28,  1917.) 


ESTATE   TAX.  199 

Collection. 

Regulations  No.  1  niade  to  apply  to  nief  hodij  of  aasessmeut  aiid  collection  of  tax 
imposed  by  act  of  September  8,  1916,  for  time  being  ami  until  experience  shall 
have  demonstrated  whether  specific  rules  for  assessm.eut  and  collection  of  tax  are 
required.     (T.  I).  2378;  Art.  XXIX.) 

Under  the  act  of  September  8,  191G.  where  delay  in  payment  of  tax  exceeds 
60  days  beyond  due  date,  if  collector  has  rea.sou  to  believe  payment  is  being  arbi- 
trarily withhold,  or  the  Ciovernment  is  in  danger  of  loss  thereby,  he  shall  report 
facts  to  Commissioner,  and  with  approval  of  latter,  he  shall  then  proceed  in  accord- 
ance with  section  208  to  report  facts  to  United  States  attorney,  iu  order  that  a<.'tioii 
may  be  brought  to  subject  propertj^  of  decedent  to  be  .sold  inrder  judgment  of  United 
States  court.     (T.  D.  2378;  Art.  XXIII.) 

Corainunity  property. 

If  property  conveyed  to  husband  and  wife  is  taken  by  each  in  eiitirety  and  in 
such  manner  that  each  was  owner  of  all,  and  upon  death  of  either  no  new  interest 
or  title  vested  in  survivor,  one-half  of  property  thus  jointly  owned  should  be  re- 
turned as  portion  of  gross  estate  of  decedent  husband  or  wife,  as  case  may  be; 
wherever  pubUc  records  show  property  in  name  of  decedent,  presumption  is  that 
it  was  sole  property  of  decedent,  and  burden  of  showing  that  surviving  spouse 
owned  any  interest  therein  is  upon  such  spouse.     (T.  D.  2450;  Feb.  11,  1917.) 

Thirty-day  notice  (Form  705)  must  be  filed  within  .SO  days  after  death  of  decedent 
whose  estate  is  taxable,  by  surviving  husband  or  wife,  as  "case  may  be,  for  one-half 
the  value,  at  decedent's  death,  of  communitv  propertv.  (T.  I).  2454;  Feb.  28, 
1917.) 

Highest  selling  price  of  stocks  and  bonds  on  day  of  death  fixed  as  value  to  bo 
returned,  or,  if  no  sale,  then  highest  bid  price;  if  stocks  or  bonds  are  not  listed  on 
the  market  the  executor  may  set  up  value  that  he  deems  tnie  value  as  of  day  of 
decedent's  death;  if  bulk  of  estate  is  community  property  its  value  should  not  be 
shown  under  item  4  of  Form  706,  but  decedent's  legal  .share  should  be  returned 
under  the  several  items.     (T.  D.  2513;  July  16,   1917.) 

Constitutionality  of  Act. 

Title  II,  act  of  September  8,  1916,  is  constitutional.  (T.  D.  2976;  Feb.  H.  1920. 
Ct.  Dec.) 

There  is  no  distinction  between  the  power  of  Congress  to  tax  the  right  to  transfer 
property  at  death  and  the  power  to  tax  the  right  to  receive  property  from  a  decedent, 
which  power  was  upheld  in  KnoAvlton  v.  Moore.  178  U.  S.  41.  (T.  D.  2976;  Feb, 
11,  1920.     Ct.  Dec.) 

Corporations — Duties  of  transfer  agents,  etc. 

Transfer  agents  of  corporate  stock  or  bonds,  receiving  into  posssssion  for  transfer 
purposes  such  personalty  of  nonresident  decedent,  may  not  release  to  foreign 
administrator  or  executor  or  foreign  beneficiary  any  property  within  tliis  country 
at  time  of  decedent's  deatli  until  after  tax  due  has  been  paid  or  ancillary  letters 
have  been  taken  out  or  otherwise  provision  has  been  made  bv  estate  for  satisfaction 
of  tax  lien.     (T.  D.  24.54;  Feb.  28,  i8i7.^ 

Where  transfer  of  stock  or  bonds  or  payment  of  dividends  or  interest  theretofore 
legal  property  of  decedent,  whether  resident  or  nonresident,  is  m.ade  to  or  upon 
order  of  an  executor  or  administrator,  acting  under  letters  granted  in  the  United 
States,  Hawaii,  or  Alaska,  the  corporate  agent  or  officer  will  not  be  required^  to  fib> 
the  30-day  notice,  make  return,  or  pay  tax.     (T.  D.  2490;  May  14,  1917.) 

The  30-day  notice  must  be  filed  when  the  corporation,  its  transfer  agent,  register, 
or  paying  agent  is  called  upon  to  make  transfer  of  stock  or  bonds,  or  to  pay  interest 
or  dividends  to  any  person  succeeding  in  rij;ht  thereto  a  stockholder  or  bondholder 
who,  since  September  8,  191G,  has  died  domi'-iled  outside  the  United  States,  Hawaii, 
or  Alaska,  unless  such  successor  in  intercs'  is  an  executor  or  administrator  of  lii> 
nonresident  decedent,  acting  under  letters  granted  within  the  United  Statt-s, 
Hawaii,  or  Alaska.     (T.  D.  2490;  May  14,  1917.) 

The  30-day  notice  will  show  the  name  and  address  at  time  of  death  of  the  non- 
resident decedent,  and  description  and  valuation  of  the  property  to  be  transferred 
or  paid,  a,ud  the  name,  designation,  and  address  of  tlie  person  to  whom  transfer  or 
pavment  is  made,  and  will  be  signed  by  the  prooer  officer  or  agent  of  the  cornoratinn. 
(T:  D.  2490;  May  14,  1917.)  ^         . 


200  ESTATE  TAX. 

Corporations    Duties  of  transfer  agents,  etc.— Continued.  •  .,: 

Th(>  :}0-(lay  notice  must  be  filed  for  dividends  declared  prior  to  the  day  of  death,  and 
for  interest  payable  after  death  to  the  extent  of  the  portion  accnied  to  the  day  of  death, 
and  if  notice  be  filed  either  within  30  days  from  death  or  immediately  upon  receipt 
of  order  for  transfer  or  payment,  transfer  or  payment  need  not  be  postponed;  if  tax 
is  not  paid  within  legal  period,  proceedings,  will  be  instituted  under  section  2(.'H 
of  the  act  of  September  8,  191(),  for  the  sale  of  the  property  and  the  payment  of  the 
tax.     (T.  D.  241(0;  May  14,  1917.) 

Transfer  agents  who  have  orders  for  transfer  of  stock,  standing  in  name  of  non- 
resident decedent  may,  instead  of  following  procedure  presf-ribed  in  T.  D.  2490, 
forward  Form  706  to  its  foreign  office  or  to  its  representative  in  foreign  countries, 
with  instructions  that  foreign  executor,  administrator,  or  beneficiary  of  estate  shall 
execute  complete  return  on  such  Form  706  of  all  property  belonging  to  decedent, 
situate  in  United  States,  including  shares  of  stock  in  domestic  corporation;  such 
return  to  be  subscribed  and  sworn  to;  personal  representative  must  forward  inven- 
t-ory  filed  in  foreign  country,  and  transfer  agent  will  check  return  against  inventory 
and  send  return  to  Commissioner  of  Internal  Revenue  with  certificate  that  prop- 
erty disclosed  by  inventory  to  be  situated  in  United  States  has  been  included  in 
return;  two  copies  of  return  will  be  forwarded  to  collector  who  will  make  assess- 
ment, and  upon  payment  will  send  certified  and  receipted  copy  of  return  to  transfer 
afent;  notice  on  Form  7(»4  and  Form  714  must  be  filed  with  collector  as  heretofore. 
(T.  D.  2708;  Apr.  25,  1918.) 

Debtors — B-elease  of  property. 

f»cbtors  in  this  country  of  nonresident  decedents  may  not  release  to  foreign 
administrator  or  executor  or  foreign  beneficiary  of  decedent  any  property  within 
this  country  at  time  of  decedent's  death  until  either  tax  due  has  been  paid  or  ancil- 
lary letters  have  been  taken  out  or  otherwise  provision  has  been  made  by  estate 
for  satisfaction  of  tax  lien.     (T.  D.  2454;  Feb.  28,  1917.) 

Deductions  from  gross  estate. 

See  "Net  estate," '  post. 

Examination  of  papers,  etc. 

Under  section  210  of  the  act  of  September  8,  1016,  the  Commissioner,  or  a,ny 
collector  or  law  officer,  or  his  authorized  deputy  or  agent,  has  authority  to  examine 
any  record,  file,  or  paper  containing,  or  supposed  by  the  official  to  contain,  any 
information  concerning  the  estate  of  a  decedent;  refusal  to  exhibit,  upon  official's 
request,  any  such  record,  file,  or  paper  renders  person  having  custody  of  same 
liable  to  penalty  not  exceeding  |500,  recoveraVjle,  with  costs,  in  civil  action  in 
name  of  United  States:  before  reporting  any  such  case  to  United  States  attorney, 
collector  or  agent  should  submit  the  tacts  to  the  Commissioner  for  advice.  (T.  I). 
2378;  Art.  XX VIII.) 

Exemptions. 

See  "Net  estate,"  post. 

United  States  bonds  can  not  be  excluded  from  gross  or  net  estate  in  determining 
estat-e  tax  due.     (T.  D.  2449;  Feb.  13,  1917.) 

In  the  case  of  estates  of  all  residents  an  exemjition  of  .1^50,000  is  allowed  by  the 
ait  of  September  8,  1916,  in  determining  value  of  net  estate;  in  case  of  estates 
of  nonresidents,  no  exemption  is  allowed,  the  only  deductions  from  gross  estate 
being  certain  proportion  of  such  charges  and  losses  as  are  allowed  estates  of  i-esi- 
dents.     (T.  T>.  2378;  Art.  111.) 

Gross  pstate. 

A  filial  interest  on  bonds  owned  by  de<-edcnt  accrued  to  day  of  death  must  be 
relin-ned  as  a  portion  of  the  gross  estate.     (T.  D.  2483;  Apr.  20,  1917.) 

There  should  be  included  in  gross  estate  the  entire  dividend  declared  prior  to 
day  of  death  on  stock  owned  by  decedent  at  time  of  death,  whether  received  before 
or  after  that  day;  no  part  of  dividend  declared  after  death  should  be  included  in 
the  gross  estate.     (T.  D.  2483;  Apr.  20,  1917.) 

Under  section  202  of  a<t  of  September  8,  1916,  bonds,  both  foreign  and  domestic, 
owned  by  nonresident  decedents,  wliich  bonds  are  ])hysically  situate  in  the  Ignited 
States,  Hawaii,  or  Alaska  at  the  time  of  the  owner's  death, "must  be  returned  as  a 
portion  of  the  gross  estate;  where  bonds  are  physically  situate  outside  of  the  United 
States,  Hawaii,  or  Alaska,  they  need  not  be  soVeturned;  bands  owned  bv  reRidents 


ESTATE   TAX.  201 

Gross  estate — Continued, 
are  taxable,  regardless  of  where  situate  at  time  of  owner's  death.     (T.  D.  2530; 
Oct.  4,  1917.) 

Value  of  real  estate  bj^longing  to  dor-edent  resident  within  the  United  States  at 
time  of  death,  located  outside  of  th'^  United  Stitps,  meaning  thereby  tlie  States, 
Territories  of  Alaska  and  Hawaii,  and  the  District  of  Columbia,  should  not  be 
included  in  determining  value  of  gross  estate  of  decedent  for  purposes  of  estate  tax; 
(T.  D.  27:«;  June  17,  f918.) 

Securitie-i,  such  as  shares  oi  stock  in  domestic  corp.)ratinna  which  are  proj)erty 
witliin  the  United  States  within  the  meaning  of  Title  II  of  the  act  of  September  8, 
19 1 (i,  deposited  by  an  individual  n^it  resident  within  the  United  States  with  the 
British  Treasury,  for  which  certificates  of  deposit  were  issued,  are  at  the  death  of 
such  nonresident,  if  such  certificates  have  not  been  transferred,  a  part  of  his  gross 
e.itate  and  subject  to  estate  tax.     (T.  D.  2772;  Nov.  8,  1918.) 

Gross  estate  of  a  decedent,  as  defined  in  section  202  of  the  act  of  Sejjtember  8, 
1916,  includes  insurance,  not  payable  directly  to  a  beneficiary  named  in  the 
insurance  contract,  but  passing  as  part  of  the  administered  e.«tatc;  it  includes  also 
good  will  of  claimant's  business,  if  such  good  will  possessed  an  actual  monetary 
value.     (T.  D.  2378;  Art.  IV  (1).) 

Gross  estate  of  decedent,  as  defined  in  section  202  of  the  act  of  September  8, 
1910,  includes  not  only  property  transferred  by  instrument  effecting  final  dispo- 
sition at  transferor's  death,  but  transfers  of  any  kind,  including  gilts  and  sales 
that  were  not  bonar  fide,  where  it  can  be  established  that  such  transfers  were  made 
in  contemplation  of  death;  wherever  collector  or  agent  shall  have  knowledge  of 
gift,  sale,  or  other  transfer  by  decedent  within  two  years  ])rior  to  death  he  shall 
rerpiire  that  it  be  returned  as  part  of  decedent's  gros^  estate;  executors  and  admin- 
istrators ha^■ing  knowledge  of  such  transfers  are  required  to  set  forth  the  facts  npon 
their  return  of  the  estate;     (T.  D.  2378;  Art.  IV  (2).) 

Only  such  ])art  of  joint  bank  accounts  or  other  property  oAvned  by  decedent 
jointly  with  another  or  with  others  as  tenants  in  entirety  as  can  be  shown  never 
to  have  been  owned  by  decedent  can  be  excluded  from  his  gross  estate.  (T.  D. 
2378;  Art.  IV  (3).) 

In  case  of  property  of  decedent  whose  estate  has  no  executor  or  administrator, 
all  the  property  and  interests  of  decedent,  including  property  transferred  in  con- 
templation of,  or  intended  to  take  eft'ect  at,  his  dealh,  and  his  share  in  joint  bank 
accounts  or  any  other  property  owned  by  him  jointly  with  another  or  with  others 
as  tenants  in  entirety,  will  be  aggregated  to  determine  the  gross  estate.  (T.  D. 
2378;  Art.  V.) 

Income  earned  during  settlement  of  estate  (in  (a.'-e  of  nonresidents,  income 
earned  on  property  situated  in  United  States,  Hawaii,  and  Alaska)  is  to  be  treated 
as  part  of  gross  estate;  also,  any  appre<iation  in  values  alter  death  of  decedent 
and  prior  to  distribution  of  net  estate  is  to  be  included  in  gross  estate  on  the  return, 
since  tax  attaches  upon  transfer  of  net  estate  and  losses  sustained  during  admin- 
istration are  deductible.     (T.  D.  2378;  Art.  VII.) 

Where  decedent  exercises  general  power  of  appointment  as  donee  under  will  of 
prior  decedent,  property  so  passing  is  portion  of  gross  estate  of  decedent  ajjpointor; 
when  property  is  transferrecl  by  S})ecial  or  limited  power  of  appointment,  question 
of  taxal)iiity  will  depend  upon  terms  of  instrument  by  which  donee  of  the  power 
acts,  and  facts  in  any  such  case  should  be  reported  fully  to  Commissioner.  (T.  D. 
2477;  Apr.  7,  1917.) 

Property  pa.ssing  under  general  power  of  appointment,  where  the  construction 
and  effect  of  the  power  and  the  rights  of  the  parties  thereunder  are  governed  by 
the  laws  of  Pennsylvania,  should  not  be  included  in  the  gross  estate  of  the  decedent 
exercising  the  |)0wer  in  a  case  arising  under  Title  II  of  the  revenue  act  of  1916. 
(T.  D.  .3088;  Oct.  30,  1920.     Ct.  Dec.) 

Imposition  of  tax. 

Title  II  of  the  act  of  September  8,  1916,  levies  tax  \ipon  transfer  of  net  estates 
of  decedents  dying  on  or  after  September  9,  1916,  whether  decedent  be  resident 
or  nonresident  "of  the  United  States.     (T.  D.  2378;  Art.  I.) 

Local  agent,  etc. — Release  of  property. 

Local  agent,  representative,  etc.,  may  not  release  to  foreign  administrator  or 

executor  or  foreign  beneficiary,  property  within  this  country  at  time  of  decedent's 

death  uniil  either  tax  due  has  been  j^aid  or  ancillary  letters  have  been  taken  out 

■  or  otherwise  provision  has  been  made  for  satisfaction  of  tax  lien;  foreign  adminia- 


202  ESTATE  TAX. 

Local  agent,  etc.— Release  of  property— Continued, 
trator  or  executor  wil  not  be  recognized  as  relieving  others  in  charge  of  decedent's 
property  from  responsibility  for  satisfying  requirements  of  act  unless  and  until  ho 
has  macle  retiu-n  and  tendered  payment  of  tax  due;  application  of  ruling  to  other 
custodians  of  property  in  this  country.     (T.  D.  2454;  P*eb.  28,  1917.) 

I-Tature  of  tax. 

The  estate  tax  isimposad  not  upon  property  but  upon  the  right  of  the  decedent 
to  have  his  estate  pass  by  will  or  intestacy.     (T.  D.  2976;  Feb.  11,  1920.     Ct.  Dec.) 

N"et  estate. 

Limitation  set  np  in  concluding  part  of  paragraph  1  of  section  203  of  the  act  of 
September  8,  1916,' applies  to  all  items  cniimerated  in  paragraph;  there  can  not  be 
deducted  from  gross  estate  in  determining  net  estate  liable  to  tax  any  fimeral  or 
other  expenses  or  any  losses  and  charges  in  excess  of  amounts  allowable  under  laws 
of  local  jurisdiction  "as  credits  to  administrators  or  executors  in  their  accounts  in 
probate  courts.     (T.  D.  2453;  Mar.  7,  1917.) 

Where  administrator  or  executor  of  nonresident  decedent  fails  to  file  return  as 
provided  in  section  203,  paragrph  (b),  of  act  of  September  8,  1916,  and  pay  tax  due 
no  decdutions  whatever  from  gross  estate  will  be  allovrcd  unless  all  property  of 
nonresident  decedent  is  shown  to  be  located  in  this  country  and  it  is  established  that 
all  has  been  returned  for  estate  tax.     (T.  D.  2454;  Feb.  28,  1917.) 

No  item  of  deductions  can  be  taken  in  excess  of  an  amount  actually  expended,  or 
if  expended,  in  excess  of  the  limit,  if  any,  set  upon  such  expenditure,  by  the  local 
law;  mortgages  resting  on  decedents'  property  should  be  shown  under  "Deductions," 
and  full  value  of  mortgaged  realty  should  be  shown  under  item  1  of  "Gross  estate  " ; 
similar  rule  must  be  applied  with  regard  to  hj^othecated  personalty;  losses  are 
strictly  limited  to  those  arising  from,  fires,  storms,  or  other  casualty,  and  theft,  when 
not  compensated  for  by  insurance  or  otherwise.     (T.  D.  2513;    July  16,  1917.) 

Amounts  paid  to  States  on  accoimt  of  inheritance,  succession,  or  legacy  taxes,  are 
not  "such  other  charges  against  the  estate  as  are  allowed  by  the  laws  of  the  juris- 
diction", and  are  not  deductible  in  arriving  at  amount  of  Federal  estate  tax. 
(T.  D.  2524;   Sept.  10,  1917.) 

Under  section  203  (a)  (1)  of  the  act  of  September  8, 1916,  in  order  that  there  may  be 
deduction  from  gross  estate  of  amoimts  which  have  been  expended  for  "siippor; 
during  the  settlement  of  the  estate  of  those  dependent  upon  the  descendent,"  there 
must  first  be  shown  a  bona  fide  disbiu-sement  by  the  executor,  for  the  support  of 
those  actually  dependen-t  uoon  the  decedent,  and  in  an  amount  authorized  by  the 
local  law  for  that  specific  purpose.     (T.  D.  2531;   Oct.  4,  1917.) 

Where  the  State  statute  makes  the  tax  a  lien  against  property  it  is  deductible 
as  a  "charge  against  the  estate";  where  it  is  a  personal  obligation  of  the  taxpayer 
it  is  deductible  as  a  "claim  against  the  estate";  taxes  are  never  deductible  as 
'•'administration  expenses."     (T.  D.  2771;  Nov.  8,  1918.) 

Where  tax  liability  is  created  as  of  a  date  in  the  lifetime  of  the  decedent,  the  whole 
tax  is  deductible,  although  the  entire  period  for  which  the  tax  is  laid  has  not  elapsed, 
its  exact  amoimt  is  not  then  ascertainable,  and  payment  is  not  required  until  a 
later  date ;_  if  tax  liability  is  created  as  of  a  date  subsequent  to  decedent's  death, 
no  part  of  it  is  deductible,  although  part  of  the  period  for  which  tax  is  laid  elapsed 
in  decedent's  lifetime.     (T.  D.  2771;  Nov.  8,  1918.) 

Where  State  statute  or  act  of  Congress,  imposing  tax  on  income,  creates  either  a 
lien  or  a  personal  obligation,  as  of  a  date  in  the  decedent's  lifetime,  the  tax  is  de- 
ductible, and  where  lien  or  obligation  is  created  as  of  a  date  subsequent  to  the 
decedent's  death  the  tax  is  not  deductible;,  the  income  and  excess  profits  taxes 
imposed  by  acts  of  September  8,  1916,  and  October  3,  1917,  con.stitute  personal 
obligation  of  the  taxpayer,  and  are  deductible  in  accordance  with  these  rules; 
the  impaid  taxes  for  years  prior  to  that  in  which  decedent  died  are  deductible; 
for  the  year  in  which  decedent  died,  the  tax  upon  income  up  to  the  date  of  death 
is  deductible.     (T.  D.  2771;  Nov.  8,  1918.) 

Under  the  act  of  September  8,  1916,  there  may  be  deducted  from  gross  estate, 
in  cases  of  estates  of  residents  (1)  funeral  expenses;  (2)  legitimate  administration 
expense;  (3)  ^■alid  claims  against  the  estate;  (4)  such  mortgages  against  decedent's 
property  as  were  existent  and  unpaid  at  time  of  decedent's  death;  (5)  net  losses, 
after  all  compensations  from  insurance  or  otherwise  have  been  credited,  arising 
during  legal  period  of  administration  and  caused  by  fires,  storms,  shipwreck,  or 
other  unavoidable  accident  or  by  theft;  (6)  support  of  decedent's  dependents  dur- 
ing legal  period  of  administration,  Avhich  must  be  linuted  to  amount  aftually  paid 


ESTATE  TAX.  203 

Net  estate — Contiaued. 
to  such  persous  as  v/ere  dependent  up^n  decedent  for  support  at  the  time  of  dece- 
dent's death;  (7)  such  other  legal  charges  a_^ainst  gross  estate  as  may  be  allowed  in 
court  of  competent  jurisdiction;  and  (8^.  specific  exemption  of  $50,000.     (T.  D.  2378; 
Art.  VIII.)  ■ 

Under  the  act  of  September  8,  1916,  there  may  be  deducted  from  gross  estate,  in 
case  of  estates  of  nonresidents,  Avhere  estate  is  situate  in  the  United  States,  Alaska, 
and  Hawaii,  the  proportionate  share  of  all  funeral  expenses,  administration  expense, 
vali;l  claims  a:j;ainst  estate,  mortgap-es  against  decedent's  property,  losses  during 
legal  Y)eriod  of  administration  caused  by  unavoidable  accident,  etc.,  not  compen- 
sated for  by  insurance,  support  of  decedent's  dependents  during  legal  period  cf 
administration,  and  such  other  legal  charges  as  may  be  allowed  in  court  of  com- 
petent jurisdiction,  equal  to  the  share  the  whole  gross  estate  in  the  United  States, 
Alaslfa,  and  Hawaii  is  of  the  entire  gross  estate  wherever  situated;  return  filed  by 
executor  or  administrator  must  show  not  only  the  value  of  the  gross  estate  situated 
in  the  United  Slates,  Hawaii,  and  Alaska,  but  also  the  value  of  all  property  and 
interests,  wherever  situated,  of  decedent.     (T.  D.  2378;  Art.  IX.) 

Inheritance  tax  imposed,  by  laws  of  Pennsylvania  is  estate  ta.x  assessed  against 
transfer  of  estate  as  a  whole,  and  not  legacy  tax  imposed  on  transfer  of  any  particular 
interest;  it  is,  therefore,  a  charge  against  the  estate  of  a  decedent  in  that  jurisviic- 
tion  within  the  meaning  of  section  20:3^  of  tiie  act  of  September  8,  IDIG,  and  is  oc- 
ductible  from  gross  estate  in  computing  value  of  net  estate  subject  to  tax.  (T.  I>. 
3027;  June  2,  1920.     Ct.  Dec.) 

State  inheritance  tax,  paid  the  State  of  Xcw  York,  which  reduced  not  the  estate 
but  the  legatee's  share,  is  not  a  "charge  against  the  estate"  allowed  by  the  juris- 
diction, and  is  not  deductible  in  determining  amount  of  estate  for  purposes  of  the 
Federal  estate  tax.     (T.  D.  2976;  Fel).  11,  1920.     Ct.  Dec.) 

Nonresident  decedents. 

Section  200  of  the  act  of  September  8,  J916,  defines  the  United  States  as  including 
continental  United  States,  Alaska,  and  Hawaii;  under  thi.'?  definition  propert}'  in 
the  United  States  of  deceased  resident.s  of  Forto  Rico  or  the  Philippine  Islands 
is  taxable  as  the  property  of  nonresidents,  though  the  tax  is  not  imposed  in  Porto 
Rico  or  the  Philippine  Islands.     (T.  D.  2378;  Art.  II.) 

In  cases  of  nonresident  decedents,  stock  owned  in  domestic  corporation  is  to  bo 
treated  as  part  of  gross  estate  in  United  States,  Haw^aii,  and  Alaska;  also  property 
transferred  in  contemplation  of,  or  intended  to  take  effect  at,  death,  and  decedent's 
share  in  property  owned  jointly  are  to  be  treated  as  part  of  gross  estate  in  the  United 
States,  Hawaii,  and  Alaska,  if  their  situs  was  the  United  States,  Hawaii,  or  Alas-ca, 
either  at  time  of  making  transfer  Ihcicof  or  at  lime  of  decedent's  death.  (T.  D. 
2378;  Art.  VI.) 

Notice — Beneficiaries. 

Thirty-day  notice  (Form  705)  must  be  filed,  v/ithin  30  days  after  death  of  decedent 
whose  est-ate  is  taxabl<»,  by  donees  who  have  received  within  two  years  prior  to  de- 
cedent's death  any  gift  of  material  value  from  decedent,  or  who  have  received  at  any 
time  whatever  gifts  made  by  decedent  in  contemplation  of,  or  intended  to  take  lep-al 
effect  at,  death.     (T.  D.  2454;    Feb.  28,  1917.) 

Whenever  collector  receives  notice  from  beneficiary  and  there  are  executors  or 
administrators  acting,  he  shall  promptly  inform  exccutov.s  or  administrators  of  the 
beneficiary's  name  and  address,  in  order  that  executor  or  administrator,  in  com- 
pliance with  section  205  of  the  act  of  September  8,  1916,  may  ascertain  such  facts 
with  regard  to  property  possessed  by  beneficiary  as  the  executor  or  administrator 
is  required  to  show  upon  his  return;  executors  or  administrators  will  render  this 
notice  on  Form  704;  beneficiaries  will  render  notice  on  Fonri  705.  (T.  D.  2378; 
Art.  XII.) 

Fiduciaries. 

Thirty-day  notice  (Form  705)  must  be  filed,  within  30  days  after  death  of  decedent 
whose  estate  is  taxable,  by  fiduciaries  holding  i)ropertv  of  anv  kind,  jointlv  or  iu 
entirety,  for  decedent  and' another  or  others.  ''(T.  1).  2454;   Feb.  28,  1917.)  " 

Heira. 

Thirty-day  notice  (Form  705)  must  be  filed,  within  30  days  after  death  of  decedent 
.vhose  estate  is  taxable,  by  fast  taker  after  decedent  of  any  of  decedent's  real  i)rop- 
erty,  where  this  passes,  in  accordance  with  local  law,  directly  to  heirs  of  decedent. 
(T.  D.  2454;  Feb.  28,  1917.) 


204  ESTATE  TAX. 

Notice — rontiniicd. 

Nonresident  decedents. 

Thirty-day  notice  (F'orm  705)  must  be  filed,  within  30  days  after  death  of  dec-edent 
wliose  estate  is  taxable,  for  all  property  of  any  kind  located  or  legally  situate  in  this 
(■(iiintry,  by  a>,'ents  or  representatives,  donees,  transferees,  trustees,  or  fiduciaries  of 
decedent  dying  domiciled  abroad,  whether  alien  or  citizen  of  United  States;  with 
what  collector  notice  must  be  filed;  extension  of  time  for  fding  notice;  notice  to 
Commissioner  of  filing  of  notice.     (T.  D.  2454;   Feb.  28,  1917.) 

In  cases  of  estates  of  nonresidents,  the  requirements  set  forth  In  the  last  preceding 
})aiaf>raph  api»ly  fully,  except  that  the  collector  with  whom  any  notice  is  to  be  filed 
is  the  collector  in  whose  district  the  property  liable  for  the  tax  is  situated;  if  such 
])roperty  is  located  in  more  than  one  district  the  notice  is  to  be  filed  with  the  col- 
lector at  Ualtimore,  Md.     (T.  D.  2378;  Art.  XL) 

Resident  decedent. 

Persons  who  come  into  possession  of  property  of  decedent  prior  to  appointment  of 
cxeciitors  or  administrators  required  to  give  due  and  proper  notice  to  collector  of  such 
fact;  when  executors  or  administrators  are  appointed  they  supersede  all  other  per- 
sons in  control  of  property  whether  such  persons  are  in  possession  or  not,  and  duty 
of  gi\'ing  notice  and  making  returns  for  entire  estate  immediately  devoh-es  upon  such 
executors  or  administrators.     (T.  D.  2372;   Sept.  25,  1916.) 

Regulation  pres'-ribing  when  30-day  notice  (Form  705)  must  be  filed  by  others 
than  executors  or  administrators;  s!ir\i\ing  h's'band  or  wife;  heirs;  donees;  trrs- 
tees;  fiduciaries;  others  holding  at,  or  taking  immediately  upon,  decedent's  death, 
propertv  inclusive  in  gross  estate  tinder  definition  of  section  202  of  act  of  September  8, 
1916.     (T.  D.  2454;   Feb.  28,  1917.) 

In  cases  of  estates  in  hands  of  executors  and  administrators,  the  act  of  September 
8,  1916,  requires  that  within  30  days  after  issuance  by  the  court  of  letters  testa- 
mentary or  letters  of  administration,  a  formal  notice  of  such  issuance  be  filed  by  the 
executors  or  administrators  with  the  collector  of  the  district  in  which  decedent  was 
a  resident  at  the  time  of  his  death:  the  act  also  requires  that  any  person  coming 
into  possession,  prior  to  issuance  of  letters  to  executors  or  administrators,  of  any 
property  of  decedent,  shall,  within  30  days  from  day  of  acquiring  possession,  file  a 
similar  notice  with  the  collector;  the  law  contemplates  also  that  all  persons  who 
shall  have  received  within  two  years  prior  to  death  of  decedent  any  material  part 
of  decedent's  property  should  file  similar  notice  with  collector  within  30  days  after 
death  of  decedent;  where  no  executors  or  administrators  come  into  charge  of  prop- 
erty, burden  of  filing  the  30-day  notice  is  upon  the  individual  beneficiaries.  (T.  D. 
2378;  Art.  X.) 

Trustees. 

Thirty-day  notice  (Form  705)  must  be  filed,  within  30  days  after  death  of  decedent 
whose  estate  is  taxable,  by  trustees  holding  property  conveyed  during  lifetime  by 
decedent  in  contemplation  of  death  or  with  intent  to  provide  for  others  than  dece- 
dent at  or  after  decedent's  death,  regardless  of  date  of  instrtiment  making  convey- 
ance, or  date  of  possession  by  trustee,  or  date  of  vesting  of  right  of  survivors  to  poa- 
OL'ssion  or  enjoyment  at  or  after  decedent's  death.     {T.  I).  2454;  Feb.  28,  1917.) 

Owner  of  property — Presumption. 

Wherever  public  records  show  property  in  name  of  decedent,  presumption  is  that 
it  was  sole  property  of  decedent,  and  burden  of  proving  that  another  person  owned, 
prior  to  decelent's  death,  any  interest  therein,  is  upon  the  estate.  (T.  D.  2450; 
Feb.  14,  1917.) 

Hor.sehold  goods  and  other  chattels  used  by  husband  and  wife  in  marriage  relation 
are  preisumed  to  be  property  of  husband,  and,  if  widow  of  deceased  claims  same  as 
her  separate  property,  she  has  burden  of  establishing  claim,  failure  to  do  which 
necessitates  return  of  such  goods  as  portion  of  deceased's  gross  eslate.  (T.  D.  2529; 
Oct.  4,  1917.)  .     b  F  o  K  , 

Payment  —Discount. 

Instructions,  with  tables,  relating  to  computation  of  the  5  per  cent  discount  to  be 

allowed  on  estate  tax  when  paid  before  one  year  after  death  of  decedent;    partial 

payments;  report,  on  Form  22,  of  total  amount  collected.     (T.  I).  2497;  June  4,  1917.) 

Discount  allowed  on  original  payment  of  tax  not  allowed  on  payment  of  additional 

assessment.     (T.  I).  2570;  Mov.  0,  1917.) 


•ESTATE   TAX.  1-105 

Payment    Discount-^  Conti mied . 

H«^ft.ion  207.  art  Soptpnib«M-  S,  IfMO  roliUoR  to  tiiM^  whon  tax  is  duo.  and  follector 
is  not  r('<niired  to  exercise  his  discretion  as  to  what  amount  will  Hatisfy  tax  until 
due  dsle  thereof;  no  dieeount  is  allowable  upon  sueh  payment,  as  necessarily  pay- 
ment can  not  he  made  before  expiration  of  ^•ear  following  decedent's  death.  (T .  t). 
275(J:  f-opt.  5.  l!»18.) 

Section  204.  act  September  8,  inu),  does  not  contemplate  that  immediately  after 
dec('d:'nt's  death,  or  at  any  time  before  expiration  of  year  executor  may  make  par- 
tial payment  on  account  of  tax  and  receive  credit  for  discount  because  of  advance 
payment:  if  advance  payment  is  to  be  made  before  due  date,  estate  must  be  in 
jiosition  to  tile  final  return  on  Form  706.  showing  certain  <lata:  final  return  must  be 
liled  wherever  advance  payment  is  desired,  and  amount  paid  should  be  entered 
upon  collector's  assessment  list  for  month  in  which  ])aid  as  advance  collection. 
(T.  0.  275(5;  Sept.  5,  1918.) 

Section  204  of  the  act  of  Septem})er  8,  1910,  provide.*^  that  the  tax  is  due  and 
payable  one  year  from  date  of  decedent's  death,  and  discount  at  the  rate  of  5  per 
«enl  per  annum  is  allowed  for  payment  in  advance;  thus,  if  tax  is  paid  two  mcmthg 
I)efore  due  date,  a  discount  of  one-sixlh  of  T)  per  cent  of  the  total  tax  shown  by  the 
return  as  due  is  allowed.     (T.  1).  2:178;  Art.  XXII.) 

Excessive  payment — Interest. 

"Time  of  notification,''  within  section  207  of  the  estate  tax  law.  Title  II.  act  of 
Sertomber  8,  1916,  is  the  date  on  which  notice  of  the  amount  of  such  "excess  T>art 
of  Vim  tax"  is  received  by  the  executor,  whether  such  notice  is  given  by  mail  or 
otherwise.     (T.  D.  2770;  Nov.  0,  1918.) 

Interest. 

The  act  of  S<>pteral)er  8,  1916,  provider  that  where  tax  is  delayed  in  payment 
more  than  90  days  after  due  date,  interest  begins  to  run  at  rate  of  10  per  cent  per 
annum  and  is  computed  Irom  date  of  decedent's  death  to  day  of  payment;  provision 
is  made,  however,  that  if  after  inve.stigation  the  collector  determines  the  cause  of 
the  delay  to  be  unavoidable,  either  because  of  necessary  litigation  or  other  condi- 
tion, beyond  control  of  tho.se  responsible  for  payment  of  tax,  and  the  true  tax  can 
not  be  determined,  interest  shall  be  at  rate  of  G  per  cent,  running  from  date  of 
decedent's  death.     (T.  I).  2378;  Art.  XXIII.) 

Where  prior  to  final  settlement  of  e  itate  collector  has  accepted  tax  payment 
which  he  deems  sufficient  fully  to  cover  e.state's  liability,  such  payment  shall 
relieve  from  the  accruing  of  further  interest  until  such  time,  if  e^'er,  as  it  may  be 
det<>rmined  that  the  payment  was  insufficient;  collector  shall  then  notify  persons 
liable  for  additional  tax,  and  interest  at  10  per  cent  per  annum  shall  run  upon 
due  tax  from  date  of  colle:-tor"s  notice  and  demand  until  date  of  payment  of  entire 
additional  tax  due.     (T.  I).  2378;  Art.  XXV.) 

Lien. 

Any  unpaid  amount  of  tax  due  is  a  lien  for  10  years  upon  all  property^  of  the 
decedent;  under  certain  conditions  outlined  in  section  209  of  the  act  of  September 
8,  19)6,  a  lien  may  attach  to  the  property  of  a  trustee  or  transferee  of  decedent. 
(T.  I).  2378;  Art.  XXVII.) 

Time. 

Section  208  of  the  act  of  September  8,  1916,  provides  that  in  every  case,  except 
where  a  valid  will  provides  otherwise,  the  tax  shall  be  paid  from  the  corpus  of  the 
estate  by  tlie  executors  or  administrators  belore  dislribuiion  to  beneficiaries  is  made. 
(T.  D.  2378;  Art.  XXVI.) 

To  whom  made. 

Tax  imposed  by  act  of  Septemb(>r  8,  1916,  may  l-e  ]>aid  to  the  collector  or  his 
deputy;  collector  will  issue  receipt  in  du])li<aie.     iT.  D.  2378;  Art.  XXIV.) 

United  States  boi;.d3. 

United  States  bonds,  bearing  interest  at  a  liiglier  rate  than  4  per  cent  and  which 
have  been -owned  by  decedent  continuou-sly  for  at  least  six  months  prior  to  his  death, 
will  be  ac(  epted  at  par  an<l  accrued  interest  in  payment  of  estate  t.ax;  reckoning  of 
re;pnred  period  of  ownership  may  begin  on  date  when  decedent  accniired  bonds, 

-"-  bearing  interest  at  higher  rate  than  4  per  cent,  by  purchase,  by  conversion  of  (Uher 
bonds,  or  otherwise;  entire  tax  may  be  paid  in  bonds,  or  tax  may  be  paid  partially 


206  ESTATE  TAX. 

Pajmient— Contiuued . 

— —  United  States  bonds— Coutiuucd. 

in  bonds  or  partially  by  cash  or  check,  but  collectors  may  not  accept  bonds,  par  valuo 

and  accrued  interest  on  which  aggi-egates  greater  amount  than  the  tax.     (T.  D.  2705; 

Apr.  23,  1918.) 
Circular  No.  132,  issued  under  date  of  January  30,  1919,  with  reference  to  receipt 

of  Liberty  bonds  in  payment  of  estate  or  inheritance  taxes,  published.     (T.  D.  2802 ; 

Mar.  12,  1919.     See  also  T.  Ds.  2878,  2898,  2904,  2905.) 

Bates  of  tax. 

The  initial  rates  of  tax  apply  if  decedent  died  between  September  9,  1916,  and 
March  2,  1917,  inclusive;  the  rates  59  per  cent  higher  apply  if  decedent  died  on  or 
after  March  3,  1917.     (T.  D.  2513;  July  IG,  1917.) 

Increase  in  rates  of  taxation  iijjon  estates  of  decedents  dying  on  or  after  October 
4,  1917,  does  not  apply  to  estates  of  decedents  dying  while  serving  in  military  or 
naval  forces,  etc.;  net  estates  of  such  decedents  are  taxable  at  rates  imposed  in  act 
of  March  3,  1917.     (T.  D.  2535;   Oct.  9,  1917.) 

Refund. 

Under  section  207,  act  September  8,  191G,  if  amount  of  tax  as  finally  determined 
is  less  than  amount  paid  upon  basLs  of  tentative  return,  Commissioner  will,  upon 
filing  claim  on  Form  4G,  make  refund  of  excess  payment;  if  amount  of  tax  as  finally 
determined  exceeds  amount  so  paid,  Commissioner  will  notify  executor  of  such 
excess;  from  time  of  such  notification  to  time  of  final  payment  of  such  excess  part 
of  the  tax  interest  will  be  added  at  rate  of  10  per  cent  per  annum.  (T.  D.  275G; 
Sept.  5,  1918.) 

The  provision  of  section  207  of  the  act  of  September  S,  1916,  that  where  tentative 
payment  of  tax  is  made,  sufficient  in  judgment  of  collector  at  that  time  to  cover 
all  tax  liability,  and  later  it  is  found  that  "there  has  been  an  overpayment,  refund 
oi  tax  shall  be  made,  applies  regardless  of  whether  it  was  filed  within  two  years  of 
date  of  tax  payment.     (T.  D.  2378;  Art.  XXX.) 

Returns — Advance  pajrment. 

Final  return  on  Form  706,  showing  value  of  all  assets  as  of  date  of  decedent's 
death  and  the  allowable  deductions  to  which  estate  is  entitled,  ^•alue  of  net  estate, 
and  determined  tax  because  of  transfer  of  net  estate,  must  be  filed  wherever  ad^'ancc 
payment  is  desired.     (T.  D.  2756;  Sept.  5,  1918.) 

Benefioiaries. 

Where  estates  liave  no  executors  or  administrators,  or  where  any  part  of  gross 
estate  passes  other  tlian  in  charge  of  executors  or  administrators,  the  act  of  Sep- 
tember 8,  1916,  places  upon  the  separate  beneficiaries  the  duties  with  regard  to 
filing  30-day  notice  and  return  and  the  payment  of  taxes  that  are  otherwise  imposed 
on  executors  and  administrators;  each  siich  beneficiary  is  as  fully  liable  to  penalties 
provided  as  is  executor  or  administrator;  where  property  is  held  for  beneficiary  by 
guardians,  trustees,  or  fiduciaries.  30-day  notice  and  return  may  be  executed  by 
such  representative.?  of  the  beneficiary.     (T.  D.  2378;  Art.  XVI.) 

Each  beneficiary  making  return  lor  any  part  of  estate  is  required  by  act  of  Sep- 
tember 8,  1918,  to  give  all  information  possible  regarding  any  part  of  estate;  final 
and  complete  retm'n,  where  no  executor  or  administrator  acts,  ^\'ill  be  compiled  by 
collector  from  the  several  returns  of  the  indiA'idual  beneficiaries;  after  determining 
total  gross  and  net  estate,  rate  of  tax.  and  proportionate  amount  due  from  each 
beneficiary,  collector  shall  notify  oacli  beneficiary  accordingly  and  will  enter  upon 
assessment  list  the  amount  of  tax  apportionable  to  each.     (T.  D.  2378;  Art.  XVII.) 

Cash. 

If  accrued  income  has  been  reduced  to  cash  prior  to  death  and  is  included  in  ' '  cash 
in  bank,"  or  otherwise  accounted  for  on  the  return,  it  should  not  be  set  up  in  the 
income  column.     (T.  D.  2513;  July  16,  1917.) 

Coasciors'  duties. 

Where  return  is  materially  false  or  incorrect,  or  where  no  return  is  filed,  col- 
lector or  his  deputy,  after  investigation,  shall  make  return  and  the  Commissioner 
shall  assess  the  tax  thereupon.     (;i\  D.  2378;  Art.  XVIII.) 

Description  of  realty. 

In  describing  realty  it  may  not  be  necessary  to  recite  whole  description  on  the 
deed,  biit  sufficient  data  should  be  given  in  each  case  to  permit  immediate  and  exact 
location  by  a  Government  officer.     (T.  D.  2513;  July  10,  1917.) 


ESTATE  TAX.  207 

Returns — Continued. 

—  Extension  of  time  for  filing. 

Regulations  No.  37,  Article  XXIX,  amended,  no  that  where  executor  haa  been 
{granted  extension  of  time  not  to  exceed  90  days  for  filing  return,  collector  may  ex- 
tend time  until,  in  his  judgment,  reasonable  ground  for  delay  has  been  removed; 
interest  attaches  from  close'of  original  extension;  collector  to  promptly  report  facts 
to  Commissioner's  office.     (T.  D.  2G37;  Jan.  24,  1918.) 

At  time  tentative  return  is  filed  extension  not  ot  exceed  90  days  may  be  granted 
by  collector  in  which  to  tile  final  return;  if  after  expiration  of  extension  granted 
executor  represents  that  he  is  still  unable  to  determine  tax  and  file  final  return, 
detailed  statement  as  to  reasons  preventing  determination  of  tax  should  be  trans- 
mitted to  bm-eau  for  consid<>ration  as  to  whether  an  additional  estension  should 
be  .gi-anted;  in  every  case  where  tentative  return  is  filed,  it  should  be  plainly  so 
designated  and  duplicate  transmitted  to  bureau  with  statement  by  collector  as 
to  period  of  extension  granted.     (T.  D.  2756;  Sept.  5,  1918.) 

Gifts  or  transfers. 

Every  gift  or  transfer  of  material  value  made  or  effected  by  decedent  within  two 
years  prior  to  day  of  death  must  be  sliown  under  item  2  in  executing  Form  706; 
evidence  showing  whether  gift  or  transfer  v\-as  made  in  contemplation  of  death  may 
be  submitted  with  the  return,  and  question  of  taxability  will  be  ruled  upon  before 
assessment  is  confirmed;  every  gift  or  transfer  made  in  contemplation  of  or  intended 
to  take  effect  after  death  must  be  returned.     (T.  D.  2513;  July  16,  1917.) 

If,  in  case  of  transfers  made  more  than  two  yc^ars  prior  to  decedent's  death,  the 
executors  or  administrators  sliall  not  include  the  A'alue  of  the  transfers  upon  the 
return  of  the  estate,  collectors  shall  not  add  such  value  to  the  gross  estate  until 
thorough  investigation  has  ]>een  made,  all  the  facts  have  been  ascertained,  and 
the  collector  shall  ha's'e  satisfied  himself  that  the  transfers  were  actually  made 
with  view  of  providing  for  lieneficiarv  after  or  because  of  decedent's  death.  (T.  D. 
2378;  Art.  IV  (2).) 

Where  executor  has  made  return  and  collector  finds  that  transfers  of  material 
value  made  %vithin  two  years  prior  to  decedent's  death  have  been  omitted,  col- 
lector shall  require  executor  to  amend  retiu'n  by  including  such  transfers  in  the 
gross  estate,  unless  executor  shall  file  conclusive  evidence  that  transfers  were  not 
made  in  contemplation  of  death.     (T.  D.  2378;  Art.  IV  (2j.) 

Gross  estate. 

Nonr;'sident  estate  v/ill  show  under  items  of  the  "Gross  estate''  only  the  gross 
estate  within  the  United  States,  but  will  show  under  "Deductions' '  the  entire  legal 
deductions  wherever  incurred;  it  will  then  show  in  the  space  subjoined  to  "Recap- 
itulation" the  whole  gross  estate  wherever  situated  and  compute  in  accordance 
with  Article  XXIII,  of  Regulations  No.  37,  revised  May,  1917,  the  allowable  share 
of  total  deductions.     (T.  d:  2513;  July  16,  1917.) 

In  case  of  estates  of  residents  neither  the  30-day  notice  nor  the  return  can  lie 
require/!,  except  where  gro,s3  estate  exceeds  $60,000  or  net  estate  exceeds  $50,000; 
wlierever  either  of  these  conditions  exists  the  30-dav  notice  an<l  the  return  must  lie 
filed.     (T.  D.  2378;  Art.  XIV.) 

Nonresident  decedents. 

Where  administrator  or  executor  fails  to  file  return  as  provided  in  section  203, 
paragraph  (b),  of  act  of  September  8,  1916,  and  pay  tax  due,  collector  shall  require 
such  return  and  tax  payment  from  local  agent,  representative,  etc.;  where  there  is 
more  than  one  holder  in  this  country  of  decedent's  pro})erty,  collector  will  aggregate 
the  separate  retin-ns,  proceeding  in  accordance  with  Article  XVII  of  Regulations 
No.  37.     (T.D.  2454;  Feb.  28,  1917.) 

Returns  on  Form  703  required  to  l>e  forwarded  (in  dui)licate)  by  executor  direct  to 
Commissioner  of  Internal  Revenue,  Treasury  Department,  Washington,  D.  C, 
who  will,  after  reviewing  the  returns,  transmit  them  to  proper  collector;  date  on 
which  return  is  received  by  Commissioner  will  l)e  considered  date  of  original 
filing  with  collector  for  purpose  of  determining  whether  or  not  return  is  filed  within 
period  prescribed  by  law.     (T.  D.  2691;  Apr.  8,  1918.) 

Return  is  required  of  estate  of  every  nom'csident  leaving  property  witliin  tiie 
United  States.  Alaska,  or  Hawaii,  regardless  of  amoimt  of  property  soleft.  (T.  D. 
2378;  Art.  XV.) 

Requirements  with  relation  to  filing  of  returns  in  cases  of  estates  of  residents 
apply  fiilly  to  cases  of  estates  of  nonresidents,  except  that  collector  with  whv)m 


208  ESTATE  TAX. 

Betams-  roiiliinit'd. 

Nonresident  decedents- rontiniufl. 

notif-e  or  rotiini  is  to  be  filed  if  the  collector  in  wliose  diRtri(t  the  i)rf.pcrty  liable 
for  tax  is  situated:  if  such  property  is  located  in  more  than  one  district,  notice  or 
return  is  to  be  liled  with  collector  at  Baltimore,  Md.     (T.  D.  237S;  Art.'XX.) 

Penalties. 

The  act  of  September  8.  1936.  provides  two  separate-  penalties  in  connection  with 
t))e  30-day  notice  and  the  return:  (1)  For  falee  statement  knowingly  made  on 
notice  or  return  there  is  imposed  a  fine  not  to  exceed  $5,000.  or  imxjriBonment  not 
exceedins;  one  year,  or  both;  (2)  for  failure,  whether  throi.igh  neglect  or  otherwise, 
to  file  notice  or  return  at  times  required,  penalty  of  not  exceeding  $500,  to  be  re- 
covered with  costs  of  suit,  in  civil  action  in  name  of  United  States.  (T.  D.  2378; 
Art.  XXI.) 
Place  of  filing. 

If  decedent  maintained  more  than  one  residence,  his  principal  residence  (actual 
douiicile)  determines  internal  revenue  district  in  which  return  must  be  filed  and 
tax  paid;  if  decedent  was  nonresident  and  his  sdIc  property  within  United  States, 
Hawaii,  or  Alaska  was  stock  or  bonds  of  an  American  corporation,  returns  should 
be  filed  with  collector  in  whose  district  head  office  of  corporation  is  located,  unless 
estale  has  representative  in  this  country  in  charge  of  stocks  or  bonds,  in  which  case 
r(>tiirn  may  be  filed  with  collector  in  whose  district  representative  has  his  office. 
(T.  D.  2513;  July  16,  1917.) 

Whenever  l^eneficiary  files  with  collector  notice  of  receipt  of  property  which  dis- 
<  loses  that  decedent  was  resident  at  time  of  dc-ath  in  another  collection  district, 
«()ll(M'tor  receiving  notice  shall  forward  it  to  proper  collector  and  shall  })romptly 
inform  beneficiary  as  to  i-ollection  district  in  which  return  is  required  to  be  made 
and  tax  paid.     (T.  D.  2378;  Art.  XIX.) 

■ Tentative  return. 

Section  207,  act  Sejtternber  8.  1916,  relates  to  time  when  tax  is  due  and  if  at  end 
of  year  following  decedent's  <leath.  executor  represents  and  collector  is  satisfied 
that  amount  of  tax  cannot  be  determined,  return  may  be  filed  by  executor,  setting 
forth  the  then  known  assets  and  actual  value  as  of  date  of  decedent's  death,  deter- 
mined and  a]lowal)le  deductions  to  which  estate  is  entitled,  value  of  net  estate 
ajid  tax  due  thereon,  which  return  will  be  designated  "tentative."  and  tax  shown 
to  be  due  should  be  paid  and  entered  upon  collector's  assessment  list  for  month  in 
which  paid.     (T.  I).  2756;  Sept.  5,  1918.) 

Keturn  of  gross  and  net  estate  must  be  filed  with  collector  by  executor  or  ad- 
ministrator within  one  year  after  decedent's  death  and  before  distribution  or  tax 
payment  is  made:  where  administration  of  estate  is  in  such  incomplete  condition 
that  correct  information  can  not  lie  given,  tentative  return  may  be  filed  and  esti- 
iiiatcd  tax  may  he  paid  at  time  return  is  filed :  return  miist  be  in  duplicate,  one  copy 
to  be  retained  by  collector  and  one  forwarded  by  iiim  to  Commissioner:  where  tenta- 
tive return  i.s  filed,  cf»my)lete  return  must  lie  made  on  or  before  date  of  final  payment 
of  tax  in  full;  in  case  of  partial  payment  of  fax  in  advaiice  tentative  return  must  be 
filed  before  collector  will  accept  partial  payment.     (T.  D.  237S;  Art.  XIII.) 

• "Value  of  stocks  and  bonds. 

Highest  selling  price  of  stocks  and  bonds  on  day  of  death  fixed  as  value  to  be 
returned,  or,  if  no  sale,  then  highest  bid  price;  if  stocks  or  bonds  are  not  listed  on 
the  market  the  executor  may  set  up  value  that  he  deems  true  value  as  of  day  of 
decedent's  death;  if  bulk  of  estate  is  community  property  its  value  should  not  be 
shown  under  item  4  of  Form  706,  but  decedent's  legal  share  should  be  returned 
under  the  several  items.     (T.  D.  2513;  July  16,  1917.) 

Safe-deposit  companies — Release  of  property. 

Safe-deposit  companies  having  property  in  this  country  of  nonresident  decedent 
may  not  release  to  foreign  administrator  or  executor  or  foreign  beneficiary  any 
]>roperty  within  this  country  at  time  of  decedents  death  until  after  tax  due  has  been 
paid  or  ancillary  letters  have  been  taken  out  or  otherwise  provision  has  been  made  by 
estate  for  satisfaction  of  tax  lien.     (T.  D.  2454;  Feb.  28,  1917.) 

Table  used  in  determining  value  of  life  estate. 

In  determining  present  net  worth  of  a  vested  estate  of  decedent,  which  is  subject 
ro  the  usufruct  or  life  estate  of  another,  the  value  of  the  life  inl,erest  is  deductible; 
in  arriving  at  such  value,  .specified  table  should  be  used.     (T.  D.  2626;  Dec.  6,  1917.) 


ETHYL   ALCOHOL— EXCESS   PROFITS   TAX.  201) 

Warehousemen — Release  of  property. 

Warehousemen  having  property  in  this  country  of  nonresident  decedent  may  not 
release  to  foreign  administrator  or  executor  or  foreign  beneficiary  any  property 
wathin  this  country  at  time  of  decedent's  death  until  after  tax  due  has  been  paid  or 
ancillary  letters  have  been  taken  out  or  otherwise  provision  has  been  made  by 
estate  for  satisfaction  of  tax  lien.     (T.  D.  2454;  Feb.  28,  1917.) 


See  "Alcohol." 
See  "Narcotics." 


ETHYL  ALCOHOL. 

EUCAINE. 


EXCESS  PROFITS  TAX. 
Act  published. 

War  excess  profits  tax  provisions  of  act  of  October  3,  1917,  published.  (T.  D. 
2550;  Oct.  20,  1917.) 

Advance  payments. 

Instructions  with  reference  to  time  for  making  advance  payments  in  inslallmenta 
or  in  whole  of  income  and  excess  profits  taxes  imder  section  1009  of  act  of  October 
3,  1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to  tax- 
paver;  refund  of  excess  pavment;  entries  to  be  made  on  specified  forms:  interest 
table.  (T.  D.  2(322;  Dec.  20,  1917.  T.  D.  2(574;  Mar.  18,  1918.  T.  D.  2695;  Apr. 
1),  1918.) 

Assessment  and  collection. 

All  excess  profits  taxes  to  which  any  taxpayer  ia  subject  shall  be  assessed  and 
collected  at  same  time  and  in  same  manner  as  provided  with  respect  to  income 
taxes,  in  Regulations  No.  33,  revised,  in  so  far  as  same  are  applicable.  (T.  D.  2694; 
art.  79.) 

Certificates  of  indebtedness — Acceptance. 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  maturing 
June  25,  1918,  at  par  and  accrued  interest,  in  payment  of  income  and  excess  profita 
taxes,  when  payable  at  or  before  maturity  of  certificates;  amount  of  such  certilicatea 
must  not  exceed  amount  of  taxes  due;  deposits  of  such  certificates  to  be  made  in 
Federal  reserx-e  banks  of  districts  in  whicli  collectors'  offices  are  located;  insurance, 
where  amounts  are  transmitted  by  registered  mail;  until  certificates  of  deposits  are 
received  from  banks  amounts  must  be  carried  as  '  'cash  on  hand; "  schedule  showing 
amount  of  accrued  interest  pavable  per  certificate  of  each  issue  on  any  date  from 
January  2  to  June  25,  1918.     (t.  D.  2639;  Jan.  28,  1918.) 

Schedule  showing  exact  amount  of  accrued  interest  pavable  on  any  day  from 
February  15,  1918,  to  June  25,  1918.     (T.  D.  2656;  Feb.  15, 1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
March  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  payable  on  any  day  from  March 
15,  to  June  25,  1918.     (T.  D.  2680;  Mar.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
April  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  on  any  day  from  April  15  to 
June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
May  15,  1918,  and  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment 
of  income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedules  showing  the  exact  amount  of  accrued  interest  pavable  on  any  day  from 
May  15  to  June  25,  1918.     (T.  D.  2718;  May  28,  1918.) 

Collectors  directed  to  receive  at  par  United  States  Treasury  certificates  of  in- 
debtedness of  Tax  Series  of  1919,  dated  August  20,  1918,  and  maturing  July  15,  1919, 
and  of  Series  T,  dated  November  7. 1918,  and  maturing  March  15,  1919,  in  payment 
of  income  and  profits  taxes  when  payable  at  or  before  maturity  of  certificates;  de- 
posits of  certificates  must  be  made  with  Federal  reserve  banks  of  districts  in  which 
respective  collectors'  offices  are  located  and  must  be  forwarded  by  registered  mail; 

70420°— 21 14 


210  EXCESS  PEOEITS  TAX, 

Certificates  of  indebtedness— Acceptance — Continued, 
until  certificate.?  of  deposit  are  received  from  banks,  amounts  must  be  carried  as  cash 
on  hand;  schedules  ot  certificates  required  to  be  kept  by  collectors;  deposit  of  cer- 
tificates in  banks  by  taxpayers  permitted  under  stated  conditions.     (T.  D.  2778; 
Dec.  11,  1918.) 

Unmatured  coupons  attached  to  certificates  of  indebtedness  of  Tax  Series  of  1919, 
dated  August  20, 1913,  and  maturing  July  15, 1919,  and  of  Series  T,  dated  November 
7,  1918,  and  maturing  March  15,  1919,  must  be  stamped  ''Paid;"  coupons  maturing 
on  or  before  date  tax  is  due  must  be  detached  by  taxpayer  and  collected,  but  till 
other  coupons  must  be  attached  to  certificate  and  forwarded  to  Federal  reserve 
banks;  accrued  interest  to  date  income  or  profits  taxes  are  due  not  covered  by 
coupons  attached  will  be  remitted  to  taxpayer;  collectors  must  not  pay  interest  on 
such  certificates  nor  accept  them  for  an  amount  other  or  greater  than  their  face  value. 
(T.  D.  2778;  Dec.  11,  1918.) 

Computation. 

Partnership  whose  fiscal  year  ended  with  last  day  of  any  month  in  1917  other  than 
December,  may,  not  later  than  30  days  before  March  1,  1918,  give  to  collector  of 
district  in  which  its  principal  place  of  business  is  located,  notice  in  writing  of  date 
thus  fixed  as  closing  of  fiscal  year;  unless  such  notice  is  given,  income  tax  return  for 
purposes  of  excess  i)rofits  tax  shall  be  filed  upon  basis  of  calendar  year  1917.  (T.  D. 
2C32;Jan.  21,  1918.) 

Where  partnership  keeps  its  books  upon  basis  of  fiscal  year  ending  on  last  day 
of  any  month  other  than  December  31,  and  i*^  is  impracticable  to  make  satisfactory 
returia  upon  basis  of  calendar  year,  collector  may  accept  return  upon  basis  of  its 
fiscal  year,  even  though  notice  was  not  given  not  later  than  30  days  before  March 
1,  1918,  as  prescribed  by  T.  D.  2632;  if  i^artner-ship  has  already  filed  return  upon 
basis  of  calendar  year,  collector  mav  accept  amended  return  upon  ba.sis  of  fiscal 
year.    (T.  D.  2677;  Mar.  23,  1918.) 

All  trades  and  businesses  in  which  corporation  f«r  partnership  is  engaged  will  bo 
treated  as  single  trade  or  business  (as  provided  in  section  201  of  the  act  of  October 
3,  1917,  and  all  its  income  from  wiiatever  source  derived  shall  be  deemed  to  be  re- 
ceived from  such  trade  or  business,  and  if  in  such  trade  or  business,  considered  as 
a  unit,  such  corporation  or  partnei-ship  employs  more  than  a  nominal  capital 
(whether  invested,  borrowed,  or  of  any  other  character)  it  will  not  be  entitled  to  be 
assessed  under  the  provisions  of  section  209.  (T.  D.  3017;  May  3,  1920.  Amending 
art.  14,  T.  D.  2694.) 

Inasmuch  as  all  the  trades  or  businesses  in  which  a  corporation  or  partnership  is 
engaged  are  treated  as  one,  a  corporation  or  a  partnership  shall  be  allowed  either  tlie 
deduction  pro^'ided  for  in  section  203  or  the  deduction  provided  for  in  section  209 
(depending  on  the  character  of  its  trade  or  busines-s),  but  not  both.     (Id.) 

In  the  case  of  an  individual  each  trade  or  business  in  which  he  is  engaged,  the  net 
income  from  which  is  subject  to  the  excess  profits  tax.  shall  be  classifi^ed  as  provided 
in  article  14,  Regulations  No.  41.  Each  trade  or  business  having  no  invested  capi- 
tal or  not  more  than  nominal  capital,  etc. ,  shall  be  taxed  as  provided  in  article  15,  and 
each  trade  or  business  having  more  than  a  nominal  capital  shall  be  taxed  as  pro^"ided 
in  article  16.  If  an  individual  is  engaged  in  two  or  more  trades  or  businesses,  in  one 
of  which  he  employs  more  than  a  nominal  capital  (whether  invested.  boiTowed,  or 
of  any  other  character),  he  will  be  assessed  under  section  209,  act  of  October  3,  1917, 
only  as  to  those  trades  or  businesses  in  which  he  employs  no  invested  capital  or  not 
more  than  a  nominal  capital;  and  as  to  all  others,  he  will  be  assessed  under  section 
201.     (Id.) 

If  an  indivddual  has  m.ore  than  one  business  with  invested  capital,  they  will  all 
be  regarded  as  one,  and  (under  sec.  203,  act  of  Oct.  3,  1917)  only  one  deduction 
v.dll  be  allowed;  if  he  has  more  than  one  business  ^vith  not  more  than  a  nominal 
capital,  they  will  be  regarded  as  one,  and  (under  the  provisions  of  sec.  209)  only 
one  deduction  will  be  allowed.  If  he  has  both  kinds  of  businesses  he  will  be  re- 
garded as  ha^-ing  two  businesses  and  there  will  be  two  deductions,  but  not  more 
than  two.     (Id.     See  arts.  35  and  36,  Regulations  No.  41.) 

^\^^ere  taxpayer  v/ho  is  engaged  in  a  trads  or  business,  net  income  from  which  is 
subject  to  taxation  at  rate  of  8  per  cent  imposed  by  section  209  of  the  act  of  October 
3,  1917,  makes  return  for  period  of  less  than  12  months,  the  deduction  of  $3,000  or 
$6,000  allowed  under  that  section  will  be  reduced  to  an  amount  which  bears  the 
same  ratio  to  such  full  deduction  as  the  number  of  months  in  the  period  bears  to  12 
months;  this  ruling  applies  only  in  case  ot  taxpaver  who  is  eutitietl  to  make  return 


EXCESS  PROFITS  TAX.  211 

Computation  — rontiuued. 

for  period  of  less  than  a  full  year,  and  is  not  to  be  coiL:<trued  a?!  autliorizinji  a  c-or- 
poration  or  partnership  which  has  already  established  fiscal  year  ending  in  1917, 
but  part  of  which  falls  within  1910,  to  compute  its  lax  in  any  other  manner  than  as 
prescribed  in  article  19  of  Regulations  41.     (T.  D.  2GS9;  Apr.  1,  1918.) 

Where  taxpayer  who  is  engaged  in  trade  or  business,  net  income  from  which  is 
subject  to  taxation  at  rates  imposed  by  section  201  of  the  act  of  October  3, 1917, 
makes  return  for  period  of  less  than  12  months,  the  invested  capital  used  in  appljang 
the  ra((>s  of  tax  will  lie  an  amount  v/hich  bears  the  same  ratio  to  such  full  average 
invested  capital  as  the  number  of  months  in  the  period  for  which  the  return  is  made 
bears  to  12  months;  this  ruling  ai)plies  only  in  case  of  taxpayer  who  (because  of 
having  just  established  a  fiscal  year,  or  of  having  just  organized  or  engaged  in  busi- 
ness, or  for  other  like  reasons)  is  enlitled  to  make  return  for  period  of  less  than  full 
year,  and  is  not  to  be  construed  as  authorizing  a  corporation  or  partnership  which 
has  already  established  a  fiscal  year  ending  in  1917,  but  i)art  of  which  falls  within 
1916,  to  compute  its  tax  in  any  other  manner  tha.n  as  prescribed  in  article  19  of 
Regulations  41.     (T.  D.  2689;  Apr  1,  1918.) 

Where  deduction  as  ])rovided  in  articles  21,  2:5.  and  24  is  greater  than  1T>  per  cent 
oi  invested  capital  and  therefore  can  not  be  fully  allov/ed  under  the  lirst  rate  or 
bracket  of  article  16,  then  any  remaining  portion  of  such  deduction  vv-ill  be  allowed 
under  the  second  bracket  and  continued  if  necessary  into  succeeding  bracket  or 
brackets  until  entire  deduction  is  allowed.     (T,  D.  2694;  art.  17.) 

Where  trade  or  business  was  formally  organized  or  reorganized  on  or  after  January 
2,  1913,  but  is  substantially  continuation  of  trade  or  business  carried  on  prior  to 
such  date,  such  corporation  or  partnership  is  deemed  to  have  been  in  existence,  or 
individual  is  deemed  to  have  been  engaged  in  trade  or  business,  prior  to  such  date, 
and  for  purpose  of  computing  deduction  net  income  and  invested  capital  of  pre- 
decessor is  deemed  to  have  beeii  net  income  and  invested  capital  of  present  owner 
for  prewar  period.     (T.  D.  2694;  art.  22.) 

i\Iethod  of  determining  deduction  when  income  for  prewar  period  can  not  be 
satisfactorily  determined,  or  when  net  income  was  low-  during  jjrewar  period,  or 
when  there  was  no  net  income  during  such  period  stated.     (T.  I).  2694;  art.  23.) 

Deduction  used  in  computing  rates  of  tax  under  article  16  is,  except  in  cases  coming 
within  conditions  specitied  in  articles  23  and  24,  in  case  of  domestic  corporation  the 
sum  of  (1)  an  amount  equal  to  same  percentage  of  invested  capital  for  taxable  year 
which  average  amount  of  annual  net  income  of  trade  or  business  during  prewar 
period  was  of  the  invested  capital  for  such  period  (except  that  7  per  cent  shall  be 
used  if  such  percentage  was  less  than  7  per  cent,  and  9  per  cent  shall  be  used  if  such 
percentage  was  more  than  9  per  cent,  and  8  per  cent  shall  be  used  if  corporation  was 
not  in  existence  during  whole  of  at  least  one  calendar  year  during  prewar  period), 
and  (2)  §3,000.     (T.  D.  2694;  art.  21.) 

Deduction  used  in  computing  rates  of  tax  under  article  16,  except  in  cases  coming 
within  conditions  specified  in  articles  23  and  24  is  in  case  of  domestic  partnership 
or  of  citizen  or  resident  of  the  United  States  the  sum  of  (1)  an  amount  equal  to  same 
percentr^e  of  invested  capital  for  taxable  year  which  average  amount  of  annual  net 
income  of  trade  or  business  during  prewar  period  was  of  invested  capital  for  prewar 
period  (except  that  7  per  cent  shall  be  used  if  such  percentage  was  less  than  7  per 
cent,  and  9  per  cent  shall  be  used  if  such  percentage  was  more  than  9  per  cent,  and 

8  per  cent  shall  be  usei  if  partnership  was  not  in  existence  or  individual  was  not 
engaged  in  trade  or  business  during  whole  of  at  least  one  calendar  vear  during  pre- 
war period),  and  (2)  $6,000.     (T.  D.  2694;  art.  21.) 

Deduction  used  in  computing  rates  of  tax  under  article  16,  except  in  cases  coming 
within  conditions  specified  in  articles  23  and  24  is  in  case  of  foreign  corporation  or 
partnership  or  of  nonresident  alien  individual,  an  amount  equal  to  sam.e  percentage 
of  investecl  capital  for  taxable  year  which  average  amount  of  annual  net  income  of 
trade  or  business  during  prewar  period  was  of  invested  capital  for  such  period 
(except  that  7  per  cent  shall  be  used  if  such  percentage  was  less  than  7    per  cent  and 

9  per  cent  shall  be  used  if  such  percentage  was  more  than  9  per  cent,  and  8  per  cent 
shall  be  used  if  corporation  or  partnership  was  not  in  existence  or  individual  was 
not  engaged  in  trade  or  business  during  whole  of  at  least  one  calendar  vear  during 
prewar  period).     (T.  D.  2694;  art.  21.) 

Amount  of  deduction  in  cases  where  Secretary  of  the  Treasury  is  unable  satis- 
factorily to  determine  the  invested  capital  stated.     (T.  D.  2694;  art.  24.) 

Where  corporation  or  partnership  prior  to  March  1,  1918,  made  return  for  fiscal 
year,  part  of  which  fell  within  calendar  year  1916,  tax  for  first  taxable  year  is  that 
proportion  of  tax  computed  on  net  income  for  such  fiscal  year  which  number  of 


212  EXCESS  PKOFITS  TAX. 

Coraputation  — Coiitimicd. 
months  from  January  1,  1917,  to  end  of  such  fiscal  year  bears  to  entire  number  of 
months  in  such  fiscal  year.     (T.  D.  2694;  art.  19.) 

Where  corporation  or  partnership  at  any  time,  either  because  it  has  just  designated 
fiscal  year  as  provided  in  sections  8  or  13  of  the  act  of  September  8,  1916,  or  for  any 
other  reason,  makes  return  for  period  of  less  than  12  months,  deduction  will  be  the 
amount  which  bears  same  ratio  to  deduction  allowable  for  full  year  as  number  of 
months  in  such  period  bears  to  12  months.     (T.  D.  2694;  art.  20.) 

If  excessive  payments  by  corporations  represent  appropriation  of  assets  by  ofhcera 
who  control  it  and  fix  their  compensation  in  violation  of  rights  of  corporation, 
amount  of  excess  should  be  treated  as  compensation  of  individuals  subject  to  normal 
and  excess-profits  taxes;  or  if  such  payments  constitute  in  part  payment  for  property 
amount  of  excess  should  be  treated  by  corporation  as  capital  expenditure  and  by 
recipient  as  part  of  purchase  price.     (T.  D.  2696;  Apr.  10,  1918.) 

Consolidated  returns   of   aflSliated  corporations — "Affiliated"  defined. 

Two  or  more  corporations  are  not  "affiliated"  merely  because  all  or  substantially 
all  of  the  stock  therein  is  owned  by  the  same  corporation,  individual,  or  partnership; 
thev  must  also  be  engaged  in  the  same  or  a  closely  related  business.  (T.  D.  2662; 
Mar.  6,  1918.) 

■ "All  or  substantially  all  of  the  stock"  defined. 

The  words  "all  or  substantially  all  of  the  stock"  as  used  in  the  definition  of  an 
affiliated  corporation  in  Regulations  No.  41,  arti<  le  77,  interpreted  as  meaning  an 
ownership  of  95  per  cent  or  more  of  such  stock  by  the  same  taxpayer  during  th-j 
taxable  year.     (T.  D.  2662;  Mar.  6,  1918.) 

Contents  of  return. 

Owner  shall  include  specific  statement  of  number  or  proportion  of  shares  in  affili- 
ated corporations  held  by  parent  corporation  during  taxable  year  and  a  schedule 
showing  proportionate  amount  of  total  tax  which  it  is  agreed  among  them  is  to  be 
assessed  upon  each  affiliated  corporation;  affiliated  corporation  to  file  return  show- 
ing that  corporation  is  affiliated  with  parent  corporation,  that  its  return  is  included 
in  consolidated  return  of  such  parent  corporation,  and  district  in  which  consoli- 
dated return  is  filed.     (T.  D.  2662;  Mar.  6,  1918.) 

Corporations  must  describe  in  returns  all  intercorporate  relationships  with  other 
corporations  with  which  affiliated  and  must  furnish  such  information  in  relation 
thereto  as  will  enable  Commissioner  of  Internal  Revenue  to  compute  amount  of 
tax  properly  due  from  each  corporation  on  basis  of  equitable  and  lawful  accounting; 
circumstances  under  which  two  or  more  corporations  will  be  deemed  to  be  affiliated 
stated.     (T.  D.  2694;  art.  77.) 

— —  Date  as  of  which  valuation  made. 

When  all,  or  susbtantially  all,  of  stock  of  subsidiary  corporation  was  acquired  for 
cash,  cash  so  paid  shall  be  basis  to  be  used  in  determining  value  of  property  acquired; 
where  stock  of  subsidiary  company  was  acquired  with  stock  of  parent  company, 
amount  to  be  included  in  consolidated  invested  capital  in  respect  of  company 
acquired  shall  be  computed  in  same  manner  as  if  net  tangible  assets  and  intangible 
assets  had  been  acquired  instead  of  the  stock;  if  in  accordance  with  such  acquisition 
a  paid-in  surplus  is  claimed,  such  claim  shall  be  subject  to  provisions  of  articles  55 
and  63  of  Regulations  41.     (T.  D.  2901;  July  29,  1919.) 

Invested  capital,  etc.,  determining  amount  of. 

Consolidated  return  will  be  required  in  case  of  affiliated  corporations  among  which 
there  exist  contracts  or  trade  or  financial  practices  which  arbitrarily  or  beneficially 
influence  or  determine  the  amount  of  the  invested  capital  or  net  income  of  one  or 
more  of  the  corporations  so  affiliated  and  where  95  per  cent  or  more  of  the  stock  of 
the  subsidiary  affiliated  corporations  is  owned  by  a  parent  or  controlling  corpora- 
tion or  by  an  individual  or  partnership.     (T.  D.  2662;  Mar.  6,  1918.) 

— —  Place  of  filing  returns. 

Returns  shall  be  filed  by  parent  or  principal  corporation  in  office  of  collector  of 
district  in  which  it  has  its  principal  office;  each  of  other  affiliated  corporations 
shall  file  return  in  office  of  collector  of  its  respective  district:  contents  of  return 
stated.     (T.  D.  2662;  Mar.  6,  1918.) 


EXCESS  PROFITS  TAX.  213 

Consolidated  returns  of  aflB.liated  corporations — Continued. 

Public  service  corporations. 

Railroads,  gas,  electric,  water,  or  other  public  service  corporations  when  oper- 
ated independently  and  not  physically  connected  or  merged — particularly  when 
situated  in  different  jurisdictions  and  subject  to  regulation  by  public  service  com- 
missions— will  not  be  required  or  permitted  without  special  permist^ion  obtained  in 
advance,  to  make  a  consolidated  return;  when  public  utility  is  owned  by  indus- 
trial corporation  and  is  operated  as  a  plant  facility,  or  as  an  integral  part  of  a  group 
organization  of  atiiliated  corporations  and  such  corporations  are  required  to  file 
consolidated  return,  return  of  such  public  utility  shall  be  included  therein.  (T.  D. 
2m2;  Mar.  (J,  1918.) 

Requirement. 

Whenever  necessary  to  more  equitably  determine  the  invested  capital  or  taxable 
income,  Commissioner  of  Internal  Kevenue  may  require  affiliated  corporations  to 
furnish  consolidated  return  of  net  income  and  invested  capital;  such  return  may  be 
made  by  any  one  or  more  of  such  corporations  or  by  all  acting  jointly;  in  case  of 
neglect  or  refusal  to  furnish  return,  Commissioner  may  cause  examination  of  books 
of  all  such  corporations  to  be  made,  and  consolidated  statement  to  be  made  from 
such  examination;  where  returns  are  accepted,  total  tax  will  be  computed  in  first 
instance  as  unit  on  basis  of  consolidated  return  and  will  be  assessed  upon  respective 
affiliated  corporations  in  such  proportions  as  may  be  agreed  among  them;  but  if  no 
such  agreement  is  made  tax  will  be  assessed  upon  each  corporation  in  accordance 
with  net  income  and  invested  capital  properly  assignable  to  it.  (T.  D.  2694; 
art.  78.) 

Separate  returns,  wlien. 

If  Commissioner  of  Internal  Revenue,  upon  examination  of  any  consolidated 
return,  finds  that  tax  can  not,  in  his  judgment,  be  i>roperly  assessed  upon  basis  of 
such  return,  affiliated  corporations  covered  by  such  consolidated  return,  shall, 
upon  notice  from  the  Commissioner,  file  separate  returns.  (T.  D.  2662;  Mar. 
6,  1918.) 

D  efinitions — ' '  B  usiness. ' ' 

In  case  of  corporation  or  partnership  all  income  from  whatever  source  derived  is 
deemed  to  be  from  its  trade  or  business,  and  the  terms  "trade,"  "business,"  and 
"trade  or  business"  include  all  sources  of  income,  and  unless  otherwise  indicated 
by  the  context  the  terms  will  be  deemed  to  be  used  only  with  this  scope  or  meaning. 
(T.  D.  2694;  arts.  1,  7.) 

In  case  of  an  individual,  the  terms  "trade,"  "business,"  and  "trade  or  business'! 
comprehend  all  his  activities  for  gain,  profit,  or  livelihood  entered  into  with  suffi- 
cient frequency  or  occupying  such  portion  of  his  time  or  attention  as  to  constitute 
a  vocation,  including  occupations  and  professions;  when  such  acti\ities  constitute 
a  vocation,  they  shall  be  construed  to  be  a  trade  or  business,  whether  continuously 
carried  on  during  taxable  year  or  not;  unless  otherwise  indicated  by  the  context, 
terms  will  be  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D.  2694; 
arts.  1,  8.) 

"Corporations." 

The  term  "corporation"  includes  joint-stock  companies  or  associations,  no  matter 
how  created  or  organized,  insurance  companies,  and  limited  partnerships,  and 
unless  otherwise  indicated  by  the  context,  term  will  be  deemed  to  be  used  only 
with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  2.) 

—  "Dividends." 

The  term  "dividend"  has  the  same  meaning  as  in  section  31  of  the  act  of  Sep- 
tember 8,  1916,  as  amended  by  the  act  of  October  3,  1917,  to  wit,  any  distribution 
made  or  ordered  to  be  made  by  a  corporation,  joint-stock  company,  association,  or 
insurance  company,  out  of  its  earnings  or  profits  accrued  since  March  1,  1913,  and 
payable  to  its  stockholders,  whether  in  cash  or  in  stock,  which  stock  dividends  shall 
be  considered  income,  to  the  amount  of  earnings  or  profits  eo  distributed;  unless 
otherwise  indicated  by  the  context,  term  will  be  deemed  to  be  used  only  with  this 
scope  or  meaning.     (T.  D.  2694;  arts.  1,  9.) 

"Domestic." 

The  term  "domestic  "  means  created  under  the  law  (statutory  or  other)  of  United 
States  or  any  State  thereof,  Alaska,  Hawaii,  or  the  District  of  Columbia,  and  unless 
otherwise  indicated  by  the  context,  term  will  be  deemed  to  be  used  only  with  this 
ecope  or  meaning.    (T.  D.  2694;  arts.  1,  3.) 


214  EXCESS  PROFITS  TAX, 

Definitions—Continued. 

"Foreign." 

The  term  "foreign"  means  created  under  the  law  (statutory  or  other)  of  any  pos- 
session of  the  United  States  other  than  Alaska,  Hawaii,  or  the  District  of  Columbia, 
or  of  any  foreign  country  or  Government,  and  unless  otherwise  indicated  by  the 
context  term  will  be  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D. 
2694;  arts.  1,  3.) 

"Intangible  property." 

The  term  "other  intangible  property,"  as  used  in  section  207  of  the  act  of  October 
3,  1917,  means  property  of  character  similar  to  good  will,  trade-marks,  and  the 
other  specific  kinds  of  property  enumerated  in  the  same  clause.  (T.  T>.  2694;  art. 
47.) 

"Invested  capital." 

The  term  "invested  capital"  means  the  invested  capital  of  the  present  owner. 
(T.  D.  2694;  art.  42.) 

The  term  "invested  capital,"  when  used  with  reference  to  a  foreign  corporation 
or  partnership  or  a  nonresident  alien  individual,  means  that  proportion  of  the 
entire  invested  capital  as  defined  and  limited  by  Regulations  No.  41  which  the 
net  income  from  sources  within  the  United  States  is  of  the  entire  net  income. 
(T.  D.  2694;  art.  48.) 

The  term  ''invested  capital"  as  used  in  section  209  of  the  act  of  October  3,  1917, 
includes  all  working  capital  consisting  of  money  or  property  employed  in  the  busi- 
ness or  for  its  benefit,  and  furnished  or  paid  in  by  one  or  more  of  the  partners.  (T. 
D.  3080;  Oct.  19,  1920.     Ct.  Dec.) 

"Limited  partnership." 

Limited  partnerships  of  the  Pennsylvania  type,  which  offer  opportunity  for 
limiting  liability  of  all  the  members,  provide  for  transferability  of  partnership 
shares,  and  capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are 
corporations  or  joint-stock  companies;  limited  partnerships  of  Nev/  York  type, 
which  can  not  limit  liability  of  general  partners,  although  special  partners  enjoy 
limited  liability  so  long  as  they  observe  statutory  conditions,  and  which  are  dis- 
solved by  death  or  attempted  transfer  of  interest  of  general  partner,  and  which 
can  not  take  real  estate  or  sue  in  pai'tnership  name,  are  partnerships;  in  doubtful 
cases  limited  partnership.^  will  be  treated  as  corporations  unless  they  submit 
satisfactory  proof  that  they  are  not  in  effect  so  organized.  (T.  D.  2711;  Ma,y  9, 
1918.) 

• "  Money  or  other  property  borrowed." 

The  term  "  money  or  other  property  borrowed,"  as  used  in  section  207  of  the  act 
of  October  3,  1917,  and  Regulations  No.  41,  includes  not  only  cash  or  other  borrowed 
property  which  can  be  identified  as  such,  but  current  liabilities  and  temporary 
indebtedness  of  all  kinds,  and  any  permanent  indebtedness  upon  v/hich  taxpayer 
is  entitled  to  an  interest  deduction  in  computing  net  income.     (T.  D.  2694;  art.  44.) 

— —  ",N'oniinal  capital." 

The  term  "  nominal  capital,"  as  used  in  section  209  of  the  act  of  October  3,  1917, 
means  in  general  a  small  or  negligible  capital  whose  use  in  a  particular  trade  or 
business  is  incidental ;  certain  businesses  not  construed  as  having  nominal  capital 
for  purposes  of  excess  profits  tax,  named.     (T.  D.  2694;  art.  74.) 

■ "  PreAvar  period. " 

The  term"  prewar  period"  means  the  calendar  years  1911,  1912,  and  1913,  or  if  a 
corporation  or  partnership  was  not  in  existence  or  an  individual  was  not  engaged 
in  the  trade  or  business  during  the  whole  of  such  three  years,  then  as  many  of  such 
years  during  the  v.-hole  of  which  the  corporation  or  partnership  was  in  existence  or 
the  individual  was  engaged  in  the  trade  or  business,  and  unless  otherwise  indicated 
by  the  context,  term  will  be  deemed  to  be  used  only  with  this  scope  or  meaning. 
(T.  D.  2694;  arts.  1,  6.) 

"  Tangible  property." 

Stocks,  bonds,  bills,  and  accounts  receivable,  notes  and  other  evidences  of  in- 
debtedness, construed  to  be  "tangible  property"  within  meaning  of  section  207 
of  act  of  October  3,  1917.     (T.  D.  2610;  Dec.  20,  1917.) 


EXCESS  PROFITS  TAX.  215 

Defiiiitions — Continued. 

"Taxable  year." 

The  term  "  taxable  year"  means  the  12  montlis  ondLug  December  31  of  each  year, 
except  in  case  of  corporation  or  partnership  which  has  lixed  its  own  fiscal  year,  in 
which  case  it  means  such  fiscal  year,  and  unless  otherwise  indicated  by  the  context, 
term  will  be  deemed  to  be  used  only  with  this  scope  or  meaning;;  first  taxable  year  is 
year  endinp;  December  31,  1917,  except  that  in  case  of  coiporation  or  partnership 
which  has  fixed  its  own  fiscal  year,  first  taxable  year  is  fiscal  year  ending  during 
calendar  year  1917.     (T.  D.  2894;  arts.  1,  5.) 

"Trade." 

In  case  of  corporation  or  partnership  all  income  from  whatever  source  derived  is 
deemed  to  be  from  its  trade  or  business,  and  the  terms  "trade,"  "business,"  and 
"trade  or  business"  include  all  sources  of  income,  and  unless  othenvise  indicated 
bv  the  context,  the  terms  will  be  deemed  to  be  used  only  with  this  scope  or  meaning, 
(t.  D.2G94;  arts.  1,  7.) 

In  case  of  an  individual,  the  terms  "  trade,"  "  business,"  and  "trade  or  business" 
comprehend  all  his  activities  for  gain,  profit,  or  livelihood  entered  into  with  suffi- 
cient frequency  or  occupying  such  portion  of  his  time  or  attention  as  to  constitute 
a  vocation,  including  occupations  and  professions;  when  such  actiAities  consti- 
tute a  vocation  they  shall  be  construed  to  be  a  trade  or  business  whether  continu- 
ously cai-ried  on  during  taxable  year  or  not;  unless  otherwise  indicated  by  the 
context,  terms  will  be  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D 
2694;  arts.  1,  8.) 

"  United  States." 

The  term  "  United  States"  (when  used  in  a  geographical  sense)  means  only  the 
States  thereof,  Alaska,  Hawaii,  and  the  District  of  Columbia,  and  unless  otherwise 
indicated  bv  the  context,  term  vrill  be  deemed  to  be  used  onlv  with  this  scope  or 
meaning.     (T.  D.  2694;  arts.  1,  4.) 

Estate  tax — Deductions. 

_  Where  State  statute  or  act  of  Congress,  imposing  tax  on  income,  creates  either  a 
lien  or  a  personal  obligation,  as  of  a  date  in  the  decedent's  lifetime,  the  tax  is  de- 
ductible, and  whore  lien  or  obligation  is  created  as  of  a  date  subsequent  to  the  de- 
cedent's death  the  tax  is  not  deductible;  the  income  and  excess-profits  taxes  im- 
posed by  acts  of  September  8, 1916,  and  October  3, 1917.  constitute  personal  obliga- 
tion of  the  taxpayer,  and  are  deductible  in  accordance  with  these  nUes;  the  impaid 
taxes  for  years  prior  to  that  in  which  decedent  died  are  deductible;  for  the  year  in 
which  decedent  died,  the  tax  upon  income  up  to  the  date  of  death  is  deductible. 
(T.  D.  2771;  Nov.  8,  1918.) 

Exemptions. 

Holders  of  Liberty  bonds.  Treasury  certificates  of  indebtedness,  and  war  savings 
certificates,  authorized  by  act  of  September  24,  1917,  are  entitled  to  exemption 
from  all  income  and  war  excess-profits  taxes  upon  interest  received  on  principal 
amount,  not  to  exceed  So, 000  face  value  of  such  obligations;  immaterial  whether 
4  per  cent  Liberty  bonds  were  issued  to  holder  in  exchange  for  Liberty  bonds  of 
first  series,  or  Treasury  certificates  of  indebtedness,  or  whether  issued \ipon  new 
subscription;  exemption  is  upon  income  from  $5,000,  face  value  of  obligations 
issued  by  authority  of  said  act  of  September  24,  1917.     (T.  D.  2585;  Nov.  8,  1917.) 

Corporations  exempt  under  section  11  of  Title  I  of  the  act  of  September  S,  1916, 
froin  tax  imposed  by  such  title,  partnerships  carrying  on  or  doing  same  kind  of 
business  or  coming  within  same  description,  and  individuals  to  extent  that  they 
carry  on  or  do  same  kind  of  business  or  come  within  same  description,  are  exempt 
from  tax.     (T.  D.  2694;  art.  13.) 

In  case  of  excessive  payments  by  individuals  or  partnerships  amounts  allowed 
should  ordinarily  be  treated  as  ])ari;ner.ship  .shares  and  w^ould  thus  be  free  from 
excess-profits  tax  to  recipient.     (T.  D.  2696;  Apr.  10,  1918.) 

In  case  of  excess  payments  by  corporations,  if  such  payments  correspond  to  or 
bear  a  close  relationship  to  stock  holdings,  amount  of  excess  should  be  treated  as 
dividends  and  would  thus  be  exempted  from  normal  tax  and  from  excoss-profita 
tax  in  hands  of  recipients.     (T.  I).  269G;  Apr.  10,  1918.) 

V\Tien  income  as  such  is  taxal)le  to  beiieficiaries,  as  in  case,  under  present  income- 
tax  law,  of  trust  income  of  which  is  to  be  distributed  annually  or  regularly  between 
existing  beneficiaries,  each  beneficiary  is  regarded  as  owner  of  proportionate  part  of 


216  EXCESS  PKOEITS  TAX. 

Exemptions— Continued, 
bonds  hel:l  in  tru-st,  and  subacriptiou  by  trustee  for  bonJa  of  Fourth  Liberty  Loan 
constitutes  each  beiieficiary  an  original  subscriber  for  his  proportionate  part  and 
entitles  him  to  collateral  exemption  of  interest  on  bonds  of  previous  issues,  whether 
owned  by  beneficiary  or  by  trustee,  and  subscription  by  such  beneficiary  for  bonds 
rpf  Foufth  Liberty  Loan  entitles  him  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues  held  by  trustee.     (T.  D.  2762;  Oct.  18,  1918.) 

AVhen  income  is  taxable  to  trustee,  as  in  case,  under  present  income  tax  law,  of  a 
trust  income  of  which  is  accumulated  for  benefit  of  unborn  or  unascertained  per- 
sons, trustee  is  regarded  as  owner  of  all  bonds  held  in  trust  and  the  trust  is  entitled 
to  exemption  on  account  of  such  ownership;  in  such  case  subscription  by  trustee 
for  bonds  of  Fourth  Liberty  Loan  constitutes  trustee  as  such  the  orignal  subscriber 
and  entitles  the  trust,  on  account  of  such  subscription,  to  collateral  exemption  of 
interest  on  bonds  of  previous  issues.     (T.  D.  2762;  Oct.  18,  1918.) 

WTien  income  of  partnership  is  taxable  to  individual  partners,  as  under  present 
income-tax  law,  each  partner  is  treated  as  owner  of  proportionate  part  of  Liberty 
l(;an  bonds  held  by  partnership  ari'l  entitled  to  exemption  on  account  of  such 
ownership  as  if  such  partner  owned  such  proportionate  part  of  bonds  directly.  (T. 
D.  2762;  Oct.  18,  1918.) 

\Mien  income  of  partnership  is  taxable  to  partnership  as  such,  as  under  present 
excess-profits  tax  law,  partnership  is  treated  as  owner  of  Liberty  loan  bonus  held 
bv  it  and  entitled  to  exemption  from  taxes  assessed  upon  income  of  partnership 
as  such.     (T.  D.  2762;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  upon  individual  partner  on  share  of  partnership 
income  such  partner,  if  partner  at  time  of  original  subscription  by  partnership  for 
bonds  of  Fourth  Liberty  Loan,  is  treated  as  original  subscriber  for  proportionate 
part  of  such  bonds  and  is  entitled  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues  as  if  he  had  subscribed  directly  for  such  proportionate  part.  (T. 
D.  2762;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  to  partnership  upon  partnership  income  as  a  whole, 
such  partnership  is  original  subscriber  and  entitled  to  collateral  exemption  of 
interest  on  Liberty  bonds  of  previous  issues  on  account  of  such  original  subscrip- 
tion for  bonds  of  Fourth  Liberty  Loan.     (T.  D.  2762;  Oct.  18,  1918.) 

Corporation,  and  not  stockholders,  ts  regarded  as  owner  of  Liberty  loan  bonds 
held  by  a  corporation  and  entitled  to  exemption  on  account  of  such  ownership; 
when  bonds  of  Fourth  Liberty  Loan  are  subscribed  for  by  corporation  it,  and  not 
stockholders,  is  original  subscriber  and  entitled  to  collateral  exemption  of  interest 
on  bonds  of  previous  issues  on  account  of  such  original  subscription.  (T.  D.  2762; 
Oct.  18,  1918.) 

Fiscal  year. 

See  "  Computation,"  cmte. 
Income  taxes — Credits. 

After  net  income  shall  have  been  ascertained,  it  shall  be  credited  with  amount 
of  any  excess-profits  tax,  assessed  for  same  calendar  or  fiscal  year  upon  taxpayer, 
and,  in  case  of  member  of  partnership,  with  his  proportionate  share  of  the  excess- 
profits  tax  imposed  upon  the  partnership.     (T.  D.  2690;  art.  2.) 

Where  corporation  returns  as  income  interest  received  on  bonds,  interest  upon 
which  debtor  corporation  had  agreed  to  pay  without  deduction  of  income  taxes, 
and  debtor  corporation  actually  pays  income  tax  assessable  on  such  interest  income, 
corporation  receiving  such  interest  may  take  credit  against  tax  assessable  on  basis 
of  net  income  returned,  for  amount  of  tax  paid  thereon  by  debtor  corporation; 
when  net  income  has  been  ascertained  within  rules  set  out  in  section  12  (a)  of  the 
a<"t  of  September  8,  1916,  as  amended,  it  shall  be  credited  vnth  amount  of  excess- 
profits  tax  assessed  or  to  be  assessed  for  same  year;  such  excess-profits  tax  allowance 
is  a  credit  against  the  net  income  for  purpose  of  taxes  imposed  bv  both  the  act  of 
September  8,  1916,  and  act  of  October  3,  1917.     (T.  D.  2690;  art.  199.) 

Although  excess-profits  tax  payment  is  not  an  allowable  deduction  in  ascertain- 
ing net  income,  net  income  shown  on  any  return  will  be  credited  with  amount  of 
excess-profits  tax  for  which  taxpayer  will  be  liable  for  same  year.  (T.  D.  2690; 
art.  8.) 

Net  income  embraced  in  return  shall  be  credited  vdih  amount  of  any  excess- 
profits  tax  imposed  and  assessed  for  same  calendar  or  fiscal  year  upon  taxpayer, 
and  in  case  of  member  of  partnership  with  his  proportionate  share  of  such  excess- 
profits  tax;  applicable  to  nonresident  aliens.     (T.  D.  2690;  arts.  9,  11.) 


EXCESS  PROFITS  TAX.  217 

Income  taxes — Continued. 
Deductions. 

Where  corporation  has  filed  return,  showinf^  liability  for  income  tax,  computed 
under  act  of  September  8,  1916,  as  originally  passed,  it  must  make  amended  return, 
and  take  credit  for  amount  of  exces8-i)rofit8  tax  for  which  it  is  liable;  if  overpayment 
of  income  tax  at  2  per  cent  rate  is  shown,  amount  of  such  overpayment  may  be 
credited  against  the  war  income  tax  of  4  per  cent  for  which  liable,  to  ascertain  total 
amount  of  income  tax,  but  in  no  case  will  credit  for  overpayment  of  income  tax  be 
taken  against  the  excess-profits  tax  due.     (T.  D.  2663;  Mar.  8,  1918.) 

AH  taxes  levied  by  general  taxing  authority,  including  tax  imposed  and  paid 
under  act  of  October  3,  1917,  except  war  excess-profit.*,  income  taxes,  and  taxes 
assessed  against  local  benefits,  are  allowable  deductions.     (T.  D.  2690;  art.  8.) 

Inventories. 

Dealers  in  merchandise  and  dealers  in  securities  authorized  to  make  returns  on 
basis  of  inventories  taken  at  cost  or  market  price,  whichever  is  lower.  (T.  D.  2609; 
Dec.  19,  1917.)  Pending  decision  by  Supreme  Court  of  United  States  as  to  legality 
of  authorization  of  T.  D.  2609,  returns  made  upon  basis  of  T.  D.  2609  will  be  tenta- 
tively accepted.     (T.  D.  2649;  Jan.  30,  1918.) 

Dealei^in  securities,  for  purposes  of  T.  D.  2609,  is  a  merchant  of  securities  whether 
an  individual,  ])artnership,  or  corporation,  with  an  established  place  of  business, 
and  whose  principal  business  is  the  purchase  of  securities  and  their  resale  to  cus- 
tomers; one  who,  as  a  merchant,  buys  securities  and  sells  them  to  customers  with  a 
view  to  the  gains  and  profits  that  may  be  derived  therefrom.  (T.  D.  2649;  Jan.  30, 
1918.) 

Invested  capital — Average  for  year. 

Invested  capital  for  any  prewar  or  taxable  year  (or  where  tax  is  computed  upon 
basis  of  period  less  than  a  year,  for  such  period)  is  average  invested  capital  for  year 
or  period  averaged  monthly,  according  to  these  rules:  (a)  Add  capital  for  each  of 
several  months  during  which  no  change  occurs,  and  average  capital  for  each  month 
in  which  change  occurs  and  divide  total  by  number  of  months  in  year  or  period ; 
(b)  to  ascertain  capital  lor  any  month  in  which  change  occurs  multiply  capital  as  of 
first  day  of  month  by  number  of  days  it  remains  constant  and  capital  after  each 
change  by  number  of  days  (including  day  on  which  change  occurs)  during  which  it 
remains  constant,  add  products,  and  divide  sum  by  number  of  days  in  month. 
(T.  D.  2694;  art.  43.) 

Conaputation. 

Appreciation  of  capital  assets  not  realized  bv  sale  can  not  be  included  in  the 
computation  of  invested  capital.     (T.  D.  3051;  July  27,  1920.     Ct.  Dec.) 

Act  of  October  3,  1917,  Title  II,  undertakes  to  define  "invested  capital,"  and  in 
computing  invested  capital  it  is  necessary  to  come  within  the  definition  contained 
in  such  act.     (T.  D.  3051;  July  27,  1920.     Ct.  Dec.) 

Corporations  and  partnerships — Copyrights. 

Copyrights  paid  in  for  stock  or  shares  must  be  valued  at  either  actual  cash  value  at 
the  time  of  payment  or  the  par  value  of  the  stock  or  shares  issued  therefor,  whichever 
is  lower.     (T.  D.  2694;   art.  56.) 

— Foreign  corporations  or  partnerships. 

In  case  of  domestic  corporations  or  partnerships  and  of  citizens  or  residents  of 
United  States  holding  stock  in  foreign  corporation  part  of  whose  net  income  is  sub- 
ject to  income  tax,  there  shall  be  included  in  invested  capital  such  proportion  of 
value  of  stock  in  such  foreign  corporation  as  net  income  of  foreign  corporation  from 
sources  outside  of  United  States  is  of  its  entire  net  income.     (T.  D.  2694;   art.  46.) 

The  term  "'invested  capital,"  when  used  with  reference  to  foreign  corporation  or 
partnership,  means  that  proportion  of  entire  invested  capital  as  defined  and  limited 
by  Regulations  No.  41  which  net  income  from  sources  within  the  United  States  is  of 
the  entire  net  income.     (T.  D.  2694;  art.  48.) 

• Insurance  companies. 

Invested  capital  of  mutual  insurance  company  will  be  deemed  to  consist  of  any 
surphis  or  contingent  reserves  maintained  for  general  use  of  business,  plus  any  legal 
reserves,  net  additions  to  which  are  included  in  net  income  subject  to  tax — subject 
to  restrictive  provisions  of  article  44  of  Regulations  No.  41,  requiring  exclusion  of 
tax-free  assets  other  thaa  United  States  obligations^  invested  capital  of  stock  insur- 


218  EXCESS  PROFITS  TAX. 

Invested  capital— Conlinued. 

Corporations  and  partnerships — Continued. 

Insurance  companies — Continued. 

ance  company  mil  be  deemed  to  consist  of  its  capital  stock,  paid-in  or  earned  sur- 
plus, and  undivided  profits  (subject  to  same  provisions  of  article  44)  computed  in 
accordance  with  provisions  of  article  53.     (T.  D.  269-1;  art.  65.) 

Intangible  property. 

If  good  will,  trade-marks,  trade  brands,  franchises  of  a  corporation  or  partner- 
ship, or  other  intangible  property  has  been  purchased  with  stock  or  shares  issued 
prior  to  March  3,  1917,  amount  that  may  be  included  in  invested  capital  must  nor 
exceed  20  per  cent  of  par  value  of  total  stock  or  shares  outstanding  on  tliat  date,  not 
actual  value  of  asset  at  date  acquired,  nor  par  vahie  of  stock  issued  in  pavment  for 
the  asset.     (T.  D.  2694;   art.  57.) 

Twenty  per  cent  limitation  upon  intangible  property  purchased  prior  to  March  3, 
1917,  for  or  with  stock  or  shares  of  corporation  or  partnersliip,  applies  not  to  each 
item  or  class  of  intangible  property  sepatetely,  but  to  aggregate  amount  of  all  sucli 
property  so  purchased,  which  may  be  included  in  invested  capital  only  up  to 
amount  not  exceeding  20  per  cent  of  total  stock  or  shares  on  March  3,  1917,  even 
though  aggregate  amount  of  such  intangible  property  be  greater  in  value  than  such 
20  per  cent  of  par  value  of  total  stock  or  shares;  intangible  property  purchased  prior 
to  March  3,  1917,  with  stock  having  no  par  value  may  be  included  in  invested 
capital  at  value  not  exceeding  actual  cash  value  at  time  of  purchase  and  in  amount 
not  exceeding  20  per  cent  of  total  shares  of  stock  outstanding  on  March  3,  1917, 
measured  by  their  value  as  at  date  or  dates  of  issue.     (T.  D.  2694;  art.  58.) 

Good  will  and  other  similar  intangible  assets  purchased  with  cash  or  tangible 
property  must  be  taken  at  value  not  in  excess  of  the  cash  or  actual  cash  value  of  the 
tangible  property  specifically  paid  therefor.     (T.  D.  2694;  art.  60.) 

— Mixed  aggregate  of  tangible  and  intangible  property. 

Rules  governing  cases  where  stock  or  shares  (or  stock  or  shares  and  bonds  or  other 
obligations)  have,  prior  to  March  3,  1917,  been  issued  for  a  mixed  aggregate  of 
tangible  propertv,  patents  and  copyrights,  and  good  will  or  other  intangible  prop- 
erty, stated,     (f .  D.  2694;  art.  59.) 

— —  — ~  Objection  to  method  o.?  determining. 

A  partnership  which  had  invested  capital  more  than  nominal  in  amount  can  not 
complain  of  regulations  promulgated  or  of  the  method  employed  in  determining 
the  amount  of  such  capital,  V\-here  the  arbitrary  or  supposititious  invested  capital 
fixed  upon  was  larger  in  amount  than  the  invested  capital  actually  possessed  and 
emploved,  and  the  taxes  imposed  were  correspondingly  diminished.  (T.  D.  3080; 
Oct.  19,  1920,  Ct.  Dec.) 

Patents. 

Patents  paid  in  for  stock  or  shares  niu^t  be  valued  at  either  actual  cash  value  at  the 
time  of  payment  or  the  par  value  of  the  stock  or  shares  issued  therefor,  whichever  is 
lower,     (f .  D.  2694;  art.  50.) 

Kule  for  com.puting. 

Every  corporation  or  partnership  paying  taxes  at  graduated  rates  prescribed  in 
section  201  of  the  act  of  October  3,  1917,  shall  add  together  its  paid-in  capital  and  its 
paid-in  or  earned  surplus  and  undivided  profits  as  shown  by  its  books  at  beginning 
of  taxible  year,  and  total  thus  obtained  shall  be  adjusted  for  any  asset  or  item  which 
it  covers  that  is  not  carried  on  the  books  at  the  valuation  presaibed  by  law  or  by 
Regulations  No.  41;  when  necessary,  certain  stated  adjustments  shall  be  made,  and 
adjusted  total  of  capital  and  surplus  account  will  represent  invested  capital  at  be- 
ginning of  taxable  year,  except  where  admissible  assets  are  less  than  amount  of  such 
adjusted  total,  when  invested  capital  must  be  further  reduced  1o  amount  equal  to 
sum  of  admissible  assets;  where  change  has  been  made  during  taxable  year  in  amount 
of  invested  capital,  monthly  average  may  be  taken,  but  in  no  case' may  invested 
capital  include  any  surplus  or  undivided"  profits  earned  during  taxable  year;  with 
respect  to  taxable  year  1917,  balance  sheet  as  at  first  day  and  also  sheet  as  at  close  of 
taxable  year  must  be  submitted,  and  thereafter  balance  sheet  as  at  close  of  each  year 
must  be  submitted.     (T.  D.  2694;  art.  53.) 

Property  of  member  of  partnership  deposited  with  bank  and  pledged  as  collateral 
security  for  the  repayment  of  a  loan  by  or  for  the  benefit  of  the"  partnership  in 
pursuance  of  the  articles  of  partnership  is  part  of  the  invested  capital  of  such  part- 
nership.    (T.  I).  3080;  Oct.  19,  1920,  Ct.  Dec.) 


EXCESS  PROFITS  TAX.  219 

Invested  capital— rontiniiccl. 

Corporations  and  partnerships — Continued. 

Stock  returned. 

When  stock  of  corporation  issued  or  exchanged  for  property  (tangible  or  intangible) 
is  returned  to  corporation  as  gift  or  for  consideration  substantially  loss  than  its  par 
value,  stock  so  returned  shall  not  be  treated  as  part  of  stock  issued  or  exchanged  for 
such  property;  proceeds  derived  in  cash  or  its  equivalent  from  resale  of  stock  so  re- 
turned shall,  however,  be  included  in  invested  capital  if  retained  and  employed  in 
business.     (T.  D.  2(394;  art.  51.) 

Surplus  and  undivided  profits. 

Profits  earned  during  any  taxable  year  or  prewar  year  shall  not  be  included  in 
computation  of  invested  capital  for  such  year,  even  though  set  up  as  "surplus" 
upon  books  or  distributed  in  form  of  stock  dividends.     (T.  I).  2694;  art.  61.) 

Under  clause  (3)  of  subdivision  (a)  of  section  207  of  the  act  of  October  3,  1917, 
authorizing  inclusion  in  invested  capital  of  earned  surplus  and  undivided  profits 
used  or  employed  in  business,  all  surplus  and  undivided  profits  (inclusive  of  un- 
divided profits  earned  during  year)  from  whatever  source  derived,  will,  unless  in- 
vested in  stocks,  bonds  (other  than  obligations  of  the  United  States),  or  other  as.=;ets, 
income  from  which  is  not  subject  to  excess  profits  tax,  be  deemed  to  be  used  or  em- 
ployed in  business  and  may  he  included  in  invested  capital.     (T.  D.  2694;  art.  62.) 

Wherethrough  failure  to  provide  for  depiction,  depreciation,  obsolescence,  or  other 
expenses  or  losses,  or  where  for  any  cause  books  of  account  of  taxpayer  do  not  show 
true  paid-in  or  earned  surplus  and  undivided  profits,  in  computation  of  invested 
capital  such  adjustments  shall  be  made  as  are  necessary  to  arrive  at  correct  amount; 
where  taxpayer  claims  additions  to  capital  account,  books  of  account  will  be  pre- 
sumed to  show  true  facts,  and  burden  of  proof  will  rest  upon  taxpayer,  and  such 
additions  will  be  accepted  only  to  extent  and  under  certain  specifically  stated  con- 
ditions.    (T.  D.  2694;  art.  64.) 

For  purpose  of  determining  invested  capital,  under  Title  II  of  the  act  of  October 
3,  1917,  income  and  excess  profits  taxes  shall  be  deemed  to  have  been  paid  out  of 
the  net  income  for  the  taxable  year  for  which  such  taxes  are  levied;  amounts  payable 
on  account  of  income  and  excess  profits  taxes  for  any  year  may  be  included  in  com- 
puting surplus  and  imdivided  profits  for  succeeding  year  only  for  proportionate  part 
of  year  represented  by  period  of  time  between  close  of  taxable  year  and  the  date  or 
dates  upon  which  such  taxes  become  due  and  payable.     (T.  D.  2791;  Feb.  17,  1919.) 

When  all,  or  substantially  all,  of  stock  of  subsidiary  corporation  was  acquired  for 
cash,  cash  so  paid  shall  be  basis  to  be  used  in  determining  value  of  property  acquii'ed; 
where  stock  of  subsidiary  company  was  acquired  with  stock  of  parent  company, 
amount  to  be  included  in  consolidated  invested  capital  in  respect  of  company 
acquired  shall  be  computed  in  ?ame  manner  as  if  net  tangible  assets  and  intangible 
assets  had  been  acquu'ed  instead  of  the  stock;  if  in  accordance  with  such  acquisition 
a  paid-in  surplus  is  claimed,  such  claim  shall  be  subject  to  provisions  of  articles  55 
and  63  of  Regulations  41.     (T.  D.  2901;  July  29,  1919.) 

• Tangible  property. 

Tangible  property  paid  in  for  stock  or  shares  prior  to  January  1,  1914,  must  be 
valued  at  either  actual  cash  value  on  .January  1,  1914,  or  par  value  of  stock  or  shares 
specifically  issued  for  such  property,  whichever  is  lower;  allowance  may  be  made 
for  appreciation  where  original  stock  or  shares  were  specifically  issued  iii  exchange 
for  such  tangible  property;  tangible  property  paid  in  for  stock  or  shares  on  or  after 
January  1,  1914,  will  be  taken  at  actual  cash  value  of  such  property  at  time  of  pay- 
ment irrespective  of  par  value  of  stock  or  shares.     (T.  D.  2694;  art.  55.) 

Where  tangible  property  has  been  conveyed  to  corporation  or  partnership  by  gift 
or  at  a  value  accurately  ascertainable  or  definitely  known,  as  at  date  of  convey- 
ance, clearly  and  substantially  in  excess  of  cash  or  other  value  of  stock  or  shares 
paid  therefor,  amount  of  excess  shall  be  deemed  ta  be  paid-in  surplus;  adopted 
value  shall  not  cover  mineral  deposits  or  other  property  discovered  or  developed  after 
conveyance,  but  shall  be  confined  to  value  accurately  ascertainable  or  definitely 
known  at  that  time;  evidence  tending  to  support  claim  for  paid-in  surplus  must 
be  as  of  date  or  conveyance  and  may  consist  of  appraisal  of  property  by  clisinter- 
ested  authorities,  salevalue  in  excessof  real  estate,  and  market  price  in  excess  of  par 
value  of  stock  or  shares.     (T.  D.  2694;  art.  63.) 

• Definition. 

The  term  "invested  capital''  me.vns  the  invested  capital  of  the  present  owner. 
(T.D.  2694;  art.  42.) 


220  EXCESS  PROFITS  TAX.  . 

Invested  capital— Continued. 

Definition — Confinued. 

Art  of  0(to])er  3,  1917,  Title  II,  undertakes  to  define  "invested  capital,"  and  in 
foinpiitintr  inAested  capital  it  is  necessary  to  come  within  tlie  definition  contained 
ill  sucli  act.     (T.  D.  3051;  July  27,  1920.     Ct.  Dec.) 

The  term  "invested  capital,"  as  used  in  section  209  of  the  act  of  October  3,  1917, 
includes  all  working  capital  consisting  of  money  or  property  employed  in  the  busi- 
ness or  for  its  benefit,  and  furnished  or  paid  in  by  one  or  more  of  the  partners. 
(T.  1).  3080;  Oct.  19,  1920.     Ct.  Dec.) 

Depletion,  etc.,  allowance. 

Basis  of  computation  of  invested  capital  is  found  in  amount  of  cash  and  other 
property  paid  in,  which  computation  must  take  properly  into  account  surplus  and 
undivided  profits;  in  computation  of  such  surplus  and  undivided  profits  recognition 
must  first  be  given  expenses  incurred  and  losses  sustained  from  original  organization 
of  business  concern  down  to  taxable  year,  including  reasonable  allowance  for  deple- 
tion, depreciation,  or  obsolescence  of  property  originally  acquired ;  if  value  appre- 
ciation of  kind  not  subject  to  income  tax  (other  than  that  allowed  under  article 
55  of  Regulations  Xo.  41)  has  been  taken  up  in  accounts,  deduction  must  be  made 
in  respect  of  such  appreciation;  in  computation  of  invested  capital  for  any  year  full 
effect  must  be  given  to  any  liquidatiou  of  original  capital.     (T.  D.  2694;  art.  42.) 

Individuals — Computation. 

Subject  to  limitations  stated  invested  capital  of  indi\i(lual  is  measured  by  total 
of  actual  cash  paid  into  trade  or  business,  tangible  property  paid  into  trade  or  busi- 
ness, patents  and  copyrights,  and  good  will,  trade-marks,  trade-])rands,  franchises, 
and  other  tangible  property.    {T.  D.  2G94;  art.  6(5.) 

Invested  capital  of  individual  keeping  books  of  account  will  be  found  in  his 
capital  account  after  making  therein  adjustments  or  corrections  required,  provided 
that  assets  other  than  those  not  allowed  to  be  included  equal  or  exceed  such  capital 
account;  otherwise  invested  capital  shall  be  amount  of  such  assets;  individual  not 
keeping  books  of  account  must  prepare  statement  showing  assets  valued  in  accord- 
ance with  Regulations  No.  41  and  all  liabilities  and  excess  of  assets  over  liabilities  at 
beginning  of  year  and  gain  at  end  of  year  will  constitute  invested  capital  on  those 
dates,  provided  assets  other  than  those  not  allowed  to  be  included  equal  or  exceed 
amount  of  such  excess;  amount  of  difference  between  capital  as  at  beginning  of  year 
and  at  end  of  year  will  be  deemed  to  have  arisen  ratably  throughout  the  year,  "and 
capital  at  beginning  of  year  will  be  increased  or  decreased  by  such  amount  averaged 
monthly  over  year;  invested  capital  of  one  engaged  in  more  than  one  trade  or  busi- 
ness having  invested  capital  will,  for  purpose  of  computing  deduction  and  applying 
rates  of  taxation,  be  determined  bv  taking  total  invested  capital  of  all  such  trades  or 
businesses.     (T.  D.  2694;  art.  70') 

Intangible  property. 

Patents  and  copyrights,  and  good  will,  trade-marks,  trade-brands,  franchises,  and 
other  similar  intangible  assets  may  be  included  in  invested  capital  at  value  not  to 
exceed  actual  cash  paid  therefor,  or  actual  cash  value  at  time  of  payment  of  tangible 
i:)roperty  paid  therefor,  but  only  if  bona  fide  payment  was  made  therefor  specifically 
as  such  in  cash  or  tangible  jaroperty.     (T.  D.  2094;  art.  68.) 

Nonresident  aliens. 

Tlie  term  "invested  capital,"  when  used  with  reference  to  a  nonresident  alien 
indiA'idual,  means  that  proportion  of  entire  invested  capital  as  defined  and  limited 
by  Regulations  No.  41,  which  net  income  from  sources  within  the  United  States  is 
of  the  entire  net  income.     (T.  D.  2694;  art.  48.) 

Profits  earned. 

Restriction  in  respect  of  imdivided  profits  earned  during  taxable  year  imposed 
upon  corporations  and  partnerships  does  not  apply  to  individuals,  and,  unless 
otherwise  shown,  profits  remaining  in  trade  or  business  will  be  deemed  to  haxe 
arisen  ratably  throughout  the  year,  and  capital  at  beginning  of  year  may  be  increased 
by  total  amount  of  such  profits  remaining  in  trade  or  business,  averaged  monthly 
over  the  year.     (T.  D.  2694;  art.  69.) 

Tangible  property. 

Rules  for  valuation  of  tangible  property,  subject  to  requirements  of  article  42  of 
Regulations  No.  41  as  to  allowance  for  depletion,  depreciation,  and  obsolescence, 
stated;  presumed  that  tangible  assets  were  acquired  with  cash  either  paid  in  di- 
rectly or  derived  from  trade  or  business,  but  taxpayer  entitled  to  show  that  such 
assets  were  paid  in  as  tangible  property.     (T.  D.  2694;  art.  67.) 


EXCESS  PROFITS  TAX.  221 

Invested  capital — Continued. 

Intangible  property. 

Tlie  term  "other  intangible  property,"  as  used  in  section  207  of  the  act  of  October 
3,  U>I7,  construed  to  mean  property  of  character  similar  to  good  will,  trade-marks, 
and  the  other  speciiic  kinds  of  property  enumorat  'd  in  same  clause;  stocks,  bonds, 
hills,  and  accounts  receivable,  notes  and  other  evidences  of  indebtedness,  and  lease- 
holds, wlien  paid  in  for  stock  or  shares  in  corporation  or  partnership,  will  be  regarded 
as  tangible  property  so  paid  in,  but  when  corporation  pays  for  intangible  property 
by  the  issuance  of  its  own  stock  or  bonds,  this  will  not  be  regarded  as  being  a  payment 
bona  fide  made  in  cash  or  tangible  property  within  meaning  of  section  207.  (T.  D. 
2(i94:   art.  47.) 

■ Money  or  other  property  borrowed. 

Term  "money  or  other  property  borrowed,"  as  used  in  section  207  of  act  of  October 
3,  1917,  and  Regulations  No.  41,  includes  not  only  cash  or  other  borrowed  property 
which  can  be  identified  as  such,  but  current  liabilities  and  temporary  indebtedness 
of  all  kinds,  and  any  permanent  indebtedness  upon  which  taxpayer  is  entitled  to 
interest  deduction  in  computing  net  income;  corporation  which  under  income-tax 
law  may  deduct  only  part  of  entire  interest  paid  upon  indebtedness,  may  include 
in  invested  capital  such  proportion  of  permanent  indebtedness  as  amount  of  interest 
upon  such  indebtedness  which  corporation  is  not  allowed  to  deduct  is  of  total  amount 
of  interest  paid  upon  such  indebtedness  during  taxable  year.     (T.  D.  2694;  art.  44.) 

PreAvar  period. 

Invested  capital  for  prewar  period  shall,  in  general,  be  determined  in  same  manner 
as  for  taxable  year,  except  that  valuation  as  of  January  1,  1914,  shall  not  apply  to 
tangible  property  paid  in  for  stock  or  sliares.     (T.  D.  2694;   art.l.) 

Reorganization  of  trade  or  business. 

Trade  or  business  which  has  been  formally  organized  or  reorganized  on  or  after 
January  2,  1913,  but  which  is  substantially  a  continuation  of  trade  or  business  car- 
ried on  prior  to  that  date,  shall  be  deemed  to  have  been  in  existence  prior  to  that 
date,  and  invested  capital  of  predecessor  prior  to  that  date  shall  be  deemed  to  have 
been  its  invested  capital;  this  relates  to  prewar  period  and  does  not  apply  to  invested 
capital  for  taxable  year.     (T.  D.  2694;   art.  49.) 

^\"here  trade  or  business  is  reorganized,  etc.,  after  March  3,  1917,  if  interest  or  con- 
trol of  50  per  cent  or  more  remains  in  control  of  same  persons,  etc.,  or  any  of  them, 
then  in  ascertaining  invested  capital  no  asset  transferred  or  received  from  prior  trade 
or  business  sliall  be  allowed  greater  value  than  would  have  been  allowed  in  com- 
puting invested  capital  of  such  prior  trade  or  business  if  such  asset  had  not  been  so 
transferred  or  received,  unless  such  asset  was  paid  for  specifically  as  such,  in  cash  or 
tangible  property,  and  then  not  to  exceed  actual  cash  or  actual  cash  Aalue  of  tangible 
property  paid  therefor  at  time  of  such  jjayment.     (T.  D.  2694;  art.  50.) 

Scope  of  section  210,  Act  October  3,  1917. 

Section  210  of  the  act  of  October  3,  1917,  provides  for  exceptional  cases  in  which 
invested  capital  can  not  be  satisfactorily  determined;  in  such  cases  taxpayer  may 
submit  to  Commissioner  of  Internal  Revenue  affidavits  in  support  of  claim  for 
assessment  under  provisions  of  the  section;  of  what  such  exceptional  cases  may  con- 
sist stated.     (T.  D.  2694;  art.  52.) 

Tangible  property. 

Stocks,  bonds,  bills  and  accounts  receivable,  notes  and  other  evidences  of  in- 
debtedness, and  leaseholds,  when  paid  in  for  stock  or  shares  in  corporation  or  partner- 
ship, will  be  regarded  as  tangible  property  so  paid  in,  but  when  corporation  ])ay3 
for  intangible  property  by  the  issuance  of  its  own  stock  or  bonds,  this  will  not  be 
regarded  as  being  a  pavment  bona  fide  made  in  cash  or  tangible  property  within 
meaning  of  section  207.'  (T.  D.  2694;  art.  47.) 

Tax-free  securities. 

\\'Tienever  income  consists  partly  of  gains  or  profits  subject  to  excess  profits  tax 
arising  from  trading  in  stocks,  bonds,  etc.,  dividends  or  interest  on  which  are  not 
subject  to  such  tax,  and  partly  of  such  dividends  or  interest,  then,  subject  to 
limitations  as  to  borrowed  money,  there  shall  be  included  in  invested  capital  an 
amount  which  bears  same  ratio  to  total  amount  invested  in  such  stock  or  bonds  aa 
amount  of  such  gains  or  profits  bears  to  total  amount  of  such  income.  (T.  D. 
2694;  art.  45.) 


222  EXCESS   PROFITS   TAX. 

Invested  capitafl— Continued. 

Trade  or  business. 

Gains  or  profits  from  transactions  entered  into  for  profit,  but  which  are  isolated, 
incidental,  or  so  infrequent  as  not  to  constitute  an  occupation,  and  income  from 
jiroperty  arising  merely  from  its  ownersliip,  including  interest,  rent,  and  similar 
income' from  investments,  except  in  cases  in  which  management  of  investment? 
really  constitutes  a  trade  or  business,  are  not  subject  to  excess  profits  tax,  and 
capital  from  which  such  gains  or  income  is  derived  shall  not  be  included  in  invested 
capital.     (T.  D.  2694;  art.  8.) 

Not  income — Classification. 

Net  income  subject  to  tax  is  divided  into  two  classes:  (a)  Net  income  derived 
from  trade  or  business  having  no  invested  capital  or  not  more  than  a  nominal  capital 
including  in  case  of  an  individual,  salaries,  wages,  fees,  or  other  compensations, 
and  (b)  net  income  derived  from  trade  or  business  having  invested  capital.  (T.  D. 
2(i94;  art.  14.)     See  next  paragraph. 

Trades  or  businesses  which  are  subject  to  the  tax  divided  into  two  classes,  as  fol- 
lows: (a)  Trades  or  b\isinesses  having  no  invested  capital  or  not  more  than  a  nominal 
capital,  including,  in  the  case  of  individual  occupations  in  which  they  receive 
salaries,  wages,  fees,  or  other  compensations;  and  (6)  trades  or  businesses  having 
more  than  a^ nominal  capital.     (T.  D.  3017;  May  3,  1920.     T.  D.  2694  amended.) 

Corporations — Foreign. 

The  net  income  of  a  foreign  corporation  or  partnership  is  the  net  income  from 
sources  within  the  United  States.     (T.  D.  2694;  art.  26.) 

In  case  of  income  derived  by  corporation  or  partnership  from  dividends  upon 
stock  of  foreign  corporation,  part  of  whose  net  income  is  subject  to  income  tax,  there 
shall  be  deducted  only  that  proportion  of  dividends  received  upon  such  stock 
which  net  income  of  such  foreign  corporation  from  sources  within  United  States  is 
of  entire  net  income;  where  dividends  upon  stock  of  foreign  corporation  are  received 
by  individual  as  part  of  income  from  trade  or  business,  there  shall  be  included  in 
net  income  that  proportion  of  dividends  received  which  net  income  of  corporation 
from  sources  outside  the  United  States  is  of  its  entire  net  income.  (T.  D.  2G94; 
art.  27.) 

— „  Prewar  period. 

Net  income  of  corporation  for  calendar  year  1911  is  computed  by  adding  (1) 
amount  of  net  income  shown  in  item  9  of  return  made  under  section  38  of  the  act 
of  August  5,  1909,  for  ralendar  year  1911,  and  (2)  amount  of  taxes  paid  to  I'uited 
States  within  calendar  year  1911  under  section  38  of  such  act.     (T.  D.  2G94;  art.  29.) 

Net  income  of  corporation  for  calendar  year  1912  is  com.puted  by  adding  (1) 
amount  of  net  income  shov.ai  in  item  9  of  return  made  under  section  38  of  the  act  of 
August  5, 1909,  for  calendar  vear  1912,  and  (2)  amount  of  taxes  paid  to  United  States 
within  calendar  year  1912  under  section  38  of  such  act.     (T.  D.  2694;  art.  29.) 

Net  income  of  corporation  for  calendar  year  1913  is  computed  by  adding  (1) 
amount  of  entire  net  income  shown  in  item  8  of  return  made  under  Section  II  of 
the  act  of  October  3, 1913,  for  calendar  year  1913,  and  (2)  amount  of  taxes  paid  within 
calendar  year  1913  under  section  38  oi  the  act  of  August  5,  1909,  and  Section  II  or 
lY  of  the  act  of  October  3,  1913,  and  deducting  from  total  the  amounts  received  dur- 
ing calendar  year  1913  as  di\T.dends  upon  stock  or  from  net  earnings  of  other  cor- 
porations, etc.,  subject  to  income  tax  imposed  by  Section  II  of  the  act  of  October  3, 
1913.     (T.  D.  2694;  art.  29.) 

Salaries. 

Amounts  expended  by  corporations,  partnerships,  or  individuals  engaged  in 
business,  in  paying  all  or  portions  of  regular  compensation  of  officers  or  employees, 
who  have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces 
of  the  United  States,  or  have  undertaken  ser\ices  for  the  GoA'ernment  at  reduced 
or  nominal  compensation,  constitute,  during  the  continuance  of  the  war,  ordinary 
and  necessary  expenses  of  doing  business  and  are  allowable  as  deductions  in  com- 
puting net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

— -  Taxable  year. 

Net  income  of  corporation  for  taxable  year  determined  by  adding  (1)  amount 
oi  net  income  returned  for  income  year,  as  provided  in  Title  I  of  the  act  of  September 
8,  1916,  as  amended,  and  (2)  amount  received  as  interest  on  obligations  of  U^nited 


EXCESS  PROFITS   TAX.  223 

Net  income — Continued. 

Corporations — Continued. 

Taxable  year — Continued. 

States,  issued  after  September  24,  1917  (other  than  interest  received  on  amount 
of  such  obligations  aggregate  principal  of  which  does  not  exceed  $5,000),  and  deduct- 
ing from  total  the  amounts  received  during  year  as  dividends  upon  stock  or  from 
net  earnings  of  other  corporations,  etc.,  subject  to  income  tax  imposed  by  Titlt^  I 
of  such  act  of  September  8,  1916,  as  amended,  except  as  otherwise  provided  in 
article  27.     (T.  D.  2694;  art.  28.)     But  see  T.  D.  2762;  Oct.  18,  1918. 

Exemptions. 

Incomes  exempt  from  taxation  under  section  4  of  the  act  of  September  8,  1916,  as 
amended,  incomes  derived  from  business  of  life,  health,  and  accident  insurance 
combined  in  one  policy  issued  on  weekly  premium  payment  plan  and  compensa- 
tion or  fees  received  by  officers  and  employees  under  the  United  States,  or  any 
State,  Territory,  or  the  District  of  Columbia,  for  their  services  as  such,  are  exempt 
from  tax.     (T.  D.  2694;  art.  25.) 

•  Individuals — Contributions  for  religious,  etc.,  purposes. 

Contributions  or  gifts  for  religious,  charitable,  etc.,  purposes  allowed  as  deduc- 
tion for  purposes  of  income  tax  under  paragraph  ninth  of  subdivision  (a)  of  section 
5  of  the  act  of  September  8,  1918,  as  amended,  may,  subject  to  limitations  therein 
contained,  be  deducted  in  computing  net  income  of  trade  or  business  only  vdien 
shown  to  satisfaction  of  Commissioner  of  Internal  Revenue  that  such  contributions 
or  gifts  are  made  bv  trade  or  business  and  not  by  individual  in  his  personal  capacity. 
(T.  D.  2694;  art.  37.) 

Invested  capital. 

Article  18  of  Regulations  No.  41  applies  only  to  cases  in  which  Secretary  of  the 
Treasury  is  unable  satisfactorily  to  determine  invested  capital  for  the  "taxable 
year  (including  cases  arising  under  article  52  of  such  regulations);  if  deduction  is  so 
determined  only  upon  ground  that  Secretary  is  unable  satisfactorily  to  determine 
amount  of  invested  capital  for  prewar  period,  but  invested  capital  for  taxable  year 
can  be  satisfactorily  determined,  the  graduated  rates  prescribed  by  section  201  of  the 
act  of  October  3,  1917,  Avill  be  applied  upon  the  basis  of  such  actual  invested  capital 
for  the  taxable  year  and  not  upon  basis  of  constructive  capital;  if  neither  income 
nor  invested  capital  for  prewar  period  can  be  satisfactorily  determined  by  the 
Secretary,  deduction  will  be  computed  under  section  205  (article  23  of  such  regu- 
lations) if  invested  capital  for  taxable  year  can  be  satisfactorily  determined,  but  if 
such  capital  can  not  be  satisfactorilv  determined  deduction  will  be  computed  as 
provided  by  section  210  (article  24  of  such  regulations).     (T.  D.  2683;  Mar.  26,  1918. 

Net  income  derived  from  trade  or  business  having  invested  capital  (constituting 
not  income  of  class  B  as  defined  in  article  14  of  Regulations  No.  41)  determined  for 
taxable  year  by  adding  total  net  incom.c  from  such  sources  (or  in  case  of  nonresi- 
dent alien  individual  total  net  income  from  such  sources  within  United  States)  as 
reported  for  income-tax  purposes  for  same  year  and  deducing  therefrom  deduction, 
if  any,  for  salary  allowed  by  article  39,  if  such  deduction  has  not  already  been  made; 
amounts  received  upon  stock  or  from  net  earnings  of  corporations,  etc.,  subject  to 
iricome  tax,  .shall  be  excluded;  amount  received  as  interest  on  obligations  of  United 
States  issued  after  September  24,  1917  (other  than  interest  received  on  amount  of 
such  obligations  aggregate  principal  of  which  does  not  exceed  $5,000),  and  such 
proportion  of  dividends  received  upon  stock  of  foreign  corporations  as  is  required 
to  be  included  by  article  27  of  Regulations  No.  41,  shall  be  included  in  case  of 
individual  dealing  in  securities  or  otherwise  usiu<i;  securities  in  trade  or  business. 
(T.  D.  2694;  art.  30.)     See  T.  D.  2762;  Oct.  18,  1918. 

Net  income  derived  from  trade  or  business  having  invested  capital  (constituting 
net  income  of  class  B  as  defined  in  article  14  of  Regulations  No.  41),  shall  be  deter- 
mined for  each  of  the  calendar  years  1911,  1912,  and  1913,  upon  same  basis  and  in 
same  manner  as  is  provided  in  article  36.     (T.  D.  2694;  art.  38.) 

• Nominal  capital. 

Net  income  derived  from  trade  or  business  having  no  invested  capital  or  not 
more  than  nominal  capital,  including  salaries,  wages,  fees,  or  other  compensation 
(constituting  net  income  of  class  A  as  defined  in  article  14  of  Regulations  41)  is 
determined  for  taxable  year  by  adding  total  net  income  from  all  such  sources  (or 
in  case  of  nonresident  alien  individual  total  net  income  from  all  such  sources  within 
United  States)  as  reported  for  income-tax  purposes  for  same  year.  (T.  D.  2694; 
art.  35.) 


224  EXCESS   PROFITS   TAX. 

Net  income— rontinucd. 

■ Individuals — Continued. 

Nonresident  aliens. 

Net  income  of  nonresident  alien  individuals  is  the  net  income  from  sources  within 
United  States.     (T.  D.  2694;  art.  26.) 

Partners. 

Partner  in  individual  capacity  is  subject  to  tax,  if  any,  at  8  per  cent  rate  under 
article  15  of  Regulations  No.  41  with  respect  to  any  salary  or  compensation  from 
partnership  for  personal  services  (including  any  amounts  allowed  to  partnership 
as  deduction  on  his  account  for  period  prior  to  March  1,  1918).     (T.  D.  2694;  art.  32.) 

Partner  in  individual  capacity  is  not  considered  to  be  engaged  in  trade  or  busi- 
ness with  respect  to  share  in  profits  of  partnership,  and  so  is  not  subject  to  excess 
profits  tax  thereon;  consequently,  in  computing  net  income  he  need  not  include 
his  share  of  partnership  profits,  but  must,  in  computing  net  income  of  class  A  under 
article  35  of  Regulations  No.  41,  include  any  salary  or  compensation  from  partner- 
ship for  personal  services  (including  any  amount  allowed  to  partnership  as  deduc- 
tion on  liis  account  for  period  prior  to  March  1,  1918,  in  accordance  with  article  32). 
(T.  D.  2694;  art.  41.) 

Salaries. 

Amounts  expended  by  corporations,  partnerships,  or  individuals  engaged  in 
business,  in  paying  all  or  portions  of  regular  compensation  of  officers  or  employees, 
wlio  have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces 
of  the  United  States,  or  have  undertaken  ser\'ices  for  the  Government  at  reduced 
or  nominal  compensation,  constitute,  during  the  continuance  of  the  war,  ordinary 
and  necessary  expenses  of  doing  business  and  are  allo\>'able  as  deductions  in  com- 
puting net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

Individual  carrying  on  trade  or  business  having  invested  capital  may  in  com- 
puting net  income  deduct  reasonable  amount  designated  by  him  as  salary  or  com- 
pensation for  personal  service  actually  rendered  in  conduct  of  such  trade  or  busi- 
ness, but  in  no  case  shall  amount  so  designated  be  in  excess  of  salaries  or  compen- 
sation customarily  paid  for  similar  service  by  corporations  or  partnerships  engaged 
in  similar  trades  or  businesses;  amount  deducted  in  case  of  nonresident  alien  limited 
to  that  portion  of  salary  or  compensation  which  is  for  service  rendered  Avith  respect 
to  trade  or  business  carried  on  in  United  States;  amount  so  designated  shall  be 
included  in  computing  net  income  of  class  A  under  article  35  of  Regulations  No. 
41  and  balance  of  income  shall  be  included  in  computing  net  income  of  class  B 
under  article  36.     (T.  D.  2694;  art.  39.) 

If,  in  computing  net  income,  individual  deducts  reasonable  amount  designated 
as  salary  or  compensation  for  personal  services  rendered  by  himself,  as  allowed  by 
article  39,  he  must  also,  in  computing  net  income  for  prewar  period,  make  corre- 
sponding deduction.     (T.  D.  2694;  art.  40.) 

■ Interest  on  United  States  bonds,  etc. 

Interest  received  on  all  United  States  bonds  and  certificates  exempt  from  normal 
income  tax  need  not  be  included  in  gross  income  in  return  made  for  purpose  of  the 
2  per  cent  tax  or  the  4  per  cent  tax,  but  interest  on  bonds  and  certificates  issued 
under  the  act  of  September  24,  1917,  in  excess  of  interest  on  $5,000  aggregate  prin- 
cipal amount  of  such  bonds  and  certificates  must  be  included  in  net  income  upon 
which  war  excess-profits  tax  is  computed.     (T.  D.  2690;  art.  100.) 

Partnership — Foreign. 

Tlie  net  income  of  a  foreign  corporation  or  partnership  is  the  net  income  from 
sources  within  the  United  States.     (T.  D.  2691;  art.  26.) 

Interest  on  loans  by  partners. 

Partnership  may  deduct  amounts  paid  during  year  to  individual  partner  aa 
interest  upon  any  bona  fide  loan,  but  no  deduction  for  so-called  interest  upon 
capital  will  be  allowed.     (T.  D.  2694;  art.  33.) 

Where  partner.ship  makes  deduction  of  amounts  paid  to  individual  partner  aa 
interest  on  loan,  it  must  also  in  computing  net  income  for  prewar  period,  make 
corresponding  deduction  for  any  such  interest  actually  paid  during  that  period. 
(T.  D.  2694;  art.  34.)  ^  f  o  f 


EXCESS  PROFITS  TAX.  225 

Net  income — Continued. 

Partnership — ('onfinucd. 

Prewar  period. 

Net  income  for  each  of  calendar  years  191],  1912,  and  1913,  determined  in  same 
manner  as  net  income  for  taxable  year,  except  that  dividends  upon  stock  or  from 
net  earnings  of  corporations,  etc.,  subject  to  tax  imposed  by  section  38  of  the  act 
of  August  5,  1909,  or  by  Section  II  of  the  act  of  October  3,  1913,  shall  be  deducted. 
(T.  D.  2(i94;  art.  31.) 

• Salaries. 

Partnership  may  deduct  as  expense  reasonable  salaries  or  compensation  paid 
partners  for  services  actually  rendered  during  taxable  year,  if  payments  are  made 
in  accordance  Avith  prior  agreements  and  are  properly  recorded  on  partnership 
books:  deduction  will  be  allowed  for  services  actually  rendered  in  period  prior  to 
March  1,  1918,  regardless  of  whether  previous  agreement  has  been  made  as  to  com- 
pensation; deduction  in  case  of  foreign  partnership  limited  to  portions  of  salaries 
or  compensation  paid  for  services  rendered  with  respect  to  trade  or  business  carried 
en  in  Ignited  States.     (T.  D.  2694;  art.  32.) 

Where  partnership  makes  deduction  for  salaries  paid  to  partners  during  taxable 
year,  it  must  klso,  in  computing  net  income  for  prewar  period,  make  corresponding 
deduction.     (T.  I).  2694;  art.  34.) 

Amounts  expended  by  corporations,  partnersliips,  or  individuals  engaged  in 
business,  in  pajang  all  or  portions  of  regular  compensation  of  officers  or  employees, 
who  have  for  all  or  pait  of  the  period  of  the  war  joined  the  naval  or  military  forces 
of  the  United  States,  or  have  undertaken  services  for  the  Government  at  reduced 
or  nominal  compensation,  constitute,  during  the  continuance  of  the  war,  ordinary 
and  necessary  expenses  of  doing  business  and  are  allowable  as  deductions  in  com- 
puting net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

Taxable  year. 

Net  income  determined  by  adding  amount  of  entire  net  income  ascertained  aa 
provided  with  respect  to  individuals  for  income-tax  purposes  by  Title  I  of  the  act 
of  September  8,  1916,  as  amended,  including  amounts  received  during  year  as 
interest  on  obligations  of  United  States  issued  after  September  24,  1917  (other  than 
interest  on  obligations  aggregate  principal  of  which  does  not  exceed  $5,000)  and 
deducting  therefrom  (1)  amounts  received  during  taxable  year  as  dividends  upon 
stock  or  from  net  earnings  of  corporations,  etc.,  subject  to  income  tax  imposed 
by  said  Title  I,  except  as  otherwise  provided  in  article  27,  and  (2)  deductions,  if 
any,  for  salaries  or  interest  allowed  by  articles  32  and  33,  if  such  deductions  have 
not  already  been  made.     (T.  D.  2694;  art.  30.)     See  T.  D.  2762;  Oct.  18,  1918. 

Nominal  capital — Agents  and  brokers. 

Agents  and  brokers  requiring  and  using  no  capital  or  merely  a  nominal  capital 
in  their  business  are  taxable  under  article  15  of  regulations  No.  41,  but  commission 
houses  regularly  employing  substantial  amount  "of  capital,  whether  to  lend  to 
principals  or  to  carry  goods  on  their  own  account,  are  not  deemed  to  be  agents  or 
brokers  and  are  taxable  under  provisions  of  article  16.     (T.  D.  2694;  art.  73.) 

Members  of  a  partnership  who  are  paid  neither  a  salary  nor  commissions  for  their 
eer\  ices,  but  who  buy  and  sell  lumber  and  undertake  and  assume  all  the  risks  and 
enjov  all  the  benefits  of  a  merchandising  business,  eraploAang  a  large  amount  of 
capital,  are  not  brokers.     {T.  D.  3080;  Oct.  19,  1920.     Ct.  liec.) 

— —  Definition. 

The  term  "nominal  capital,' '  as  used  in  section  209  of  the  act  of  October  3,  1917, 
means  in  general  a  small  or  negligible  capital  whose  use  in  a  particular  trade  or 
business  is  incidental;  certain  businesses  not  construed  as  having  nominal  capital 
for  purposes  of  excess  profits  tax,  named.     (T.  D.  2694;  art.  74.) 

Professional  or  personal  services. 

Section  209  of  the  act  of  October  3,  1917,  applies  primarily  to  occupations,  pro- 
fessions, trades,  and  businesses  engaged  principally  in  rendering  personal  service 
in  which  employment  of  capital  is  not  necessary,  and  earnings  of  which  are  to  be 
ascribed  primarily  to  acti\aties  of  owners;  in  determining  whether  trade  or  business 
is  taxable  under  article  15  of  Regulations  No.  41,  no  weight  will  be  given  to  fact 
that  it  is  carried  on  by  means  of  personal  service  unless  principal  owners  are  regu- 
larly engaged  in  active  conduct  of  the  trade  or  business.     (T.  1).  2694;  art.  71.) 

70420°— 21 1.5 


226  EXCESS  PROFITS  TAX. 

Nominal  capital — Continued. 

Professional  or  personal  services — Continued. 

Business  concerns  wliich  render  professional  or  personal  service  and  areoi  the  class 
normally  taxable  under  article  15  of  Regulations  No.  41,  shall  not  bo  taken  out  of 
that  class  merely  because  of  size  of  capital  if  employment  of  such  capital  is  necessi- 
tated by  delay  and  irregularity  in  receipt  of  fees,  etc.,  or  if  such  capital  is  wholly 
or  mainly  used  as  fund  fi-om  which  to  advance  salaries,  wages,  etc.,  or  to  provide 
ofBce  furniture,  accommodations,  and  equipment,  nor  because  of  form  of  organiza- 
tion, whether  corporation  or  partnership,  nor  in  case  of  partnership,  because  of 
number  of  partners.     (T.  D.  2694;  art.  72.) 

In  determining  Liability  under  section  209  of  the  act  October  3,  1917.  income 
derived  from  a  single  timl>er-land  deal  by  a  partnership,  whose  principal  business 
is  dealing  in  lumber,  can  not,  by  reason  of  section  201  of  the  act,  be  considered  and 
treated  sepai-ate  and  apart  from  other  partnerskip  income  or  profits.  (T.  D.  3C83; 
Oct.  19,  1920.     Ct.  Dec.) 

Payment  by  check — ^Collecting  taxes  for  wliich  bad  checks  tendered. 

Taxpayers  whose  checks  have  been  returned  uncollected  by  depositary  bank 
should  be  immediately  notified  to  make  checks  good;  if  taxpayer  fails  to  do  so, 
collector  should  proceed  to  collect  taxes  by  usual  methods,  as  though  no  check  had 
been  given.     (T.  D.  2666;  Mar.  8,  1&18.) 

■ Collection  at  par. 

All  checks  in  payment  of  exicess-profits  tax  must  be  collectible  at  par  (without 
any  deduction ) ;  taxpayers  who  ai-e  not  sure  that  their  checks  will  be  paid  at  par 
should  be  advised  to  write  beneath  the  amount  ''without  deduction  for  exchange," 
or  '•with  exchange";  collector  not  required  to  examine  all  cheeks  to  see  whether 
they  are  collectible  at  par;  if  bank  on  which  check  is  drawn  refuses  to  pay  it  at  par, 
it  will  be  returned  throusrh  depositarv  bank  and  should  be  treated  in  same  manner 
as  a  bad  check.     (T.  D.  2666;  Mar.  8,  1918.) 

■ Correcting  assessment  list  in  case  of  bad  check. 

In  cases  where  checks  ha\"e  been  retm-ned  uncollected  by  depositary  banks, 
if  recapitulation  of  assessment  list  for  the  m.onth  has  not  yet  been  sent  to  the  C'om- 
missioner,  original  entry  of  payment  should  be  canceled,  and  at  the  same  time 
there  should  be  noted  in  the  "Remarks"  column  ■"Check  returned  impaid;  trans- 
ferred to  p.  — ,  1  — ,"  with  the  date,  and  the  item  shoxdd  be  reentered  in  the  unpaid 

section  of  the  list,  with  the  notation  ' '  Transferred  from  p. ,  1 . ' '    There  should 

be  submitted  in  support  of  the  nev,-  entry  a  copy  of  the  collector's  letter  to  the  tax- 
payer with  regard  to  the  nonijaymeut  of  the  check;  if  monthly  recapitulation  has 
gone  forward,  note  shoidd  be  made  in  the  "Piiemarks"  column,  opposite  the  origi- 
nal entry,  "Checks  returned  impaid,"  with  the  date.     (T.  D.  2666;  Mai-.  8,  1918.) 

Out-of-town  check. 

All  out-of-town  checks  for  which  depositary  bank  is  unwilling  to  issue  immediate 
certificate  of  deposit  to  credit  of  Treasurer  of  United  States,  should  be  deposited 
separately  in  collection  account,  as  provided  in  T.  D.  2627;  collection  account  will 
l)e  charged  and  Treasurer's  general  account  credited  bv  issuance  of  certificate  of 
deposit  on  Form  lo.     (T.  D.  2666;  Mar.  8,  1918.) 

^- —  Redemption  of  bad  checks. 

Where  check  for  which  certificate  of  deposit  to  credit  of  Treasurer  of  the  United 
States  has  been  issued  is  retm'Jied  to  depositary  bank  impaid,  collector  will  be 
promptly  notified  and  check  held  for  few  days,  during  which  time  collector  should 
m.ake  effort  to  recover  am-ount  fi'om  taxpayer;  if  am,ount  is  recovered,  collector 
should  immediately  turn  it  over  to  depositary  in  exchange  for  bad  check,  which 
should  be  returned  to  the  drawer,  but  if  amount  is  not  recovered  within  reasonable 
time,  depositar</-  will  return  check  with  letter  of  transmittal  and  ask  receipt  from 
collector,  which  receipt  shmdd  be  gixeii  in  duplicate,  and  depositary  will  charge 
amount  to  Treasurer's  account  in  next  daily  transcript.     (T.  D.  2666;  Mar.  8,  1918.) 

Where  check  deposited  in  collection  account  is  retm'ued  impaid,  and  no  certi- 
ficate of  deposit  on  Form  15  covering  the  amount  thereof  has  been  issued,  amount 
of  check  will  be  charged  by  depositary  to  the  collection  account,  after  being  held 
in  a  suspense  account  for  a  few  davs  while  an  effort  is  made  to  recover  amount  from 
taxpayer.     (T.  D.  2GG6;  Mar.  8,  1918.) 

■ Uncertified  checks,  acceptance  of. 

If  uncertified  dieck,  accepted  by  collectors,  is  not  paid,  person  bv  whom  it  has 
been  tendered  remains  liable  for  tax;  such  uncertified  checks  depositary  bank  is 
willing  to  accept  should  be  included  in  certificates  of  deposit  issued  to  collector; 


EXCESS  PROFITS  TAX.    •  227 

Payment  by  check — Continued. 

Uncertified  checks,  acceptance  of — Continued. 

all  other  certilicales  will  be  carried  by  coUeelor  aa  'cash  on  hand";  date  on  wIilL-h 
collector  receives  check  coasidered  date  on  which  payment  is  made  unless  check  is 
returned  dishonored;  such  uncertified  checks  as  bank  is  not  willing  to  accept  for 
immediate  credit  may  be  deposited  for  collection,  and  when  collection  is  made 
proceeds  should  be  immediately  deposited  with  other  collections  for  the  day,  col- 
lector charging  his  account  "cash  on  hand,"  and  crediting  taxpayer  from  whom 
check  was  received.     (T.  D.  2627;  Dec.  28,  1917.) 

Rate  of  tax. 

Tax  upon  trades  or  businesses  having  no  invested  capital,  etc.,  is  computed  at 
rate  of  ^  per  cent  on  net  income  thereof  in  excess  of  $3,000  in  case  of  domestic 
corporation;  upon  net  income  thereof  in  excess  of  -SG.OOO  in  case  of  domestic  partner- 
ship or  of  citizen  or  resident  of  United  States;  and  upon  net  income  thereof  without 
deduction  in  case  of  forei2;n  corporation  or  partnership  or  of  nonresident  alien 
individual.     (T.  D.  2694;  art.  15.     Amended  by  T.  D.  3011:  May  3,  1920.) 

Tax  upon  trades  or  businesses  having  nifjre  tiian  nominal  capital  is  computed  at 
following  rates:  20  per  cent  of  amount  of  net  income  in  excess  of  deduction  and  not 
in  excess  of  15  per  cent  of  invested  capital  for  taxable  year;  25  per  cent  in  excess 
of  15  per  cent  and  not  in  excess  of  20  per  cent  of  such  capital;  35  per  cent  in  excess 
of  20  per  cent  and  not  in  excess  of  25  per  cent  of  such  capital;  45  per  cent  in  excess 
of  25  per  cent  and  not  in  excess  of  33  per  cent  of  such  capital;  and  60  per  cent  in 
excess  of  33  per  cent  r,f  such  capital.  (T.  D.  2694;  art.  16.  Amended  bv  T.  D. 
3017;  May  3,  1920.) 

Where  deduction  is  determined  under  article  24  of  Regulations  No.  41,  invested 
capital  for  purpose  of  applying  rates  under  article  16  shall  be  deemed  to  be  an 
amount  bearing  same  ratio  to  net  income  of  trade  or  business  for  taxable  year  which 
average  invested  capital  for  corresponding  calendar  year  of  representative  corpo-- 
rations,  etc.,  engaged  in  like  or  similar  trade  or  business  bears  to  their  average  net 
income;  in  determining  ratio,  commissioner  will  include  invested  capital  and 
net  income  of  representative  corporations  and  ])artnerships  for  fiscal  years  ending 
during  such  calendar  year,  and  in  case  of  corporation  or  partnership  which  has 
fixed  its  own  fiscal  vear,  ratio  determined  for  calendar  year  ending  during  such 
fiscal  year  shall  be  used.     (T.  D.  2694.  art.  IS.) 

Where,  during  the  year  1917,  a  partnership  had  invested  capital,  more  than 
nominal  in  amount,  excess  profits  taxes  upon  its  income  could  not  be  assessed  at 
the  lower  rate  by  section  209  of  the  act  of  October  3,  191*.  (T.  D.  3080;  Oct.  19, 
1920.     Ct.  Dec.) 

Eeplacement  fund. 

Only  active  depositaries  of  public  moneys  and  surety  companies  holding  certifi- 
cates of  authority  from  Secretary  of  Treasury  as  acceptable  sureties  on  Federal 
bonds  will  ]:)e  approved  as  sureties  or  depositaries  under  Schedules  B  and  C  of  Form 
1114,  prescribed  by  T.  D.  2733,  on  application  for  establishment  of  replacement 
fund  in  case  of  property  requisitioned  for  war  uses  or  lost  or  destroyed  in  whole  or 
in  part  through  war  hazards,  as  permitted  by  T.  D.  2706.  (T.  D.'2755;  Aug.  2(5, 
1918.)  ^  ^ 

Returns^Affiliated  corporations. 

See  ■•Consolidated  returns  of  affiliated  corporations."  ante. 

Amount  of  incom.e. 

A  domestic  coi-poration  or  partnership  or  a  citizen  or  resident  of  the  ITnited  States 
entitled  to  make  return  for  a  period  of  less  than  full  year,  will  be  required  to  make 
such  return,  if  net  income  for  such  period  is  at  rate  of  $3,000  per  year  or  more,  in  the 
case  of  a  corporation,  or  of  $6,000  per  year  or  more  in  the  case  of  a  partnership  or 
individual.     (T.  D.  2689;  Apr.  1,  1918.) 

Corporations. 

A  domestic  corporation,  entitled  to  make  return  for  period  less  than  full  year,  will 
be  requii-ed  to  make  such  return  it  net  income  for  such  period  is  at  rate  of  $3,000 
per  year  or  more.     (T.  D.  2689;  Apr.  1,  1918.) 

Credits. 

Corpojation  wdiich  was  dissolved  in  1917,  prior  to  passage  of  the  act  of  October  3, 
1917,  mil  make  return  from  Form  1031,  revised,  covering  period  in  1917  during 
which  it  was  in  business  prior  to  its  dissolution;  if  it  shall  have  previously  made 


228  EXCESS  PROFITS  TAX. 

Returns— Continued. 

Credits — Continued. 

return  covering  this  period  and  shall  have  paid  any  excess-profits  tax  imcfer  act  of 
March  3,  1917,  it  shall  be  entitled  to  credit  for  amount  of  tax  so  paid  against  any 
excess  profits  tax  assessed  against  it  under  Title  II  of  the  act  of  October  3,  1917. 
(T.  I>.  2690;  art.  61.) 

• Inspection, 

When  it  becomes  necessary  for  the  departrricnt  to  furnish  returns  or  copies  thereof 
for  use  in  les;al  proceedings",  inspection  of  such  returns  or  copies  that  necessarily 
results  from  such  use  is  permitted.     (T.  D.  2961;  Jan.  7,  1920.) 

Return  of  p.-trtnei-ship  shall  be  open  to  inspection  by  officers  and  employees  of 
Treasury  Department  whose  official  duties  require  such  inspection  and  by  the 
Salicitor  of  Internal  Reverue;  and  by  any  individual  (or  his  duly  constituted  at- 
torney in  fact  or  legal  representati\  e)  who  was  member  of  such  partnership  curing 
any  part  of  time  covered  by  the  return,  upon  satisfactory  evidence  of  such  fact  being 
furnished.     (T.  D.  2961 ;  Jan.  7,  1920.) 

Except  as  to  returns  or  copies  thereof  for  iise  in  legal  proceedings,  returns  may  be 
inspected  only  in  the  office  of  Commissioner  of  Internal  Revenue,  Washington, 
I).  C.     (T.  D.  2961;  Jan.  7,  1920.) 

Written  statement  filed  with  Commissioner  designed  to  be  supplemental  to  and 
to  become  part  of  tax  return  shall  be  subject  to  same  rules  and  regulations  as  to  in- 
epaction  as  are  tax  returns  them.selves.     (T.  D.  2961 ;  Jan.  7,  1920.) 

A  person  who,  under  the  regulations,  is  permitted  to  inspect  a  return  may  make 
and  take  copv  thereof  or  memorandum  of  data  contained  therein.  [T.  D.  2961; 
Jan.  7,  1920.)" 

Except  as  otherwise  provided,  Commissioner  may,  in  his  discretion,  upon  written 
application  setting  forth  fully  reasons  for  request,  grant  permission  for  inspection  of 
returns;  application  will  be  considered  by  Commissioner  and  decision  reached  by 
him  whether  applicant  has  met  conditions  imposed  by  regulations  and  wi  ether 
reasons  advanced  for  permission  to  inspect  are  sufficient  to  permit  the  inspection; 
such  written  application  is  not  required  of  officers  and  employees  of  the  Treasury 
Department  whose  official  duties  require  inspection  of  a  return,  or  of  the  Solicitor 
of  Internal  Revenue.     (T.  D.  2961;  Jan.  7,  1920.) 

Return  of  corporation  shall  be  open  to  inspection  by  officers  and  employees 
of  Treasury  Department  whose  official  duties  require  such  inspection  and  by  the 
Solicitor  of  Interjial  Revenue;  upon  satisfactory  evidence  of  identity  aiid  official 
position,  by  the  president,  vice  president,  .secretary,  or  treasurer  of  such  corporation, 
or,  if  none,  its  principal  officer;  and  bv  a  stockholder  of  such  corporation  under 
certain  circumstances.     (T.  D.  2961;  Jan.  7,  1920.) 

Stockholder  of  recora  owning  1  per  cent  or  more  of  the  stock  of  the  outstanding 
etock  of  a  corporation  may  be  permitted  to  inspect  its  return ;  permission  will  only  be 
granted  upon  application  in  writing  to  Commissioner  accompanied  by  affidavit 
showing  certain  facts;  this  privilege  of  inspection  is  personal  and  will  be  granted 
only  to  the  stockholder.     (T.  D.  2961;  Jan.  7,  1920.) 

^\^len  head  of  executive  department  (other  than  Treasury  Department)  or  any 
other  United  States  Government  establishment,  desires  inspection  of  return  in 
connection  with  some  matter  officially  before  him,  the  inspection  may,  in  discretion 
of  Secretary  of  the  Treasury,  be  permitted  upon  written  application  to  him  by  head 
of  such  department  or  other  (Government  establishment,  such  application  to  be 
signed  by  such  head  and  to  show  why  inspection  is  desired,  name  and  address  of 
taxpayer  who  made  return,  and  name  and  official  designation  of  one  it  is  desired 
shall  inspect  the  return;  the  reason  submitted  for  permission  to  inspect  the  return 
shall  be  considered  by  the  Secretary  and  decision  reached  by  him  whether  reasons 
are  sufficient  to  permit  inspection.     (T.  D.  2961 ;  Jan.  7,  1920.) 

Original  income  return  or  copy  thereof  may  be  furnished  by  Commissioner  to 
■United  States  attorney  for  use  as  evidence  before  United  States  grand  jury  or  in 
litigation  in  any  court,  where  the  United  States  is  interested  in  the  result,  or  "for  use 
in  prcpr.ration  for  such  litigation,  or  to  attorney  connected  with  Department  of 
Justice  designated  by  .Attorney  General  to  handle  such  matters  if  and  wlien  Attorney 
General  states  to  Commissioner  in  writing  that  such  attorney  is  so  designated; 
return  or  copy  thereof  thus  furnished  must  be  limited  in  use  to  purpose  for  which 
furnished  and  is  under  no  conditions  to  be  made  public,  except  where  publicity 
neces3arily  results  from  such  use;  where  original  return  is  necessary,  it  shall  be 
placed  in  evidence  by  the  Commissioner  for  that  purpose,  and  after  being 
placed  in  eyidence  it  ghall  be  returned  to  files  in  office  of  Commissioner  in  Wash- 
ington; original  return  will  be  furnished  only  in  exceptional  cases,  and  then  only 


EXCESS  PROFITS  TAX.  229 

Returns — routimiod. 

Inspection — Continued. 

when  it  is  made  to  appear  that  ends  of  justice  may  otherwise  be  defeated;  neither 
the  original  nor  a  copy  desired  for  use  in  litio;ation  where  United  States  GoAerument 
is  not  interested  and  where  such  use  might  result  in  making  public  the  information 
containeil  therein  will  be  furnished,  except  as  other«-ise  provided  in  the  next 
succeeding  paragraph.     (T.  D.  296'2;  Jan.  7,  1920.) 

('opy  of  iiicome  return  may  l)e  furnished  by  the  Commissioner  to  person  who 
in.ide  "the  return  or  to  his  duly  constituted  attorney,  or  if  person  is  deceased,  to  his 
executor  or  administrator,  or,  if  entity  is  in  hands  of  receiver,  trustee  in  bankruptcy, 
guardian,  or  similar  legal  custodian,  to  the  receiver  or  other  custodian  upon  written 
application  for  same,  accompanied  by  satisfactory  evidence  that  applicant  comes 
withir  this  provision;  "person  who  made  the  return,"  as  herein  used,  refers  in  case 
of  an  individual  return  to  the  individual  whose  return  is  desired,  and  in  case  of 
return  of  corporation,  etc.,  or  fiduciary,  to  the  corporation,  etc.,  or  fiduciary,  a 
copy  of  whose  return  is  desired ;  corporation  may  also  designate  ofhcer  or  individual 
to  whom  copy  made  by  corporation  may  be  furnished,  and  upon  sufficient  evidence 
of  suf  h  action  and  of  identity  of  officer  or  individual,  copy  may  V>e  furnished  to  such 
person;  copy  of  partnership  Veturn  will  be  furnished  to  partners  only  in  case  all  the 
partners  join  in  the  request  therefor,  and  if  partnership  has  been  dissolved  the  mem- 
bers surviving  may  be  furnished  a  copy  if  all  the  members  surviving  join  in  the 
request.     (T.  D.  2962;  Jan.  7,  1920.) 

Proper  officers  of  State  imposing  income  tax  are  entitleu  as  of  right  upon  request 
of  its  governor  to  have  access  to  income  and  profits  tax  returns  of  corporation,  etc., 
or  to  abstract  thereof,  showing  its  name  and  income;  proper  officers  in  this  connec- 
tion are  only  those  officers  of  the  State  charged  with  enforcement  of  the  State  income 
tax  law  and  who  are  to  use  the  information  gained  by  the  access  only  in  connection 
with  Piich  enforcement;  contents  of  request  or  application  of  governor,  which  must 
be  in  writing,  signed  by  him  under  the  seal  of  his  State,  and  be  addressed  either  to 
the  Secretary  of  the  Treasury  or  to  the  Commissioner  of  Internal  Revenue,  stated; 
access  shall  be  givcn«only  in  the  office  of  the  Commissioner,  and  the  officers  desig- 
nated by  the  governor  will  not  be  permitted  to  name  another  person  to  examine 
the  returns  or  abstracts  for  them,  and  the  officers  designated  will  be  given  access 
only  to  returns  of  those  corporations,  etc.,  organized  and  doing  business  in  their 
State.     (T.  D.  2962;  Jan.  7,  1920.) 

Married  women. 

Married  woman  who  is  sole  trader  or  is  entitled  to  any  taxable  income  to  her  sole 
and  separate  use  mav  make  separate  return  in  same  manner  as  any  other  individ- 
ual.    (T.  D.  2694;  art.  76.) 

- —  Partnerships. 

A  partnership,  entitled  to  make  return  for  period  of  less  than  full  year,  will  be 
required  to  make  such  return  if  the  net  income  for  such  period  is  at  the  rate  of 
$6,000  per  year  or  more.     (T.  D.  2689;  Apr.  1,  1918.) 

Partnerships  having  a  net  income  of  $6,000  or  over  required  to  render  returns  for 
purpose  of  excess  profits  tax.     (T.  D.  2690;  art.  30.) 

— ■ —  Prewar  period. 

Return  of  information  with  respect  to  invested  capital  and  net  income  for  prewar 
period  will  not  be  required  if  taxpayer  accepts  minimum  percentage,  viz,  7  per 
cent,  as  percentage  to  be  used  in  computing  deduction  under  article  21  of  Regula- 
tions No.  41,  or,  if  trade  or  business  is  taxable  only  at  the  8  per  cent  rate  under  arti- 
cle 15;  return  of  information  as  to  all  facts  necessary  to  ascertain  capital  and  income 
for  taxable  year  will  be  required  whenever  called  for  by  Commissioner  of  Internal 
Revenue.     (T-  ^-  2694;  art.  75.) 

Time. 

Corporations  liable  to  income  tax  and  excess-profits  tax  which  may  liave  made 
excess-profits  tax  returns  for  1917  fiscal  year  pursuant  to  requirements  of  Title  II 
of  the  act  of  March  3,  1917,  must  make  supplemental  returns  for  purpose  of  excess- 
profits  tax;  date  for  making  returns  extended  to  January  1,  1918.  (T.  D.  2561; 
Oct.  16,  1917.)  Time  extended  to  February  1, 1918.  "(T.'D.  2615;  Dec  13,  1917.) 
Time  extended  to  March  1,  1918.  (T.  D.  2633;  Jan.  22,  1918.)  Time  extended  to 
April  1,  1918.     (T.  D.  2650;  Feb.  9,  1918.) 

Time  for  filing  war  excess-profits  tax  returns  by  nonresident  alien  individuals 
and  corporations  and  American  citizens  residing  or  traveling  abroad,  including 
persons  in  military  or  naval  establishments,  stationed  or  on  duty  beyond  limits  of 
the  States  and  Territories  of  Hawaii  and  Alaska,  extended  for  such  period  as  may 


230  EXCESS  PROFITS  TAX, 

Returns— Coiilluucd. 

Time— Continued. 

be  necessary  to  and  including  90  days  after  proclamation  of  President  of  United 
States  announcinji;  close  of  war  with  Germany ;  any  such  person  filing  return  after 
April  1,  191S,  but  on  or  before  October  1,  1918,  embodying  therein  or  attaching 
thereto  written  statement  showing  that  he  comes  within  classes  designated  by  T.  D. 
2581,  need  not  file  supporting  affidavit  stating  cause  of  delay.  (T.  D.  2672;  Mar. 
16,  1918.) 

Taxability. 

A  partner  in  individual  capacity  not  considered  as  engaged  in  trade  or  business 
with  respect  to  his  share  in  profits  of  partnership,  and  consequently  not  subject  to 
excess-i^rofits  tax  thereon.     (T.  D.  2612;  Dec.  20,  1917.) 

Every  domestic  corporation  which  has  for  the  taxable  year  a  net  income  of  $3,000 
or  more,  unless  exempt  under  article  13  of  the  war  excess-profits  tax  regulations, 
and  every  foreign  corporation  having  for  the  taxable  year  a  net  income  of  $3,000 
or  more  from  sources  within  United  States,  imless  s")  exempt,  is  required  to  make 
return  pay  tax,  if  any.     (T.  D.  2094;  art.  10.) 

Every  domestic  partnership  v.hich  has  for  the  taxable  year  a  net  income  of  $6,000 
or  more,  unless  exempt  under  article  13  of  the  war  excess-profits  tax  regulations, 
and  every  foreign  partnership  which  has  for  the  taxable  year  a  net  income  of  $3,000 
or  more  from  sources  within  I"uited  States,  unless  so  exempt,  is  required  to 
make  return  and  pay  tax,  if  any.     (T.  D.  2694;  art.  11.) 

Every  citizen  or  resident  of  the  United  States  who  has  for  taxable  year  aggregate 
net  income  in  excess  of  S6,000  from  trades,  businesses,  occupations,  or  professions, 
unless  exempt  under  article  13  of  the  war  excess-profits  tax  regulations,  and  every 
nonresident  alien  individual  having  for  taxable  year  aggregate  net  income  of  $3,000 
or  more  from  trades,  businesses,  occupations,  or  professions  carried  on  within  United 
States,  unless  so  exempt,  is  required  to  make  return  and  to  pav  tax,  if  any.  (T.  D. 
2694;  art.  12.) 

Corporation  which  was  dissolved  in  1917,  prior  to  passage  oiact  of  October  3,  1917, 
is  subject  to  tax  under  act  of  September  8,  1916,  as  amended,  and  also  to  war  income 
tax  and  war  excess-profits  tax  imposed  bv  act  of  October  3,  1917.  (T.  D.  2090; 
art.  61.) 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  uses,  or  property 
which  has  been  lost  or  destroyed  in  whole  or  in  part  through  war  hazards,  excess 
of  amount  received  by  owner  as  compensation  for  property  over  value  thereof  on 
March  1,  1913,  or  over  its  cost  if  it  was  acquired  after  that  date,  except  so  far  as 
actual'v  used  for  replacement  of  property  in  kind,  is  subject  to  excess-profits  taxes. 
(T.  D.  2706;  Apr.  25,  1918.) 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  xises, 
or  lost  or  destroyed  through  war  hazards,  may  be  to  use  entire  amount  received  as 
compensation  for  replacement  in  kind  of  such  property,  such  replacement  may  not 
be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case  tax- 
payer may  establish  "replacement  fund''  in  which  entire  amount  of  compensation 
shall  be  held,  and  pending  disposition  thereof,  accounting  for  gain  or  loss  may  be 
deferred  for  reasonable  time,  to  be  determined  by  Commissioner  of  Internal  Reve- 
nue.    (T.  D.  2706;  Apr.  25,  1918.) 

Where  i^roperty  requisitioned,  lost,  or  damaged,  constitutes  all  or  part  of  security 
under  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund  maj^,  sub- 
ject to  approval  of  Commissioner,  be  amount  of  compensation  received,  less  amount, 
if  any,  which  becomes  payable  out  of  such  compensation  under  terms  of  such  in- 
strument or  obligations  thereby  secm-ed;  in  such  case  taxpayer  should  apply  to 
Commissioner  for  permission  to  establish  such  fund,  reciting  in  his  application  all 
facts  relating  to  transaction  and  iindertaking  to  proceed  as  expeditiously  as  possible 
to  replace  or  restore  property;  taxpayer  required  to  furnish  bond  with  security, 
or  make  deposit;  when  replacement  or  restoration  is  made,  new  or  restored  prop- 
erty shall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  that  at  which 
the  requisitioned,  damaged,  or  destroyed  property  was  carried,  except  and  to  extent 
that  such  new  or  restored  propertv  has  an  increased  productive  capacity.  (T.  D. 
2706;  Apr.  25,  1918.)         -  " 

Forms  of  application  for  permission  to  establish  replacement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733;  June  17,  1918.) 

Only  active  depositaries  of  public  moneys  and  surety  companies  holding  certi- 
ficates of  authority  from  the  Secretary  of  the  Treasury  as  acceptable  sureties  on 
Federal  bonds  will  be  approved  as  sureties  or  depositaries  under  Schedules  B  and  C 
of  Form  1114,  prescribed  by  T.  D.  2733  of  June  17, 1918.     (T.  D.  2755;  Aug.  26,  1918.) 


EXCHANGES.  231 

Time  of  payment. 

Because  of  impossibility  of  receiving  notice  and  demaad  on  Form  17,  aud  making 
payment  of  taxes  so  that  taxes  can  be  received  l;y  collector  witliin  10-day  period 
following  June  15,  or  within  10-day  period  following  son'ice  of  notice  bj-  reason  of 
absence  in  foreign  countries  or  on  account  of  traveling  abroad,  or  of  absence  in  the 
military'  or  other  service  of  the  country,  and  consequent  delay  in  recei\-ing  mail, 
collector  is  requested  to  enter  on  Form  17  as  date  on  which  tax  becomes  due  aud 
payable,  as  near  as  possible,  date  10  daj's  subsequent  to  t  ime  that  notice  should  be 
received  in  ordinary'  course  of  mails,  and  where  it  appears  that  full  amount  of  tax 
was  placed  in  mail  within  10-day  period,  or  in  case  notice  is  not  delivered  in  due 
time,  and.  satisfactory  evidence  of  that  fact  is  furnished,  penaltv  and  interest  will 
not  be  collected.     (T.  D.  2679;  Mar.  23,  1918.) 

EXCHANGES. 
Definition. 

The  word  "exchange"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes 
on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  each  and  every 
agent  or  agency,  auction  place,  or  other  meeting  place  at  which  stocks  are  publicly 
bought,  sokl,  bid  for,  offered  or  exclianged,  and  includes  all  incorporated  and  unin- 
corporated associations,  individuals,  partnerships,  and  corporations,  engaged,  in 
business  of  publicly  selling,  buying,  or  exchanging  shares  of  stock  or  interests 
therein.     (T.  D.  2608;  Nov.  30,  1917.) 

The  word  '"exchange' '  within  Regulations  No.  40,  Part  2,  relating  to  stamp  taxes 
upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  includes 
each  and  every  agent  or  agency,  auction  place,  or  other  meeting  place,  at  which 
produce  or  other  merchandise  for  future  delivery  is  publicly  bouglit,  sold,  bid  for, 
offered  or  exchanged,  or  contracts  for  such  future  delivery  are  made,  and  includes 
all  associations  or  individuals,  partnerships,  and  corporations  engaged  in  business 
c^  publicly  selling,  buying,  or  exchanging  products  of  merchandise  for  future  deliv- 
ery.    (T.D.  2608;  Nov.  30,  1917.) 

Dosumentary  stamps. 

Instructions  as  to  use  of  regular  documentary  stamps  pending  preparation  and 
distribution  of  special  supply  of  overprinted  stamps,  provided  to  temporarily  take 
place  of  distinctive  colored  stamps;  requisition;  issuance  and  excliange.  (T.  D. 
2594;  Nov.  28,  1917.) 

Income  taxes — Information  at  source. 

Every  person,  corporation,  pa,rtnership,  or  association,  doing  business  as  a  broker, 
or  any  exchange  or  board  of  trade  or  other  similar  place  of  business,  shall,  upon 
.  request  of  the  Commissioner  of  Internal  Revenue,  render  correct  return  under  oath, 
showing  names  of  customers  for  whom  such  broker  has  transacted  any  business, 
with  such  details  as  to  profits,  losses,  or  other  information,  as  may  be  called  for  bj' 
such  return  form  as  to  each  of  such  custom;ers.     (T.  D.  2690;  art!  ;53.) 

Moving-picture  films — Excise  taxes. 

Where  manufacturer  has,  prior  to  May  9,  1 917,  made  bona  fide  contract  with  dealer 
for  sale  after  tax  takes  effect  of  any  article  upon  which  sales  tax  is  imposed,  and 
such  contract  docs  not  permit  adding  of  whole  of  such  tax  to  amount  to  be  paid 
under  such  contract,  dealer  shall  pay  so  much  of  tax  as  is  not  so  permitted  to  be 
added  to  contract  price;  this  applies  to  contracts  with  dealer,  exchange,  or  exhib- 
itor for  sale  or  lease  of  moving-picture  films.     (T.  D.  2719;  Art.  XXX\'II.) 

A  foreign  government  or  a  State,  or  any  political  sui)division  thereof,  buj-ing  or 
leasing  an  article  for  its  own  use  is  not  a  dealer,  nor  in  case  of  moving-picture  films 
is  it  an  exliibitor  or  exchange.     (T.  D.  2719;  Art.  XXXVII.) 

Sales  for  future  delivery — Affixing  and  canceling  stamps. 

Stamps  in  value  to  amount  of  tax  ou  sales  nuist  be  affixed  to  memorandum  or 
other  evidence  of  .sale  or  agreement  to  sell;  clearing  house,  acting  as  agent,  requii-ed 
to  make  returns  showing  stamps  affixed  aud  canceled ;  manner  of  canceling  stamps 
stated.     (T.  D.  2608;  Nov.  30,  1917.) 

Cotton. 

Contract  of  sale  of  cotton  for  f  utui-e  delivery  niade  on  any  exchange,  board  of  trade, 
or  similar  institution  or  place  of  business,  is  taxed  at  the  rate  of  SO. 02  for  each  pound 
of  cotton  involved  (to  be  paid  bv  stamj));  tax  not  to  be  levied  on  contracts  com- 
plying with  conditions  preocribed.     (T.  D.  2558;  Oct.  2G,  1917.) 


232  EXCHANGES. 

Sales  for  future  delivery— Continued. 

Exempt  transactions. 

No  tax  is  imposed  on  cash  sales  of  produce  or  merchandise  for  immediate  or  prompt 
delivery,  which,  in  good  faith,  are  actually  intended  to  be  delivered;  sellers  of 
produce,  etc.,  may  transfer  contracts  to  clearing  house  association  and  such  transfer 
shall  not  be  deemed  to  be  a  sale  or  agreement  of  sale,  provided  it  does  not  vest  bene- 
ficial interest  in  such  association  and  is  made  only  to  enable  such  association  to 
adjust  accounts  of  its  members;  no  by-law  or  custom  of  any  exchange  or  similar  insti- 
tution, inconsistent  with  the  act  of  October  3,  1917,  or  any  regulations  thereunder, 
nor  any  collateral  agreement  inconsistent  with  such  act  or  regulations  thereunder 
shall  exempt  any  person  from  payment  of  tax.     (T.  D.  2608;  Nov.  30,  1917.) 

Sales  of  produce  or  merchandise  for  future  delivery  must  be  made  at  an  exchange 
or  board  of  trade  or  other  similar  place  in  order  for  tax  imposed  by  section  807,  Sched- 
ule A,  subdivision  5,  act  of  October  3, 1917,  to  apply;  sale  by  rnember  of  exchange 
made  by  mail  or  wire  not  at  an  exchange  is  not  subject  to  the  tax.  (T.  D.  2795; 
Feb.  26,  1919.) 

Memoranda  of  sales 

Every  sale  or  agreement  not  evidenced  by  memorandum  or  contract  expressly 
requiring  immediate  or  prompt  delivery  shall  be  deemed  to  be  for  future  delivery; 
every  person  making  sale  of  any  product,  etc.,  at,  on,  or  in  any  exchange  for  future 
delivery  shall  deliver  to  the  buyer  a  bill,  memorandum,  or  other  e\'idence  of  such 
sale,  showing  certain  specified  data  and  items  of  information;  no  single  sale  or  con- 
tract made  upon  an  exchange  by  one  member  for  another  need  be  evidenced  by 
more  than  one  memorandum;  written  return  or  sheet  to  clearing  house,  acting  as 
agent,  considered  to  be  memorandum;  return  by  clearing  house.  (T.  D.  2608; 
Nov.  30,  1917.) 

Becords. 

All  persons  who  make  sales  or  contracts  of  sales,  including  "transferred  or  scratched 
sales,"  "pass  outs,"  "pair-offs,"  or  "matched  trades,"  and  all  other  forms  of  sale 
of  any  product  or  merchandise  on  exchanges  for  future  delivery  required  to  keep 
record  showing  specified  items  of  information;  form  of  record  required;  clearing 
houses  to  keep  record  showing  certain  data.     (T.  D.  2608;  Nov.  30,  1917.) 

Registration. 

Regulation  No.  40,  part  2,  requires  a  statement  of  registration  by  persons  making 
contract  of  sale  of  produce  or  merchandise  on  exchanges  for  future  delivery;  record 
of  registration  to  be  kept  by  collector,  and  certificate  of  registration  to  be  issued 
and  posted;  forms;  statement  of  registration  by  exchanges  and  clearing  houses 
(T.  I).  2608;  Nov.  30,  1917.) 

Returns. 

Clearing  houses  and  persons  making  contracts  of  sale  at,  on,  or  in  any  exchange, 
etc.,  for  future  delivery,  required  to  make  return  showing  specified  data  and  infor- 
mation; substitute  returns;  clearing  houses,  acting  as  agents,  required  to  return 
statement  of  amounts  of  stamps  affixed  to  memoranda  of  sales.  (T.  D.  2608;  Nov. 
30,  1917.) 

■ Stamp  sales. 

Stamps  required  to  be  affixed  to  contracts  of  sale  of  any  product  or  merchandise 
before  a  delivery  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treas- 
urer, or  other  designated  United  States  depositary;  State  agents;  requisitions  for 
stamps;  records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 

Stock  sales — Afl8.xing  and  canceling  stamps. 

Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer 
is  effected  by  delivery  of  certificate  of  stock  assigned  in  blank;  in  case  Change  of 
ownership  is  by  transfer  of  certificate  of  stock,  stamp  shall  be  affixed  to  the  certificate; 
in  case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall  be 
placed  upon  the  books;  in  all  other  cases  payment  shall  be  e\ddenced  by  affixing 
stamp  upon  memorandum  or  agreement  of  sale  to  be  delivered  bv  the  seller  to  the 
buyer;  manner  of  canceling  stamps  stated.     (T.  D.  2608;  Nov.  30,  1917.) 

Exempt  transactions. 

No  tax  is  imposed  upon  agreement  evidencing  deposit  of  stock  certificates  as  col- 
lateral security,  nor  upon  deliveries  or  transfers  to  broker  for  sale,  nor  upon  deliv- 
eries or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfers  shall 


EXCHANGE  OF  PROPERTY.  233 

Stock  sales — Continued. 

Exempt  transactions — <'ontinucd. 

bo  accompanied  l)y  cert  ificato  netting  forth  the  facts,  nor  upon  transfers  or  delixerics 
to  clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  between  mem- 
bers; no  by-law  or  custom  of  any  exchange  or  similar  institution,  nor  any  collateral 
or  additional  agreement  or  understanding,  inconsistent  or  in  conflict  with  any 
requirement  of  the  act  of  October  3,  1917,  or  ctl  Regulation  No.  40,  part  1,  shall 
exempt  any  person  from  the  payment  of  the  tax.     (T,  D.  2608;  Nov.  30,  1917.) 

Memorandum  of  sales. 

Persons  selling  or  agreeing  to  sell  stocks  required  to  deliver  to  buyer  a  numbered 
memorandum  of  sale,  or  agreement  to  sell,  signed  by  principal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  number 
and  price  of  shares.     (T.  D.  2008;  Nov.  30,  1917.) 

Bate  of  taxation. 

In  the  ca*;e  of  shares  or  certilicates  of  stock  having  a  fai'e  or  ])ar  ^■alue,  amount  of 
tax  shall  be  based  upon  total  face  value  of  shares  invohed,  and  shall  be  at  rate  of  2 
cents  for  each  $100  of  such  total  face  value  or  fraction  thereof,  whether  such  aggre- 
gate face  value  is  greater  or  less  than  $100.     (T.  D.  2C08;  Nov.  30,  1917.) 

• Records. 

Persons  engaged  in  business  of  buying,  selling,  or  transferring  shares  of  stock, 
required  to  keep  record  sho'wing  specified  items  of  information;  form  of  record 
required.     (T.  1).  2608;  Nov.  30,  1917.) 

Registration. 

Regulation  No.  40,  part  1,  requires  a  statement  of  registration  by  persons,  corpo- 
rations, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock 
and  other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector 
who  must  issue  certificate  of  registration  to  be  posted  in  place  of  business.  (T.  D. 
2608;  Nov.  30,  1917.) 

Returns. 

t.'learing  houses  and  persons  engaged  wholly  or  partly  in  buying,  selling,  or  trans- 
ferring shares  of  stock,  required  to  make  returns  showing  specified  data  and  infor- 
mation; substitute  returns.     (T.  D.2608;  Nov.  30,  1917.) 

Stamp  sales. 

Stamps  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treasurer,  or 
other  designated  United  States  depositary;  State  agents;  requisitions  for  stamps; 
records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 

EXCHANGE    OF   PROPERTY. 

Excise  taxes. 

Where  article  is  sold  and  thereafter  exchanged  for  another  article  of  a  higher  price, 
])inchaser  paying  difference,  vendor  should  pay  tax  on  second  sale,  but  may  take 
credit  for  tax  paid  on  returned  article.     (T.  D.  2719;  Art.  VI.) 

Income  taxes. 

AVhere  farmer  excliauges  farm  produce  for  merchandise,  groceries,  or  mill  products, 
the  market  value  of  the  article  or  product  received  in  exchange  is  to  be  returned  as 
income.     (T.  D.  2665;  Mar.  8,  1918.) 

Where  property  was  taken  over  in  exchange  for  capital  stock  at  par  value  in  exces? 
of  fair  market  value  of  property,  and  such  property  later  sold,  necessary  to  ascertain 
as  nearly  as  possible  fair  market  value  of  property  at  time  taken  over  as  of  March  1, 
1913,  if  acquired  before  that  date,  and  any  excess  OA'cr  this  ascertained  fair  market 
value  ■will  be  held  to  be  profit  or  income  for  year  in  which  sale  was  made.  (T.  D. 
2690;  art.  111.) 

Where  corporation  acc^uiros  from  stockholders  stock  of  another  corporation,  giving 
in  exchange  tlierefor  its  own  stock,  transaction  is  one  by  which  corporation  acquiring 
stock  becomes  sole  stockholder  of  other  corporation,  and  no  income  accrues  to  cor- 
poration, whose  stock  is  thus  acquired ;  neither  will  any  income  accrue  to  this  cor- 
poration if  later  the  holding  corporation  should  cause  assets  of  underlying  company 
to  be  transferred  to  it  for  mere  nominal  consideration.     (T.  D.  2690;  art.  124.) 


2214:  EXCISE   TAXES. 

Stamp  tax. 

Wliorc  exchange  of  equal  equities  in  real  estate  is  made,  tax.  stamp  should  ho 
attached  to  each  of  the  two  deeds  corresponding  with  the  amount  of  each  equity 
exchanged.     (T.  D.  2599;  Dec.  3,  1917.) 

EXCISE  TAXES. 
Agerbcy  sales. 

Vtliere  agent  of  manufacturer  makes  a  sale,  it  is  to  be  treated  as  a  sale  of  the  manu- 
facturer; if  the  manufacturer  nominally  soils  an  article  to  a  sales  agent  or  sales 
agency,  but  retains  interest  in  profits  from  resale,  taxable  sale  is  that  made  by  sales 
a^eut  or  agencv,  rather  than  nominal  sale  bv  manufacturer  to  agent  or  agency. 
(T.  D.  2909;  Aug.  11,  1919.     Art.  V  of  Regulations  44  amended. ) 

""Where  so-called  sales  agent  or  distributor  is  separate  corporation,  and  sale  to  it  is 
absolute,  and  at  prices  such  as  ordinarily  obtain  between  persons  dealing  at  arm's 
length,  with  no  further  payment  or  benefit  accruing  to  manufacturer  upon  resale  or 
otherwise  except  receipt  of  dividends  on  stockholdings,  taxable  sale  is  that  made 
by  manufacturer  to  such  sales  corporation,  even  though  all  or  substantially  all  of 
the  stock  of  such  sales  corporation  is  held  by  or  for  benefit  of  manufacturer.     (Id.) 

"^"here,  however,  there  exist  facts  and  circumstances  which  tend  to  establish 
relationship  of  principal  and  agent  between  manufacturer  and  sales  corporation, 
taxable  sale  is  that  made  by  sales  corporation.     (Id.) 

Llere  ownership  of  majority  or  all  of  stock  of  sales  corporation  by  manufacturer, 
without  more,  is  not  sufficient  to  establish  relationship  of  principal  and  agent;  same 
rule  applies  in  case  of  selling  corporation  which  owns  substantially  all  of  the  stock 
of  the  manufacturing  corporation.     (Id.) 

Automatic  organs. 

Automatic  organs  ai;e  not  subject  to  the  tax  imposed  by  section  690  (b)  of  the  act  of 
October  3,  1917.    (T.  D.  2719;  Art.  XI.) 

Automobiles — Accessories. 

Speedometers  and  other  attachments  and  accessories  to  automobiles  and  motor 
cycles  are  not  taxable  when  sold  separately,  but  they  are  when  sold  as  part  of  an 
automobile  or  motor  cycle  or  of  its  equipment,  whether  standard  or  not.  (T.  D.  2719; 
Art.  X.) 

Assembled  automobiles. 

A  usable,  substantially  completed  automobile  produced  by  assemljJing  new  parts 
of  trucks  and  cars  is  subject  to  tax  imposed  by  section  600  (a)  of  the  act  of  October  3, 
1917.     (T.  D.  2719;  Art.  IX.) 

Bodies. 

Automobile  bodies  and  other  attachments  and  accessories  to  automobiles  and 
motor  cycles  are  not  taxable  when  sold  separately,  but  they  are  wlien  sold  as  part  of  an 
automobile  or  motorcycle  or  of  its  equipment,  whether  standard  or  not.  (T.  D. 
2719;  Art.  X.) 

Dealer  who  contracts  to  sell  to  customer  a  truck  composed  of  a  tax-paid  chassis 
and  a  body  to  be  added  by  body  builder  and  who  performs  his  contract  is  liable  to 
tax  as  manufacturer  of  completed  truck,  though  order  to  body  builder  purpoi'ts  to 
be  that  of  customer  through  the  dealer  as  his  agent.     (T.  D.  2795;  Feb.  26,  1919.) 

• Chassis. 

A  cliassisis  an  automobile  within  the  meaning  of  section  600  (a)  of  the  act  of  October 
3,  1917,  and  tax  is  payable  by  manufacturer  thereof;  where  person  other  than  manu- 
facturer of  chassis  completes  and  sells  automobile,  tax  must  be  paid  on  complete  car 
less  any  tax  already  paid  on  the  sale  of  the  chassis.     (T.  D.  2719;  Art.  IX.) 

■ Definition. 

An  automobile  is  a  self-propelling  vehicle,  usually  designed  to  rim  on  a  read,  con- 
taining the  means  of  propulsien  within  itself.     (T.  D.  2719;  Art.  "^'III.) 

2\j3.  automobile  truck  or  wagon  is  an  automobile  used  primarily  for  transporting 
articles.    (T.  D.  2719;  Art.  YIII.) 


EXCISE   TAXES.  235 

Automobiles — Conlmucd . 

Demountable  top  added. 

If  a  dealer  adds  a  demountable  top  to  a  tax-paid  automobile  or  a  dri\cr's  cab  to 

a  tax-paid  tru(;k,  the  sale  of  the  improved  vehicle  is  not  subject  to  excise  tax.     (T. 

D.2795;  Feb.  26,  1919.) 

Fire  engines. 

A  salf-nropelled  fire  engine,  at  least  if  designed  to  carry  only  such  persons  as  are 
necessary  to  drive  it,  is  not  spoken  of  and  is  not  to  be  regarded  as  an  automobile;  if, 
however',  it  is  specially  designed  to  carry  firemen  not  employed  in  or  about  the  driv- 
ing of  the  machine,  it  must  be  regarded  as  falling  v/ithin  the  scope  of  section  (iOO  (a) 
of  the  act  of  October  ?>,  1917;  on  other  hand  automobiles  and  automobile  trucks 
equipped  as  hook  and  ladders,  hose  carts,  etc.,  for  the  use  of  firem':>n,  are  taxable. 
(T.  D.  2719;  Art.  IX.) 

Machine  guns. 

Motor-driA'en  machine  guns  are  not  automobiles  or  automobile  trucks.  (T.  D. 
2719;  Art.  IX.) 

Motor  cycles. 

A  motorcycle  is  a  motor-driven  bicycle.     (T.  D.  2719;  Art.  Mil.) 

Motor-driven  machines. 

Motor-driven  machines  for  pulling  vehicles  around  factories  and  railway  stations 
are  not  automobiles  or  automobile  trucks.     (T.  D.  2719;  Art.  IX.) 

Motor  unit. 

A  motor  unit,  designed  to  be  attached  to  a  bicycle,  so  as  to  make  it  self-propelling 
like  a  motor  cycle,  is  not  taxable  when  sold  separately,  but  when  sold  attached  to  a 
bicycle  or  to  a  children's  buckboard,  the  complete  vehicle  is  subject  to  the  tax  as  a 
motor  cycle  or  automobile.     (T.  D.  2719;  Art.  X.) 

Rate  of  tax. 

Tax  imposed  by  section  600  (a)  of  the  act  of  October  3,  1917,  is  .3  per  cent  of  the 
price  for  which  automobiles,  automobile  trucks,  automobile  wagons,  and  motorcycles 
are  sold  by  the  manufacturer.     (T.  D.  2719;  Art.  VIII.) 

• Scope  of  tax. 

To  come  within  the  scope  of  the  tax  imposed  by  section  600  (a)  of  the  act  of  Octo- 
ber 3,  1917,  a  machine  must  be  a  vehicle  or  conveyance,  that  is,  designed  primarily 
for  the  transportation  in  or  upon  it  of  persons  or  property.     (T.  D.  2719;  Art.  IX.) 

Track  use. 

An  automobile  adapted  for  use  on  a  track  is  subject  to  the  tax  imposed  by  section 
600  (a)  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  VIII.) 

■ Tractors. 

Tractors  for  pulling  agricultural  implements  are  not  automobiles  or  automobile 
trucks.     (T.  D.  2719;  Art.  IX.) 

A  tractor  which  has  no  body  or  provision  for  carrying  the  load,  but  is  intended 
to  haul  trailers,  is  not  taxable;  if  it  has  a  body,  no  matter  how  small  the  carrjdng 
capacity  or  is  designed  for  attachment,  permanent  or  temporary,  to  a  two-wheel 
trailer,  in  such  a  way  as  to  carry  part  of  the  load,  it  is  subject  to  tax  as  an  automobile 
truck  or  wagon;  if  sold  in  combination  \\dth  such  trailer,  the  tax  is  on  the  total 
price;  a  four-wheel  trailer  complete  in  itself,  having  no  connection  with  an  automo- 
bile except  the  necessary  coupling  when  drawn  bv  it,  is  not  subject  to  tax.  (T.  D. 
2719;  Art.  X.) 

Single  sale  by  dealer  of  tractor  and  trailer  bought  by  him  together  tax  i)ai(l,  and 
an  extra  trailer  is  not  taxable  unless  combination  of  the  three  vehicles  (othervdse 
than  merely  by  coupling)  forms  a  functioning  vehicle.     (T.  D.  2795;  Feb.  20,  1919.) 

Truck  units. 

So-called  truck  units,  intended  to  be  attached  to  pleasure  car  chassis  so  as  to  con- 
vert them  into  trucks,  are  not  taxable  when  sold  separately;  if  sold  in  combination 
with  a  new  chassis,  however,  tax  is  imposed  upon  price  of  complete  truck.  (T.  D. 
2719;  Art.  X.) 


236  EXCISE    TAXES. 

Automobiles — Oontiinied. 

TJsed  or  second-hand  automobiles. 

r.s'pd  or  8crond-hand  automobilcH  are  not  subject  to  tax  imposed  by  section  600 
(ai  of  the  a<t  of  October  3,  1917.     (T.  D.  2719;  Art.  X.) 

Basis  of  tax. 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  is  on  sale  of  articles 
<Mniraerated  or  in  case  of  positive  moving-picture  films  on  their  sale  .or  lease  by 
manufacturer.     (T.  D.  2719;  Art.  III.) 

Tax  imposed  by  section  GOO  of  the  act  of  October  3,  1917,  is  measured  by  price 
for  which  article  is  sold,  except  in  case  of  moving-picture  films;  it  is  on  actual  sales 
])rice  and  not  on  list  price,  where  that  differs  from  the  sales  price;  if  price  of  article 
is  increased  to  cover  tax,  tax  is  on  such  increased  price.     (T.  I).  2719;  Art.  III.) 

Commissions  to  agents  and  other  expenses  of  sale  are  not  deductible  from  the 
price.     (T.  D.  2719;  Art.  III.) 

A  discount  for  cash  or  other  discount  made  subseciueutly  to  the  sale  can  not  be 
deducted  in  computing  price  for  purpose  of  tax.     (T.  D.  2719;  Art.  III.) 

If  articles  are  sold  at  factory  and  freight  charges  to  point  of  delivery  are  paid  by 
buyer  as  specific  item,  or  if  they  are  sold  delivered  at  sum  less  freight  charges 
to  be  paid  by  purchaser,  such  charges  need  not  be  included  as  part  of  price  of  goods; 
but  if  manufacturer  sells  goods  at  delivered  price  and  himself  pays  the  freight,  he 
may  not  make  anv  deduction  on  account  of  inclusion  in  price  of  freight  charges. 
(T.  D.  2719;  Art.  III.) 

Beverages. 

See  "Beverages." 

Boats — Computation. 

Tax  on  boats  imposed  by  section  603  of  act  October  3,  1917,  becomes  due  on 
1st  day  of  July  in  each  year  (except  as  to  first  payment  due  October  4,  1917), 
or  on  pnrcliasing  new  boat  if  on  any  other  date  than  Jiily  1;  in  former  case  tax 
is  reckoned  for  one  year,  and  in  latter  case  it  is  reckoned  proportionately  from 
first  dav  of  month  in  which  liability  to  tax  commenced  to  1st  day  of  July  follow- 
ing,    (t.  D.  2753;  Aug.  2;3,  1918.) 

■ Date  due. 

Tax  on  boats  imposed  by  section  603  of  act  October  3,  1917,  becomes  due  on 
1st  day  of  July  in  each  year  (except  as  to  first  payment  due  October  4,  1917), 
or  on  purchasing  new  boat  if  on  any  other  date  than  Jiily  1.  (T.  D.  2753;  Aug. 
23,  1918.) 

Definition— "For  trade." 

The  words  "for  trade,"  as  used  in  section  603  of  act  October  3,  1917,  mean  for 
business,  particularly  the  business  of  buying  and  selling,  or  for  commerce.  (T. 
D.  2753;  Aug.  23,  1918.) 

• Demonstrating  purposes. 

Boats  used  by  marine  engine  manufacturer  in  transporting  salesmen  on  their 
business  trips,  or  in  taking  out  irrespective  customers,  purely  for  demonstrating 
purposes,  are  used  exclusively  for  trade,  and  are  not  subject  to  tax  imposed  by 
section  603  of  act  October  3,  1917.     (T.  D.  2753;  Aug.  23,  1918.) 

^- —  Excursion  boats. 

Imposition  of  transportation  tax  for  peisous  transported  by  boat  is  not  conclusive 
that  boat  is  used  for  trade;  if  boat  is  used  to  carry  freight  for  hire,  it  is  not  subject 
to  tax  imposed  by  section  603  of  act  October  3,  1917,  but  if  used  to  carry  passengers, 
distinction  is  between  its  operation  in  general  commerce,  as  from  New  York  to 
Boston,  and  its  operation  for  plainly  pleasure  purposes,  as  from  New  York  to  Coney 
Island ;  boats  cariving  pleasure  excursions  to  fishing  grounds  or  resorts  are  therefore 
taxable.     (T.  I).  2753;  Aug.  23,  1918.) 

■ Exemptions. 

All  boats  of  specified  classes  (other  than  boats  iised  exclusively  for  national 

defense  or  built  according  to  plans  and  specifications  approved  by  the  Navy 
-  Department)  are  taxed,  unless  they  are  used  exclusively  for  trade.     (T.  D.  2753; 

Aug.  23,  1918.) 


EXCISE   TAXES.  237 

Boats — roBtinued. 

— ■ —  Foreign  registry. 

Boats  used  in  llie  Uiiitod  States  or  navigating  United  States  waters  are  subject 

to  tax  imposed  by  section  C03  of  act  October  3,  1917,  although  of  foreign  register. 

(T.  I).  2753;  Aug.  23,  1018.) 

• Market  produce. 

Boats  used  to  carry  produce  to  market  are  used  exclusively  for  trade  and  are 
not  subject  to  tax  imposed  by  section  003  of  act  October  3,  1917.  (T.  1).  2753; 
Aug.  23,  1918.) 

Nonresident  alien  owners. 

Boats  used  in  United  States  or  navigating  United  States  waters  are  subject  to 
tax  imposed  by  section  603  of  act  October  3,  1917,  although  owned  by  nonresident 
aliens.     (T.  D.  2753;  Aug.  23,  1918.) 

■ Payment. 

Person  who  has  paid  no  tax  at  regular  time  by  reason  of  intention  not  to  use  a 
boat,  and  later  decides  to  use  it,  shall  pay  full  tax  without  penalty  or  interest 
before  using  tlie  boat,  but  owner  not  paying  on  time  the  tax  tipon  boat  which 
he  actually  intended  to  we  sliall  be  liable  for  full  penalties.  (T.  D.  2753;  Aug. 
23,  J918.) 

The  tax  on  boats  imposed  by  section  603  of  act  October  3,  1917,  went  into  effect 
on  October  4,  1917,  and  is  to  ])e  paid  annually  in  advance.  (T.  D.  2753;  Aug. 
23,  1918.) 

Physicians. 

Boat  used  by  physician  in  visiting  patients  is  not  used  for  trade,  but  for  other 
serious  purpose,  and  is  subject  to  tax  imposed  by  section  603  of  act  October  3,  1917. 
(T.  D.  2753;  Aug.  23,  1918.) 

Pleasure  boats. 

l^oats  operated  for  profit  to  carry  passengers  on  pleasure  trips  to  and  from  certain 
fishing  grounds,  is  not  used  for  trade,  but  for  pleasiu-e  purposes,  and  is  subject  to 
tax  imposed  by  section  603  of  act  October  3,  1917.     (T.  1).  2753;  Aug.  23,  1918.) 

Boats  used  for  pleasure,  whether  of  the  owner  or  of  paying  patrons,  or  for  .serious 
activities  not  constituting  trade,  are  subject  to  tax  imposed  by  section  603  of  act 
October  3,  1917.     (T.  D.  2753;  Aug.  23,  1918.) 

Motor  boats  operated  by  a  company  engaged  in  the  business  of  taking  parties  on 
trips  to  enjoy  the  trip  and  the  S(  enery  are  not  used  exclusively  for  trade  and  their 
use  is  subject  to  the  excise  tax  on  boats.     (T.  D.  2785;  Jan.  23,  1919.) 

• Receipts. 

Taxpayer  must  keep  tax  receipt  about  boat  when  in  use  available  for  examina- 
tion by  ■Government  officers.     (T.  D.  2753;  Aug.   23,   1918.) 

— —  Returns — Tirae. 

Taxpayers  must  render  returns  on  Form  732  to  collector  at  such  times  within 
calendar' month  in  Avhich  tax  liability  commenced  as  shall  enable  him  to  receive 
such  returns  duly  signed  and  verified  not  later  than  last  day  of  the  month.  (T. 
D.  2753;  Aug.  23,  1918.) 

Towage. 

Boats  used  in  towing  disabled  boats  and  furnishing  repair  service  to  customers 
are  used  exclusively  for  trade,  and  are  not  subject  to  tax  imijoscd  by  section  603 
of  act  October  3,  1917.     (T.  D.  2753;  Aug.  23,  1918.) 

• Use  as  determining  taxability. 

Boat  not  used  or  intended  to  be  used  between  July  1,  1918,  and  June  30,  1919,  is 
not  subject  to  tax  imposed  by  section  603  of  act  October  3,  1917,  but  if  used  or 
intended  to  be  used  in  such  period  tax  was  payable  on  July  1,  1918,  for  full  year 
ending  June  30,  1919;  if  on  July  1  of  any  year,  or  on  day  of  purchase  if  on  another 
date  owner  of  boat  intends  to  use  it  before  the  following  Julv  1,  or  if  he  does  use  it 
before  the  July  1  following,  tax  attaches.     (T.  D.  2753;  Aug."  23,  1918.) 


238  EXCISE    TAXES. 

Boats — Continued. 

— —  Use  as  determining  taxability — Continued. 

All  boats  of  tbe  specified  classes  (other  than  boats  used  exclusively  for  national 
defense  or  built  according  to  plans  and  specifications  approved  by  the  Navy  De- 
partment) are  taxed,  unless  they  are  used  exclusively  for  trade;  boats  used  for 
pleasure,  whether  of  the  owner  or  of  paying  patrons,  or  for  serious  activities  not 
constituting  trade,  are  subject  to  tax;  it  is  the  actual  use  of  the  boat  which  is 
controlling,  regardless  of  whether  or  not  the  owner  himself  uses  it  or  hii-es  it  out 
for  profit.     (T.  D.  2753;  Aug.  23,  1918.) 

If  boat  is  employed  for  several  purposes  its  use  is  to  be  taxed,  even  though  one 
of  them  is  in  trade;  casual  employment  at  irregular  intervals  for  convenience  of 
owner  or  his  family,  however,  not  exceeding  such  casual  employment  as  is  usual 
for  boats  maintained  or  employed  in  trade,  will  not  cause  tax  to  attach  to  boat  which 
is  entij'ely  devoted  to  trade  except  for  such  limited  casual  use;  boats  used  by 
owners  in  their  oyster,  fishing,  or  crabbing  business,  wMch  are  occasionally  used  to 
convey  members  of  the  family  to  market  or  other  places,  upon  trips  for  personal  or 
household  purposes,  are  not  subject  to  the  tax.     (T.  D.  2753;  Aug.  23,  1918.) 

Imposition  of  transportation  tax  for  persons  transported  by  Isoat  is  not  conclusi^'o 
that  boat  is  used  for  trade;  if  boat  is  used  to  carry  freight  for  hire,  it  is  not  subject 
to  tax  imposed  by  section  603  of  act  October  3,  19i7,  but  if  used  to  carr>-  passengers, 
distinction  is  between  its  operation  in  general  commerce,  as  from  New  York  to 
Boston,  and  its  operation  for  plainly  pleasure  iiurposes,  as  from  New  York  to  Coney 
Island;  boats  carrying  pleasure  excursions  to  fishing  grounds  or  resorts  are  therefore 
taxable.     (T.  D.  2753;  Aug.  23,  1918.) 

Motor  boat  operated  solely  in  taking  out  fishing  parties  for  hire  is  subject  to  excise 
tax  on  boats  although  it  is  licensed  in  the  coasting  trade,  and  transioortation  tax  is 
collected  from  passengers.     (T.  D.  2795;  Feb.  26,  1919.) 

Y.  M.  C.  A. 

Boat  used  by  Y.  J^.I.  C.  A.  in  transporting  its  religious  workers  and  othess  is  not 
used  for  trade,  but  for  other  serious  purpose*-  and  is  subject  to  tax  imposed  by 
section  603  of  act  October  3,  1917.     (T.  D.  2753;  Aug.  23,  1918.) 

Boric  acid. 

Boric  acid  when  sold  under  a  trade-mark  a.«  a  medicinal  preparation  is  taxable 
under  section  GOO  (h)  of  act  of  October  3.  1917.     (T.  D.  2719;  Art.  XXII.) 

Bottlers. 

\Vliere  goods  partly  manufactured  by  one  person  are  further  manufactured  by 
another  before  being  maj'ketod  to  consumers  for  use,  latter  is  manufacturer  for 
purpose  of  tax  imposed  by  section  600  of  the  act  of  October  3,  1917;  this  applies  to 
bulk  goods  that  require  to  be  bottled  or  otherwise  prepared  in  order  to  put  them 
into  salable  condition.     (T.  D.  2719;  Art.  II.) 

A  person  who  bottles  or  otherwise  prepai-es  an  article,  and  merely  for  advertising 
purposes  places  on  such  article  the  name  of  anj"  dealer  who  may  handle  it,  shall  be 
deemed  manufacturer  if  names  of  both  persons  appear,  but  if  only  the  dealer's  name 
appears  he  shall  be  deemed  the  manufacturer.     (T.  D.  2719;  Art.  XXI.) 

Cameras. 

The  tax  imposed  by  section  600  (j)  of  the  act  of  Octobe*  3, 1917,  is  3  per  cent  of  the 
price  for  which  cameras  are  .sold  by  the  manufacturer;  process  and  motion-picture 
cameras  are  subject  to  the  tax;  a  camera  sold  without  the  lens  is  taxable,  but  not  a 
lens  sold  separately;  tov  cameras  are  taxable  if  capable  of  taking  a  picture.  (T.  D. 
2719;  Art.  XXV.) " 

Capital  stock  tax. 

See  '-Capital  Stock  Tax." 

Chew^ing  gum.. 

The  tax  imposed  by  section  COO  (i)  of  the  act  of  October  3,  1917,  is  2  per  cent  of  tlie 
price  for  which  chewing  gum  or  anv  substitute  therefor  is  sold  bv  the  manufacturer; 
substitutes  include  imitations  designed  to  take  the  place  of  chewing  gum;  when 
chi-iwing  gum  is  covered  with  candv  or  otherwise  combined  with  another^substanco, 
the  tax  IS  on  the  whole  article,     (t.  D.  2719;  Art.  XXIV.) 


EXCISE   TAXES.  239 

Claims  for  abatement,  refund,  or  credit. 

Affidavit  contaiuiiig  itemized  list  of  articles  told  in  foreign  commerce  upon  which 
tax  has  been  j^aid,  giving  names  of  consignees,  destination,  amount  of  tax,  month  in 
which  paid,  and  statement  that  goods  were  actually  delivered  to  consignee  named 
in  a  foreign  country  or  the  Philippine  Islands  or  Porto  Pvico,  pursuant  to  sale  by 
claimant  by  one  of  the  methods  recognized  in  T.  I).  27S1,  and  that  affiant  has 
received  ad\'ice  to  the  effect,  may  be  accepted  as  satisfadory  evidence  in  support  of 
claim  for  recovery  back  of  excise  taxes  paid  under  Title  YL  of  the  act  of  October  3, 
1917,  in  cases  where  because  of  number  of  shipments  and  small  amount  of  tax 
involved  in  each  it  is  impracticable  to  furnish  copies  of  invoices  covering  goods  sold, 
ship's  receipts,  or  co,pies  of  through  bill?  of  lading.     (T.  D.  2785;  Jan.  23,  1919.) 

Since  Revised  Statutes,  section  3464,  only  extends  the  exemption  to  cases  covered 
by  the  regulations,  if  such  regulations  are  not  complied  with  and  goods  for  Govern- 
ment use  are  delivered  without  regard  thei'eto,  the  tax  must  be  ])aid,  and  having 
been  paid,  can  not  be  refunded.     (T.  1).  2785;  Jan.  23,  1919.) 

Statement  of  classes  of  claims  for  refund  or  abatement  of  sales  taxes  or  penalties 
which  may  be  made  by  collectors  on  Form  751  or  blanket  Form  47  where  claim  has 
not  been  tiled  by  individual  taxpayers;  these  claims  must  be  submitted  by  the  col- 
lector in  triplicate,  and  notation  showing  reason  for  refund  or  abatement  made 
opposite  each  taxpayer's  name  on  such  claims  or  at  head  of  each  group  of  names  to 
which  the  same  reason  applies;  claims  for  refund  or  abatement  of  sales  taxes  or 
penalties  other  than  those  specified  herein  must  be  made  by  individual  taxpayer  on 
Form  46  or  Form  47,  respectively,  except  in  specific  inslanc(>s  where  the  collector 
may  be  given  authority  by  the  department  to  use  Form  751  or  l^lanket  Form  47. 
(T.  D.  2991;  Mar.  13,  1920.) 

Statement  of  classes  of  claims  for  credit  of  sales  taxes  or  jjenalties  and  interest 
which  may  be  made  by  collectors  on  subsequent  return  where  claim  for  refund  or 
abatement  has  not  been  filed  by  individual  taxpayer.     (T.  D.  3016;  May  3,  1920.) 

Claims  for  refund  or  abatement  of  sales  taxes  or  penalties  and  interest  other  than 
those  specified  in  this  Treasury  Decision  must  be  made  by  individual  taxpayer  on 
Form  46  or  47,  respectively,  except  in  specific  instances  where  collector  may  be 
given  authority  by  the  Bureau  to  use  Form  751  or  blanket  Form  47.  (T.  I).  3016; 
May  3,  1920.) 

Penalties  of  5  per  cent  erroneously  assessed  under  Revenue  Act  of  1917  on  sales 
taxes  in  cases  where  formal  demand  in  writing  on  Form  1-17  waa  not  made  on  tax- 
payer should  be  refunded  en  Form  751  if  collected,  or  abated  on  blanket  Form  47 
if  not  collected;  all  claims  en  these  forms  must  ])e  submitted  by  collector  in  triplicate, 
and  notation  showing  reason  for  abatement  (1)  opposite  each  taxpayer's  name  on 
such  claims,  or  (2)  at  head  of  each  group  of  names  to  which  same  reason  applies. 
(T.  D.  3016;  May  3,  1920.) 

Computation. 

In  computing  tax  a  fractional  part  of  a  cent  should  be  disregarded  unless  it  amounts 
to  one-half  cent  or  more,  in  which  case  it  should  be  increased  to  a  full  cent.  (T.  D. 
2719;  Art.  XXXIX.) 

Corporations. 

See  ' '  Corporations. ' ' 

*  'Day  this  act  is  passed. ' ' 

The  words  "on  the  day  this  act  is  passed, "  used  in  section  G02  of  act  of  October 
3,1917,  construed  in  connection  with  section  1302  to  mean  dav  law  becomes  effective, 
that  is,  October  4,  1917.     (T.  D.  2570;  Nov.  6,  1917.) 

Dictagraphs. 

Dictagraphs  are  not  subject  to  the  tax  imposed  by  section  600  (b)  of  the  act  of 
October  3,  1917.     (T.  D.  2719;  Art.  XI.) 

Dictaphones. 

Dictaphones  are  not  subject  to  the  tax  imposed  by  section  600  (b)  of  the  act  oi 
October  3,  1917.     (T.  D.  2719;  Art.  XI.) 


240  EXCISE   TAXES. 

Discounts. 

In  comjiuting  price  at  which  goods  are  sold  trade  discounts  may  be  deducted 
from  list  ])rice  for  purpose  of  ascertaining  tax,  as  amount  of  tax  is  deterrnined  by 
price  at  which  goods  are  actually  sold  by  the  manufacturer,  producer,  or  importer. 
(T.D.  2547;  Oct.  22, 1917.) 

A  discount  for  cash  or  other  discount  made  subsequently  to  sale  can  not  be  de- 
ducted in  computing  price  for  purpose  of  tax  imposed  by  section  600  of  the  act  of 
October  3,  1917.     (T.  I).  2719;  Art.  III.) 

Distilled  spirits. 

See  "Distilled  Spirits." 

Distributors'  sales. 

See  "Agency  sales,"  ante. 

Exports. 

Taxes  imposed  by  sections  313,  315,  and  600  of  the  act  of  October  8,  1917,  do  not 
apply  to  articles  sold  in  foreign  commerce  by  any  of  the  methods  outlined  by  manu- 
facturer, producer,  or  importer  located  in  one  of  the  several  States  of  the  United 
States;  this  ruling  applies  only  to  cases  of  exportation  by  manufacturer  making  the 
sale  on  which  but  for  the  exportation  he  would  be  liable  for  the  tax,  the  tax  there- 
fore applying  to  articles  sold  for  domestic  delivery,  but  exported  by  or  at  the  in- 
stance of  the  buyer;  T.  D.  2739  revoked.     (T.  D.  2781;  Dec.  20,  1918.) 

Taxes  imposed  by  .such  sections  313.  315,  and  GOO  of  the  act  of  October  3.  1917, 
apply,  however,  to  articles  sold  in  foreign  commerce  by  manufacturer  located  in  a 
Territory  elsewhere  in  the  United  States  than  a  State  and  to  articles  going  from 
United  States  to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone, 
except  that  under  acts  of  Congress  articles  going  from  United  States  into  the  West 
Indian  Islands,  or  into  the  Philippine  Islands  or  Porto  Rico,  are  exempt  to  same 
extent  as  articles  exported  from  a  State  to  a  foreign  country.  (T.  D.  2781;  Dec.  20, 
1918.) 

Sale  to  concern  doing  business  in  United  States  is  sale  for  domestic  delivery 
unless  terms  of  order  or  contract  of  sale  show  the  seller  is  to  export  article  or  that  he 
is  to  make  such  delivery  of  it  as  will  result  in  its  exportation.  Examples  of  sale  by 
manufacturer  which  are  so  taxable,  notwithstanding  ultimate  exportation  of  articles 
sold,  are:  (1)  Sale  to  dealer  in  United  States,  effected  by  compliance  with  his 
shipping  instructions  to  export,  given  subsequent  to  contract  of  sale  which  did  not 
require  shipment;  (2)  sale  to  export  commission  house  in  United  States,  which  is 
effected  by  shipment  consigned  to  commission  house  at  domestic  port  and  which 
is  followed  by  immediate  exportation  to  foreign  buyer  in  whose  behalf  purchase 
was  made;  (3)  sale  to  corporation  in  United  States  which  immediately  exports  to 
foreign  concern  of  which  it  is  a  subsidiary;  (4)  sale  to  member  of  foreign  partnership 
conducting  buying  biisiness  in  United  States  for  his  firm  and  exporting  articles 
bought.  In  such  cases  application  of  tax  is  not  affected  by  provision  in  contract 
of  sale  requiring  buyer  to  use  or  dispose  of  articles  sold  only  in  some  foreign  country. 
(T.  D.  2781;  Dec.  20,  1918.) 

Articles  may  be  normally  exported  in  several  ways:  (1)  They  may  be  shipped 
by  the  manufacturer  to  agent  in  foreign  countiy  and  after  reaching  there  may  be 
sold  bj'  the  agent;  (2)  they  may  be  shipped  by  manufacturer  to  foreign  purchaser 
to  fill  orders  receiA^ed  by  agent  in  foreign  country;  (3)  they  may  be  shipped  by 
manufacturer  to  foreign  purchaser  to  fill  orders  received  by  manufacturer  in  United 
States;  (4)  they  may  be  shipped  by  manufacturer  to  foreign  purchaser  to  fill  orders 
solicited  by  mail  and  received  by  mail  from  foreign  purchaser;  T.  D.  2739  sviper- 
eeded.     (T.  D.  2781;  Dec.  20,  1918.) 

Food  preparations. 

Food  preparations  as  distinguished  from  medicinal  preparations  are  not  taxable 
under  section  600  (hj  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXII.) 

Games. 

See  '  'Sporting  goods  and  games, ' '  post, 
Graphopnones. 

The  tax  imposed  by  section  600  (b)  of  the  act  of  October  3,  1917,  is  3  per  cent  of 
the  price  for  which  graphophone  and  records  used  in  connection  therewith  are  sold 
by  the  manufacturer;  accessories  are  not  taxable  unless  sold  in  combination.  (T.  D. 
2719;  Art.  XI.) 


EXCISE   TAXES.  241 

Importer — Definition. 

An  "importer,"  within  Regulations  Xo.  44,  is  a  person  who  causes  an  article  to 
be  brought  into  the  I'nited  States  from  a  foreign  country;  a  retailer  may  be  also  an 
importer.     (T.  D.  2719;  Art.  II.) 

Income  taxes — Deductions. 

Excise  taxes  may  be  deducted  either  as  taxes  or  items  of  expense,  but  not  under 
both  heads.     (T.  D.  2G90;  art.  8.) 

Banks  paying  taxes  assessed  against  stockholders  on  account  of  ownership  of 
shares  of  stock  issued  by  such  bank  can  not  deduct  amount  of  taxes  so  paid  unless 
and  to  extent  that  laws  of  State  in  which  they  do  business  by  specific  terms  make 
tax  direct  liability  of  such  banks;  fact  that  State  laws  make  it  duty  of  Ijanks  to  pay 
tax  does  not  necessiirily  make  tax  a  liability  of  the  banks,  and  such  payments  are 
not  deductible  from  gross  income  of  such  banks;  rule  applies  only  to  taxes  levied 
upon  value  of  capital  stock  and  is  not  intended  to  prevent  bank  from  deducting 
any  State  tax  imposed  on  value  of  corporation's  real  estate,  furniture,  and  fixtures, 
or  as  an  excise  or  franchise  tax ;  rule  applies  in  case  of  corporations  other  than  banks, 
upon  value  of  whose  stock  taxes  are  assessed  to  the  stockholders.  (T.  D.  2G90; 
art.  192.) 

Inspection  of  books. 

Books  of  every  person  liable  to  tax  shall  be  open  at  all  times  for  inspection  by 
examining  internal  revenue  officers.     (T.  D.  2719;  Art.  XXVI.) 

Insurance. 

See  "Insmance." 

Itinerant  manufactiuers. 

Itinerant  manufacturer  should  make  return  and  pay  tax  to  collector  of  district 
where  sales  are  made.     (T.  D.  2719;  Art.  XXVI.) 

Jewelry. 

Tax  imposed  by  section  600  (e)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  the 
price  for  which  any  article  commonly  or  commercially  known  as  jewehy,  whether 
real  or  imitation,  is  sold  by  the  manufacturer;  all  articles,  among  others,  which 
have  been  specifically  classified  as  jewelry  by  the  Board  of  United  States  General 
Appraisers  deemed  to  be  jewelry;  jewelry  includes  ornaments  made  of  gold,  silver, 
or  platinum,  or  any  imitations  thereof,  and  precious  or  semiprecious  stones  or  imi- 
tations thereof,  used  for  personal  adornment;  an  article  may  be  jewelry  although 
serving  a  useful  as  well  as  ornamental  purpose;  rulings  as  to  watches,  silver  table- 
ware, opera  glasses,  clocks,  precious  stones,  vanity  boxes,  garters,  suspenders, 
emblem  buttons,    etc.     (T.  D.  2719;  Arts.  XIII-XVI.) 

The  presence  of  a  ring  or  loop  by  which  a  pencil  made  or  plated  with  precious 
metal  may  be  hung  on  a  chain  indicates  that  such  pencil  was  designed  for  personal 
adornment  and  requires  it  to  be  classified  as  jewelry  for  purposes  of  excise  tax  on 
sales.     (T.  D.  2785;  Jan.  23,  1919.) 

Liberty  bonds — Exemptions. 

Corporation  owning  Liberty  bonds  is  not,  to  that  extent,  exempt  from  franchise 
taxes,  excise  taxes,  and  other  corporation  taxes  of  the  United  States,  and  of  tb« 
several  States,     (T.  D.  2512;  June  8,  1917.) 

Licorice. 

Licorice  put  up  in  sticks,  lozenge rs,  or  in  other  forms  suitable  for  medicinal  pur- 
poses and  sold  under  a  trade-mark  is  subject  to  the  tax  imposed  by  section  600  (h) 
of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXII.) 

Manufacturer — Definition. 

A  "manufacturer"  within  Regulations  No.  44,  relating  to  war  excise  taxes,  is  a 
person  who  prepares  an  article  in  final  marketable  form  and  sells  or  markets  it;  if 
goods  partly  manufactured  by  one  person  are  further  manufactured  by  another 
before  being  marketed  to  consumers  for  use,  latter  is  manufacturer  for  purpose  of  tax; 
a  retailer  may  be  also  a  manufacturer.     (T.  D.  2719;  Art.  II.; 

70420°— 21 16 


242  EXCISE    TAXES. 

Manufacturer — Continued. 

— —  Hsimburaement. 

The  "passing  on"  to  the  purchaser  of  the  excise  tax  on  sales  is  not  a  collection 
of  the  tax  for  the  Government  but  a  private  transaction  between  the  manufacturer 
and  the  purchaser;  the  department  can  not  undertake  to  advise  the  manufacturer 
as  to  the  method  of  securing  reimbursement,  the  only  interest  of  the  Government 
being  that  the  amount  of  tax  shall  not  be  misrepresented  to  the  purchaser.  (T.  D. 
2785;  Jan.  23,  1919.) 

Medicinal  preparations — Articles  included. 

The  word  "medicinal'  *  is  applicable  to  any  substance  adapted  to  euro  or  allevi- 
ate disease  or  pain;  accordingly,  a  medicinal  preparation  is  a  preparation  of  any 
substance  Avhatever  intended  to  be  applied  for  the  cure  or  mitigation  of  pain  or 
disease;  many  articles  or  substances  which  are  not  usually  considered  as  Ijclonging 
to  material  medica  may  become  taxable  medicinal  preparations  by  being  held  out 
or  advertised  as  remedies  for  diseases  affecting  the  human  or  animal  body.  (T.  D. 
2719;  Art.  XXII.) 

• ''Keld  out  or  recommended.' ' 

"Held  out  or  recommended,' '  as  used  in  section  600  (h)  of  the  act  of  October  3, 
1917,  includes  representation  by  any  means,  personal  canvass  and  statements  on 
the  labels,  in  pamphlets,  or  advertisements,  or  otherwise;  a  holding  out  or  recom- 
mendation intended  for  physicians  only  is  a  holding  out  to  the  public.  (T.  D.  2719; 
Art.  XXI.) 

Medicinal  preparation-  held  out  or  recommended  as  proprietary  or  as  a  remedy 
or  specific  for  disease  is  taxable,  (a)  even  if  sold,  in  first  instance,  only  to  physicians 
and  druggists,  (b)  even  if  a  "bacterin,"  and  (c)  even  if  an  uncompounded  natural 
substance  merely  dried  or  refined.     (T.  D.  2785;  Jan.  23,  1919.) 

Name,  initials,  or  monogram  of  manufacturer  printed  on  label  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  amounts 
to  a  holding  out  of  that  preparation  as  proprietary.     (T.  D.  2785;  Jan.  23,  1919.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  otlier.  manufacturers,  amounts  to  a  holding  out  of  that 
preparation  as  proprietarj'.     (T.  D.  2785;  Jan.  23,  1919.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  across  middle 
of  label  does  not  amount  to  a  holding  out  of  that  preparation  as  proprietary.  (T.  D. 
2785;  Jan.  23,  1919.; 

■ Manner  in  which,  prepared,  etc. 

Tax  applies  to  medicinal  preparation  held  out  by  producer  to  the  public  ao  a 
proprietary  medicine  or  as  a  remedy  for  disease,  although  it  is  prepared  by  a  pro- 
cess which  merely  refines  a  natural  substance.     (T.  D.  2719;  Art.  XXII.) 

To.xability  of  medicinal  preparation  under  section  600  (h)  of  the  act  of  October 
3,  1917,  is  determined  by  the  maniier  in  which  it  is  prepared  or  the  way  in  which  it 
is  put  upon  the  market;  if  article  is  advertised  under  name  or  trade-mark  of  manu- 
facturer, or  any  name  in  possessive  case  is  used  on  label  or  on  literature  describing 
medicinal  preparation,  or  name  of  manufacturer  is  made  part  or  name  or  title,  or 
any  intimation  is  otherwise  given  that  article  is  of  distinctive  origin,  tax  is  imposed; 
where  medicinal  preparations  are  sold  under  what  appears  to  be  or  what  is  intended 
to  be  a  trade-mark  appropriated  to  the  article,  the  tax  attaches,  (T.  D.  2719;  Art. 
XXII.) 

• Manufacturer, 

Person  manufacturing  preparation  under  his  owti  formula  and  offering  it  for  sale 
imder  his  own  private  label  or  trade-mark  is  liable  for  tax;  manufacturer  who  also 
bottlesand  otherwise  prepares  his  preparation  into  a  salable  condition,  and  who,  for 
advertising  puri-)oses  only,  places  name  on  label  of  any  dealer  who  may  handle  such 
preparation,  is  liable  for  the  tax;  where  manufacturer  prepares  article  according  to 
formula  and  at  instance  of  a  dealer,  and  also  bottles,  labels,  and  otherwise  prepares 
same  into  salable  condition,  even  though  name  of  dealer  only  appears  upon  product, 
manufacturer  and  not  dealer  is  responsible  for  tax;  where'goods  manufactured  by 
person  require  further  manufacture  before  being  used  by  consumer,  one  complet- 
ing manufacture  is  liable  for  tax,  therefore  person  preparing  goods  into  smaller 
packages,  labeling,  and  bottlino;  them,  is  manufacturer  within  meaning  of  para- 
graphs (g)  and  (h;  of  section  600  of  act  of  October  3,  1917.  (T.  D.  2638;  Jan.  24, 
1918.)  ^ 


EXCISE   TAXES.  243 

Medicinal  preparations — Continued . 
Manufacturer — Continiiod. 

A  person  who  bottles  or  otlierwise  prepares  an  ai'licle,  and  merely  for  adv'ertisino; 
purposes  places  ou  such  article  the  name  of  any  ^eaier  who  may  handle  it,  shall  be 
deemed  manufacturer  if  names  of  both  j^ersous  appear,  l)ut  if  only  the  dealer's  name 
appears  he  shall  be  deemed  the  raanulacturer.     (T.  D.  2719;  Art.  XXI.) 

Within  the  meaning  of  section  GOO  (h)  of  the  act  of  October  3,  1917,  a  manufac- 
turer or  producer  is  a  person  who  prepares  an  article  or  has  it  prepared  and  sells  it, 
and  who  identities  the  article  by  a  commercial  name,  trade-mark,  or  trade  name, 
or  by  other  moans,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine 
or  a  medicinal  proprietary  article  or  preparation,  or  as  a  remedy  or  specific.  (T.  D. 
2719;  Art.  XXI.) 

Where  the  owner  of  a  formula  contracts  with  a  maufacturer  to  prepare  an  ai'ticle 
according  to  such  formula  and  to  deliver  it  to  him  in  complete,  salable  form,  the 
labels  bearing  the  formula  owner's  name,  he  is  considered  the  manufacturer.  CT. 
D.  2719;  Art.'  XXI.) 

A  person  who  is  employed  to  make  an  article  and  receives  for  it  the  cost  of  mate- 
rials and  labor,  plus  specified  profit,  shall  be  considered  a  manufacturing  agent, 
and  the  person  who  procures  the  preparation  of  the  article  will  be  considered  the 
manufacturer.     (T.  I>.  2719;  Art.  XXI.) 

If  article  or  its  container  has  on  it  both  a  trade-mark  or  trade  name  of  one  manu- 
facturer, and  the  i^di^'idual  or  busine;ss  name  of  another,  the  owner  of  the  trade- 
mark or  trade  name  will  be  deemed  the  manufacturer;  if  the  article  or  its  container 
has  on  both  the  commercial  name  of  the  article  and  an  individual  or  business  name) 
the  latter  will  be  deemed  to  designate  the  manufacturer.     (T.  D.  2719;    Art.  XXI., 

Where  sirups  or  extracts  taxable  under  section  313  (a)  of  the  act  of  October  3, 
1917,  are  prepared  in  final  marketable  form  by  A,  who  marks  or  labels  them  only 
with  the  name  or  trade-mark  of  B,  who  on  theii"  being  delivered  to  him  sells  them 
without  further  manufacture  to  liis  own  custoniers.  if  transaction  between  A  and  B 
is  an  actual  sale  and  not  merely  employment  of  A  by  B  to  manufacture  the  articles 
as  his  agent  at  a  specified  profit.  A  is  the  "manufacturer"  who  is  liable  for  the  tax; 
article  2  of  Regulations  No.  44  can  not  be  construed  as  adopting  any  of  the  pro- 
visions of  article  21.     (T.  D.  2795;  Feb..  26,  1919.) 

Printing  on  labels,  etc. 

Printing  on  labels  the  directions  and  indications  for  use,  dosage  and  other  similar 
matter,  will  not  alone  render  preparations  made  under  a  standard  formula  taxable, 
provided  preparation  is  not  held  out  or  recommended  as  a  proprietary  preparation 
or  as  a  remedy  or  specific;  where  medicinal  preparations  are  sold  under  labels 
which  do  not  indicate  that  the  formula  is  published  they  will  be  considered  to  be 
prepared  under  private  formulas,  unless  proof  is  submitted  that  the  formula  is  not 
secret.     (T.  D.  2719;  Art.  XXII.) 

Kate  of  tax. 

Tax  imposed  by  section  600  (h)  of  the  act  of  October  3,  1917,  is  2  per  cent  of  price 
for  which  all  medicinal  prepiaatiaiis.  <ompound3,'  or  compositions  whatsoever  are 
sold  by  the  manufacturer;  provided  that  (1)  the' manufacturer  claims  to  have  any 
private  formula,  secret  or  occult  art  for  making  or  preparing  them;  or  (2)  the  manu- 
facturer has  or  claims  to  have  any  esciusive  right  oi'  title  to  making  or  preparing 
them;  or  (3)  they  are  prepared,  uttered,  vended,  or  exposed  for  sale  under  any  let- 
ters patent  or  trade-mark;  or  (4)  they  are  held  out  or  recom-mended  to  the  public 
by  the  makers,  venders,  or  proprietors  thereof,  either  (a)  as  proprietary  medicines 
or  medicinal  proprietary  articles  or  prejoarations,  or  (b)  as  remedies  or  specifics  for 
any  disease  or  affection  whatever  affecting  the  human  or  animal  body.  (T.  D. 
2719;  Art.  XIX.) 

— ■ —  Seope  of  tax. 

Every  medicinal  preparation,  compoimd.  or  composition  embraced  within  one  or 
more  of  the  subdivisions  in  Article  XIX  of  Regulatious  No.  44  is  subject  to  tax;  if 
article  is  made  or  prei>ared  by  manufacturer  claiming  to  have  private  formula, 
secret  or  occult  art  for  it,  it  is  taxable  even  though  it  is  not  pre}>ared,  uttered,  vended, 
or  exposed  for  sale  under  any  letters  patent  or  trade-mark,  and  it  is  not  held  out  or 
recommended  to  public  as  proprietary  medicine  or  medicinal  proprietary  article 
or  preparation  eras  a  remedv  or  s]>ecific  for  anv  disease  or  affection  of  the  himian  or 
animal  body.     (T.  D.  2719; "Art.  XX.) 

Prepai'ations  made  in  accordance  with  formulas  contained  in  United  States  Phar- 
macopoeia and  National  Formulary  by  pharmaceutical  manufacturers,  when  not 


244  EXCISE   TAXES. 

Medicinal  preparations— Continued. 

Scope  of  tax — Continued. 

held  out  or  recommended  as  proprietary  medicines  or  medicinal  proprietary  articles 
or  preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  but  if  so  held  out 
or  recommended  thev  are  taxable  although  not  identified  by  any  name,  trade-mark, 
or  otherwise.     (T.  J)'.  2719;  Art.  XX.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  across 
middle  of  label  is  not  a  "trade-mark"  under  section  600  (h)  of  the  act  of  October  3, 
1917.     (T.  D.  2785;  Jan.  23,  3919.) 

Name,  initials,  or  monogram  of  manufacturer  printed  on  label  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  is  not  of 
itself  a  "trade-mark"  under  section  600  (h)  of  the  act  of  October  3,  1917.  (T.  D. 
2785;  Jan.  23,  1919.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  other  manufacturers,  is  a  "trade-mark"  under  section 
600  (h)  of  the  act  of  October  3,  1917.     (T.  D.  2785;  Jan.  23,  1919.) 

Waters  exempted. 

Artificial  mineral  waters,  not  carbonated,  sold  by  manufacturer,  producer,  or  im- 
porter, in  bottles  or  other  closed  containers,  carbonated  waters  manufactured  and  sold 
by  the  manufacturer,  producer,  or  importer  of  the  carbonic  acid  gas  used  in  carbon- 
ating  the  same,  and  natural  mineral  waters  and  table  waters  sold  by  the  producer, 
bottler,  or  importer,  in  bottles  or  other  closed  containers  at  over  10  cents  per  gallon, 
all  of  Vv  hich  are  taxed  under  section  313  of  the  act  of  October  3, 1917,  are  not  subject 
to  tax  under  section  600  (h)  if  intended  for  use  solely  as  beverages.  (T.  D.  2719: 
Art.  XXIII.) 

Motorcycles. 

A  motorcycle  is  a  motor-driven  bicycle.     (T.  D.  2719;  Art.  VIII.) 

Speedometers  and    other  attachments   and    accessories  to  motorcycles  are  not 

taxable  when  sold  separately,  but  they  are  when  sold  as  part  of  a  motorcycle  or  of 

its  equipment,  whether  standard  or  not.     (T.  D.  2719;  Art.  X.) 

Side  cars  for  motorcycles  are  not  taxable  when  sold  separately,  but  they  are  when 

sold  as  part  of  a  motorcvcle,  or  of  its  equipment,  whether  standard  or  not.     (T.  D. 

2719;  Art.  X.) 

Moving-picture  films — Exemptions. 

There  is  no  exemption  from  tax  imposed  by  section  600  of  the  act  of  October  3,  1917, 
in  the  case  of  films  used  exclusively  for  educational,  charitable,  or  religious  purposes. 
(T.  D.  2719;  Art.  XII.) 

• Exhibitor  or  exchange. 

A  foreign  Government  or  a  State,  or  any  political  subdivision  thereof,  buying  or 
leasing  an  article  for  its  own  use  is  not  a  dealer,  nor  in  case  of  moving-picture  films 
is  it  an  exhibitor  or  exchange.     (T.  D.  2719;  Art.  XXXVII.) 

Where  manufacturer  has  prior  to  May  9,  1917,  made  bona-fide  contract  with 
dealer  for  sale  after  tax  takes  effect  of  any  article  upon  which  sales  tax  is  imposed, 
and  such  contract  does  not  permit  adding  of  whole  of  such  tax  to  amount  to  be  paid 
imder  such  contract,  dealer  shall  pay  so  much  of  tax  as  is  not  so  permitted  to  be 
added  to  contract  price;  this  applies  to  contracts  with  dealer,  exchange,  or  ex- 
hibitor for  sale  or  lease  of  moving-picture  films.     (T.  D.  2719;  Art.  XXXVII.) 

• Laboratories. 

Where  a  laboratory  simply  does  the  mechanical  work  of  producing  the  positive 
print,  charging  the  owner  of  the  negative  for  materials  used  and  services  rendered, 
such  laboratory  will  not  be  regarded  as  the  manufacturer  of  the  film;  the  tax  is  upon 
the  sale  or  lease  by  the  owner  of  the  film;  the  laboratory,  however,  shall  keep  a 
record  of  all  such  films  produced  with  name  of  owner  and  length  of  film,  such  record 
to  be  available  for  examination  by  internal  revenue  officers,  and  shall  furnish  monthly 
to  collector  of  district  in  which  it  is  located  a  signed  statement,  giving  such  informa- 
tion.    (T.  D.  2719;  Art.  XII.) 

• Rate  of  tax. 

The  tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  is  one-fourth  of  1  cent 
for  each  linear  foot  of  unexposed  moving-picture  films  sold  by  the  manufacturer  and 
one-half  of  1  cent  for  each  linear  foot  of  positive  moving-picture  films,  containing 
picture  ready  for  projection,  sold  or  leased  by  the  manufacturer.    (T.  D.  2719;  Art. 


EXCISE   TAXES.  245 

Moving-picture  films — Continued. 

Repairs. 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  does  not  apply  to  repairs 

of  positive  films,  but  does  to  the  negative  fihn  used  in  making  such  repairs.     (T.  D. 

2719;  Art.  XII.) 

Sales  or  leases  taxable. 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  applies  to  the  first  sale  or 
lease  of  any  new  positive  moving-picture  films  and  not  to  the  second  or  any  subse- 
quent sale  or  lease.     (T.  D.  2719;  Art.  XII.) 

Tax  imposed  by  section  COO  of  the  act  of  October  3, 1917,  does  not  apply  to  mo\dng- 
picture  films  lea.scd  by  the  manufacturer,  producer,  or  importer  located  in  one  of 
the  several  States  of  the  United  States,  where  such  films  are  exported  by  manufac- 
turer making  the  sale  on  which  l)ut  for  the  exportation  he  would  be  liable  for  the 
tax,  the  tax  therefore  applying  to  articles  sold  for  domestic  delivery,  but  exported 
by  or  at  the  instance  of  the  buyer.     (T.  D.  2781;  Dec.  2Q,  1918.) 

Time  of  sale  or  lease. 

Tax  imposoJ.  by  section  600  of  the  act  of  October  3,  1917.  does  not  attach  to  filmfl 
fust  sold  or  leased  prior  to  October  4,  1917.     (T.  D.  2719;  Art.  XII.) 

Titles  or  subtitles. 

Printed  or  hand-lettered  titles  or  subtitles  used  in  connection  with  a  picture  pro- 
duction constitute  part  of  the  fdm  and  should  be  included  in  the  length  of  the  film 
upon  which  the  tax,  imposed  by  section  600  O''  the  act  of  October  3,  1917,  is  com- 
puted, but  if  such  titles  are  in  the  form  of  separate  slides  or  announcements,  the  tax 
does  not  attach.     (T.  D.  2719;  Art.  XII.) 

Munition  manuf  aetiu'ers. 

See  "Munition  Manufacturers'  Tax." 
Occupations. 

See  "Occupational  Taxes." 
Payment — Collection  of  price. 

Tax  imposed  by  act  of  October  3,  1917,  is  payable  in  respect  of  sale  made  whether 
or  not  purchase  price  is  actually  collected,  but  if  articles  sold  are  returned  and  sale 
entirely  rescinded  no  tax  is  payable,  and  if  paid  it  is  refundable.  (T.  D.  2719;  Art. 
VI.) 

Dealers. 

Where  manufacturer  has,  prior  to  May  9,  1917,  made  bona  fide  contract  with  dealer 
for  sale  after  tax  takes  effect  of  any  article  upon  which  sales  tax  is  imposed,  and  such 
contract  does  not  permit  adding  of  whole  of  such  tax  to  amount  to  be  paid  under  such 
contract,  dealer  shall  pay  so  much  of  tax  as  is  not  so  permitted  to  be  added  to  con- 
tract price;  this  applies  to  contracts  with  dealer,  exchange,  or  exhibitor  for  sale  or 
lease  of  moving-picture  films.     (T.  D.  2719;  Art.  XXXVII.) 

Taxes  payable  by  dealer  must  be  paid  to  manufacturer  at  time  sale  or  lease  is  con- 
sumated,  and  such  manufacturer  shall  collect  amount  of  tax  from  the  dealer  and  pay 
same  to  collector  of  district  in  which  his  principal  office  or  place  of  business  is  locatecl. 
(T.  D.  2719;  Art.  XXXVIII.) 

Section  1007  of  the  act  of  October  3,  1917,  permits  an  adjustment  of  tax  between 
manufacturer  and  dealer,  but  it  does  not  affect  the  liability  of  the  manufacturer  to 
return  and  pay  tax  to  the  Government.     (T.  D.  2719;  Art.  XXXVII.) 

The  term  "dealer"  does  not  refer  to  or  include  a  purchaser  for  his  own  use,  unless 
such  use  is  the  manufacture  or  production  of  another  article  intended  for  sale.  (T. 
D.  2719;  Art.  XXXVII.) 

A  foreign  Government  buying  or  leasing  an  article  for  its  own  use  is  not  a  dealer, 
nor  in  case  of  moving-picture  films  is  it  deemed  an  exhibitor  or  exchange.  (T.  D. 
2719;  Art.  XXXVIL) 

A  State  or  any  political  subdivision  thereof  buying  or  leasing  an  article  for  its  own 
use  is  not  a  dealer,  nor  in  the  case  of  moving-picture  films  is  it  deemed  an  exhibitor 
or  exchange.     (T.  D.  2719;  Art.  XXXVII. 


246  EXCISE    TAXES. 

Pay  m  ent — Cont  inucd . 

Exchange  of  article. 

Where  article  is  sold  aud  thereafter  exchanged  for  another  article  of  a  higher  price 
purchaser  paying  difference,  vendor  should  pay  tax  on  second  sale,  but  niay  take 
credit  for  tax  paid  on  returned  article.     (T.  D.  2719;  Art.  VI.) 

Imports. 

On  articles  manufactured  for  jobber  by  foreign  manufacturer,  jobber  must  pay  tax 
as  importer.     (T.  D.  2719;  Art.  VI.) 

Jobbers. 

On  articles  m.anufactured  for  jobber  by  foreign  manufacturer,  jobber  must  pay  tax 
as  importer.     (T.  D.  2719;  Art.  VI.) 

Manufacturer's  liability. 

Tax  imposed  by  act  of  October  3,  1917,  is  to  be  paid  by  manufacturer  on  all  sales 
made  directly  by  him  or  through  an  agent.     (T.  D.  2719;   Art.  VI.) 

Each  manufacturer  of  articles  enumerated  in  section  GOO  of  the  act  of  October  3, 
1917,  required  to  pay  taxes  imposed  to  collector  for  district  in  which  principal  place 
of  business  is  located ;  tax  should  be  paid  on  or  before  last  day  of  each  month  cover- 
ing transactions  of  preceding  month;  v/here  articles  are  sold  over  period  of  time 
under  agreement  for  quantity  rebate,  tax,  if  originally  computed  on  the  gross  price, 
may  be  adjusted  in  return  for  month  in  which  price  is  finally  determined ;  itinerent 
manufactiurer  should  pay  tax  to  collector  of  district  where  sales  are  made.  (T.  D. 
2719;  Art.  XXVI.) 

■ Receivers. 

A  receiver  continuing  a  business  under  court  order  is  liable  to  tax  on  articles  pro- 
duced and  sold  by  him.     (T.  D.  2719;   Art.  VI.) 

■ Retailers. 

Where  manufacturer  consigns  articles  to  retailer,  retaining  ownership  in  them  until 
they  are  disposed  of  by  the  retailer,  the  manufacturer  must  pay  th.e  tax  on  all  goods 
sold  to  the  retailer,  as  shown  by  reports  to  be  procured  by  him  monthly  from  the 
retailer.     (T.  D.  2719;  Art.  VI.) 

Time. 

Taxes  payable  by  dealer  shaU  be  paid  to  manufacturer  at  time  sale  or  lease  is  con- 
sumatcd;  and  such  manufacturer  shall  collect  amount  of  tax  from  dealer  and  pay 
taxes  so  collected  to  collector  of  district  in  which  his  principal  office  or  place 
of  business  is  located.     (T.  D.  2719;  Art.  XXXVIII.) 

Penalties. 

In  addition  to  penalties  provided  by  section  1004  of  the  act  of  October  3,  1917, 
other  punishment  for  failure  to  comply  with  law  and  regulations  is  prescribed  by 
section  3176  of  the  Revised  Statutes,  as  amended,  and  by  other  sections  of  the  in- 
ternal revenue  laws.     (T.  D.  2719;  Art.  XL.) 

Phonographs,  etc. 

The  tax  imposed  by  section  GOO  (b)  of  the  act  of  October  3, 1917,  is  3  per  cent  of  the 
price  for  which  phonographs  and  records  used  in  connection  therewith  are  sold  by  the 
manufacturer;  accessories  are  not  taxable  unless  sold  in  combination.  (T.  D.  2719; 
Art.  XI.) 

Piano  players,  etc. 

Thetax  imposed  by  section  600  (b)  of  the  act  of  October  3,  1917,  is  3  per  cent  of 
the  price  for  which  the  piano  players  and  records  used  in  connection  therewith  are 
sold  by  the  rnaufacturer;  accessories  to  such  articles  ether  than  records  are  not 
taxable  unless  sold  in  combination  therewith;  a  piano  player  is  a  device  designed  to 
play  a  piano  mechanically  and  may  bo  separate  from  the  piano  or  incorporated  in  it; 
device  and  tlie  piano  together  are  SDmetimes  known  as  a  plaver  piano;  the  tax  is 
upon  the  piano  player  and  not  upon  the  complete  pla\'er  piaiio  unless  the  price  of 
the  player  embodied  in  the  player  piano  can  not  be  separately  determined.  (T.  D. 
2719;  Art.  XI.)  i  ^  v 


EXCISE   TAXES.  247 

Producer — Definition. 

The  term  "producer,"  as  used  in  Regulations  No.  44,  is  a  broader  term  than  "manu- 
facturer," which  is  defined  as  a  person  who  prepares  an  article  in  final  marketable 
form  and  sells  or  markets  it;  a  retailer  may  be  also  a  producer.     (T.  D.  2719;  Art.  II.) 

Proprietary  medicines. 

See  "Medicinal  preparations,"  ante. 

Public  utilities. 

See  "Public  Utilities";   "Telegraphs  and  Telephones" ;   "Transportation  Tax." 

Remittal. 

Under  authority  of  section  .34G4  of  the  Revised  Statutes  tax  on  articles  sold  the 
Government  may  be  remitted  in  cases  within  the  scope  of  Regulations  No.  34. 
(T.  D.  2719;  Art.  VII.) 

Retailer  of  goods. 

A  retailer  who  is  not  also  a  wholesaler  is  a  retailer  who  does  not  from  the  same 
stock  of  goods  also  soil  at  wholesale;  hence,  where  wholesale  and  retail  stocks  are 
kept  separate  tax  applies  only  to  wholesale  stock;  where  automobiles  are  sold  at  both 
wholesale  and  retail  by  person  who  acts  as  agent  for  manufacturer,  no  floor  la.x  ap- 
plies, but  manufacturer  is  liable  for  tax  upon  all  sales.     (T.  D.  2601;   Dec.  3,  1917.) 

A  retailer  of  goods  may  be  also  a  manufacturer,  jiroducer,  or  importer,  as  such  per- 
sons are  defined  by  Regulations  No.  44,  relating  to  war  excise  taxes.  (T.  D.  2719: 
Art.  II.) 

Retiu'ns. 

Each  manufacturer  of  the  articles  enumerated  in  section  600  of  the  act  of  October 
3,  1917,  required  to  make  monthly  returns  under  oath,  in  duplicate,  to  collector  for 
district  in  which  his  principal  place  of  business  iS  located,  returns  to  be  made  on 
Form  728,  and  to  be  rendered  on  or  before  last  day  of  each  month  covering  transac- 
tion of  preceding  month,  first  return  to  cover  all  transactions  since  October  3,  1917; 
where  articles  are  sold  over  period  of  time  under  agreement  for  quantity  rebate,  tax, 
if  originally  computed  on  gross  price,  may  be  adjusted  in  return  for  montli  in  wliich 
price  is  finally  determined;  branch  houses  should  in  general  make  report  to  parent 
house  which  is  liable  to  make  monthly  returns  of  sales  of  branch  house;  itinerant 
manufacturer  should  make  return  to  collector  of  district  where  sales  are  made.  (T. 
D.  2719;  Art.  XXVI.) 

Section  1007  of  the  act  of  October  3,  1917,  permits  an  adjustment  of  tax  between 
manufacturer  and  dealer,  but  it  does  not  affect  the  liability  of  the  manufacturer  to 
return  and  pay  tax  to  the  Government.     (T.  D.  2719;  Art.  XXXVII.) 

Manufacturer  who  has  collected  amount  of  tax  from  dealer  required  to  make 
monthly  returns  under  oath  in  duplicate  on  Form  723  or  Form  726.  (T.  D.  2719; 
Art.  XXXVIII.) 

Sale  defined. 

An  article  is  sold  within  Regulations  No.  44,  relating  to  war  excise  taxes,  when 
title  to  it  passes  from  the  seller  to  the  buyer,  pursuant  to  a  pro'vdous  contract  of  sale 
or  upon  a  sale  without  previous  contract.     (T.  D.  2719;  Art.  IV.) 

Selling  corporation,  sales  th.rougii. 

In  case  of  selling  corporation  owning  substantially  all  the  stock  of  a  manufactur- 
ing corporation  which  nominally  sells  all  or  part  of  its  products  to  selling  corpora- 
tion, manufacturing  corporation  is  regarded  as  manufacturing  agent,  and  taxable 
sales  are  those  made  by  selling  corporation.     (T.  D.  2719;  Jixi.  V.) 

Soap. 

The  tax  imposed  by  section  600  (g)  of  the  act  of  October  3,  1917,  is  2  per  cent  of 
the  price  for  which  soaps  are  sold  by  the  manufacturer;  soaps  advertised  or  held 
out  as  suitable  for  toilet  purposes  are  taxable;  kitchen  soap  powders  and  other 
articles  ordinarily  used  for  household  and  not  for  toilet  purposes  are  not  subject  to 
tax.     (T.  D.  2719;  iUt.  XYIII.) 

A  soap  powder  chiefly  designed  for  laiuidry  purposes  and  sold  by  the  manufacture 
in  bulk  to  laundries  and  also  sold  for  letail  distribution  to  the  public  iu  packages 
bearing  directions  for  use  as  a  hair  shampoo,  for  which  it  is  to  a  small  extent  actually 
used,  is  subject  to  excise  tax  upon  tlie  sales  in  packages,  but  not  upon  the  sales  in 
bulk.     (T.  D.  2785;  Jan.  23,  1919.) 


248  EXCISE    TAXES. 

Sporting  goods  and  games. 

Tax  imposed  by  section  (iOO  (f)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  price 
for  which  the  various  sporting  goods  and  games  enumerated  are  sold  by  the  manu- 
facturer; sleds,  snowshoes,  skis,  and  skates  are  not  taxed;  parts  of  sporting  gooda 
an(i  accessories  not  enumerated  are  not  taxable  if  sold  separately;  heads  and  shafts 
of  golf  clubs  are  not  taxed  until  combined  and  sold  as  complete  clubs;  parts  of  games 
are  taxable,  and  if  used  in  a  complete  game  sold  as  such  the  tax  attaches  even 
though  parts  have  been  separately  taxed;  game  of  cribbage  is  taxed  as  a  whole, 
although  it  consists  partly  of  playing  cards  on  which  a  tax  has  been  paid;  balls  of 
all  kinds  are  taxable,  including  balls  for  putting  the  shot;  card  games  to  be  played 
by  adults  as  well  as  children,  other  than  ordinary  playing  cards,  are  subject  to  the 
tax.     (T.  D.  2719;  Art.  XVII.) 

Bowling  alley  tenpins  are  "parts  of  games"  within  the  meaning  of  section  600  (f) 
of  the  art  of  October  3,  1917,  and  are  subject  to  taxation  tliereunder.  (T.  D.  2795; 
Feb.  26,  1919.) 

Where  baseball  bats  or  other  sporting  goods  taxable  under  section  600  (f),  act  of 
October  3,  1917,  are  prepared  in  final  marketable  form  by  A,  who  marks  or  labels 
them  only  with  the  name  or  trade-mark  of  li,  who  on  their  being  delivered  to  him 
sells  them  without  further  manufacture  to  his  own  customers,  if  transaction  between 
A  and  B  is  an  actual  sale  and  not  merely  employment  of  A  by  B  to  manufacture 
the  articles  as  his  agent  at  a  specified  profit,  A  is  the  "manufacturer"  who  is  liable 
for  the  tax;  artitle  2  of  Regulations  No.  44  can  not  be  construed  as  adopting  any  of 
the  provisions  of  article  21.     (T.  D.  2795;  Feb.  26,  1919.) 

State,  sales  to. 

Articles  sold  to  a  State  or  a  political  subdivision  thereof  for  use  in  carrying  on  ita 
governmental  operations  are  not  subject  to  tax.     (T.  D.  2719;  Art.  VII.) 

Talking  machines.  * 

The  tax  imposed  by  section  600  (b)  of  the  act  of  October  3,  1917,  upon  grapho- 
phones,  phonographs,  talking  machines,  and  records  used  in  connection  therewith, 
is  3  per  cent  of  the  price  for  which  sold  by  manufacturer;  accessories,  other  than 
records,  are  not  taxable  unless  sold  in  combination;  toy  talking  machines  are  tax- 
able.    (T.  D.  2719;  Art.  XI.) 

Time  tax  attaches. 

The  tax  levied  by  section  600  of  the  act  of  October  3,  1917,  is  imposed  on  all  arti- 
cles sold  by  the  manufacturer,  producer,  or  importer,  on  or  after  October  4,  3917, 
even  though  manufactured,  produced,  or  imported  before  that  date.  (T.  D,  2719; 
Art.  I.) 

The  tax  attaches  when  the  article  is  sold ;  that  is  to  say,  when  title  paf?ses  from 
seller  to  buyer  pursuant  to  pre\'ious  contract  of  sale  or  upon  sale  without  previous 
contract;  when  title  passes  is  question  of  fact,  dependent  upon  intention  of  parties 
as  gathered  from  contract  of  sale  and  surrounding  circumstances;  in  absence  of 
intention  to  contrary,  title  is  presumed  to  pass  upon  delivery  of  article  to  buyer 
or  to  carrier  for  the  buyer.     (T.  D,  2719;  Art.  IV.) 

In  case  of  lease  of  moving-picture  films  tax  attaches  when  manufacturer  enters 
into  contract  of  lease,  either  express  or  implied,  and  pursuant  thereto  delivers  film 
to  lessee  or  to  carrier  for  lessee.     (T.  D.  2719;  Art.  IV.) 

In  case  of  conditional  sale,  where  title  is  reserved  until  payment  of  purchase 
price  in  full,  tax  attaches  upon  such  payment,  or  when  title  passes  if  before  com- 
pletion of  payments.     (T.  D.  2719;  Art."lV.) 

Tobacco  and  manufactures  thereof. 

See  "Cigars";  "Cigarettes";  "Snuff";  "Tobacco." 

Toilet  articles. 

The  tax  imposed  by  section  600  (g)  of  the  act  of  October  3,  1917,  upon  toilet  arti- 
cles and  soaps  is  2  per  cent  of  the  price  for  which  they  are  sold  by  the  manufacturer; 
soaps  advertised  or  held  out  as  suitable  for  toilet  purposes  are  taxable;  containers  of 
perfumes,  if  billed  and  shipped  separately,  raw  materials,  and  floor  oils,  floor  wax, 
kitchen  soap  powders,  and  other  articles'ordinarily  used  for  household  and  not  for 
toilet  purposes,  are  not  subject  to  the  tax;  concentrated  essences  sold  to  druggists 
and  manufacturers  for  making  toilet  articles,.but  not  for  use  as  such,  are  not  subject 
to  the  tax.     (T.  D.  2719;  Art.  X VIII.) 


EXCURSION    BOATS — EXEMPTIONS.  249 

Toilet  articles — ronliiuu  d. 

On  the  sale  for  a  lump  ))ri.o,  of  a  fountain  shaving  brush  with  a  filled  shaving  cream 
cartridge  which  is  separate  an<l  replaceable,  the  excise  tax  is  only  upon  the  price  of 
the  filled  cartridire  as  se-{)arately  determined,  namely,  the  established  retail  price 
of  the  filled  cartridges  sold  seimrately.     (T.  D.  2782;  Dec.  24,  iDlS.) 

TJnited  States,  sales  to. 

Articles  sold  to  the  Government  in  the  ordinary  course  of  business  are  taxable, 
but  where  Government  supplies  man\ifa"turer  vath  all  materials  and  parts  except 
small  portion  furnished  by  manufacturer,  under  contract  stipulating  that  manu- 
facturer shall  be  guaranteed  a  certain  profit,  no  tax  is  payable  bec-ause  manufac- 
turer does  not  sell  the  articles;  articles  manufactured  in  ])lants  taken  over  and 
operated  by  Government  are  not  subject  to  tax.     (T.  D.  2719;  Art.  \'II.) 

Waters. 

Artificial  mineral  waters  not  carbonated,  sold  by  manufacturer,  producer,  or 
importer,  in  bottles  or  other  closed  containers,  carbonated  waters  manufactured 
and  sol(l  by  the  manufaciurer,  producer,  or  importer  of  the  carbonic-acid  gas  used 
in  carbonating  the  same,  and  natural  mineral  waters  and  table  waters  soold  by  the 
producer,  bottler,  or  importer,  in  bottles  or  other  closed  containers  at  over  10  cents 
per  gallon,  all  of  which'are  taxed  under  section  313  of  the  act  of  October  3,  1917, 
are  not  subject  to  tax  under  section  000  (h)  if  intended  for  use  solely  as  beverages. 
(T.  D.  2719;  Art.  XXIII.) 

"Wholesaler." 

The  word  "wholesaler"  as  used  in  section  602  of  act  of  October  3,  1917,  does  not 
include  a  retailer  who  occasionally  sells  goods  to  other  retailers  at  less  than  retail 
prices,  unless  it  appears  that  an  effort  was  made  to  solicit  such  business  for  profit. 
(T.  D.  2570;  Nov.  6,  1917.) 

EXCURSION   BOATS. 
Admissions. 

Charges  of  excursion  boats  providing  opportunity  for  dancing  are  subject  to  tax 
imposed  by  section  700  of  act  of  October  3,  1917,  where  such  charges  exceed  the 
usual  or  reasonable  rates  for  transportation  furnished.     (T.  D.  2681;  Mar.  26,  1918.) 

Excise  taxes. 

Imposition  of  transportation  tax  for  persons  transported  by  boat  is  not  conclu- 
sive that  boat  is  used  for  trade ;  i  f  boat  is  used  to  carry  freight  for  hire,  it  is  not  subject 
to  tax  imposed  by  section  603  of  act  October  3, 1917,  but  if  used  to  carry  passengers, 
distinction  is  between  its  operation  in  general  commerce,  as  from  New  York  to 
Boston,  and  its  operation  for  plainly  pleasure  purposes,  as  from  New  York  to  Coney 
Island;  boats  carrying  pleasure  excursions  to  fishing  grounds  or  resorts  are  therefore 
taxable.     (T.  D.  2753;  Aug.  23,  1918.) 

EXECUTION. 
Income  taxes — Claim. 

When  suit  to  recover  tax  is  decided  in  favor  of  United  States,  and  execution 
issued  and  returned  nulla  bona  as  respects  whole  or  part  of  judgment,  collector  should 
satisfy  himself  whether  or  not  any  personal  property  can  be  found  to  satisfy  such 
judginent,  and  whether  there  is  any  real  property  which  can  be  subjected,  by  dis- 
traint or  by  suit  in  equity,  under  section  3207,  Revised  Statutes,  to  sale  in  satisfac- 
tion of  judgment;  where  satisfied  that  there  is  no  such  real  or  personal  property 
collector  should  present  to  commissioner  a  claim  on  Form  53  for  abatement  of 
amount  not  collected,  if  it  has  not  already  been  abated,  making  statement  thereon 
of  his  action,  accompanied  by  certificate  of  clerk  of  court  as  to  facts  in  case.  (T.  D. 
2690;  art.  253.) 

EXECUTORS  AND  ADMINISTRATORS. 

See  "Estates";  "Estate  Tax";  "Fiduciaries." 

EXEMPTIONS. 

See  specific  heads. 


250  EXHIBITIONS — EXPORTS. 

EXHIBITIONS. 

Sec  "Admissions";  "Occupational  Taxes." 

EXPENSES. 
Deputy  collectors. 

Effective  July_  1, 1919,  field  deputy  collectors  entitled  to  actual  necessary  travelin;^ 
expenses  and  reimbursement  for  amount  actually  expended  for  lodging  and  subsist- 
ence not  to  exceed  statutory  limit  of  S5  per  day  Avhen  absent  from  designated  posts  of 
duty;  post  of  duty  shall  be' fixed  within  division  to  which  such  collector  is  assigned, 
and  shaU  be  designated  at  the  largest  town  or  city  in  that  division.  (T.  D.  2884; 
July  9,  1919.) 

Net  income  for  income-tax  purposes. 

See  "Income  Taxes  (Corporatiousj " ; ' 'Income  Taxes  (Individuals). " 

Reserve  funds. 

Assets  required  to  be  held  by  insurance  company  to  meet  ordinary  running 
expenses,  such  as  taxes,  salaries,  reinsurance,  and  unpaid  brokerage,  are  not  reserve 
funds  "required  by  law"  for  purpose  of  determining  whether  there  has  been  net 
addition  to  reserve' funds  within  the  year.     (T.  D.  3013;  May  3,  1920.     Ct.  Dec.) 

EXPORTS. 

Alcohol  in  tanks  or  tank  cars. 

Alcohol  or  other  distilled  spirits  of  not  less  than  180°  proof  may  be  drawn  from 
recei^'ing  cisterns  at  any  distillery  or  from  storage  tanks  in  distillery  warehouse 
into  taiiks  or  tank  cai's  for  export  from  United  States.     (T.  D.  2368;  Sept.  11,  1916.) 

Monthly  report  of  spirits  withdrawn  from  receiving  cisterns  required  to  be  made 
ou  supplemental  Form  94A;  contents.     (T.  D.  2368;  Sept.  11,  1916.) 

Bonded  carriers  to  wliicli  shipments  of  spii-its  in  tanks  or  tank  cars  are  delivered 
for  transportation  for  export  required  to  procure  certain  seals  for  securing  cars  for 
use  until  such  time  as  Commissioner  of  Internal  Revenue  may  adopt  a  suitable 
seal;  ordering,  numbering,  and  affixing  of  seals;  duty  of  collector  of  customs  where 
seals  are  found  to  be  intact  at  frontier  point;  duties  of  customs  inspector  where 
Goals  are  found  to  be  broken  or  tampered  with.     (T.  D.  236S;  Sept.  11,  1916.) 

Each  tank  or  tank  car  will  be  regarded  as  an  original  package,  and  an  export  stamp, 
to  be  procured  bv  the  shipper,  will  be  affixed  to  each  such  tank  or  tank  car  (T.  D. 
2388;  Sept.  11,  191C.) 

Applications  for  withdrawal  of  alcohol  or  other  distilled  spirits  for  exportation  in 
tanks  or  tank  cars,  and  bonds  co^■oring  tax  on  spiiits  to  be  withdi'a'wn,  will  be  same 
as  for  spirits  contained  in  original  packages,  except  that  in  distributing  the  spirits 
the  serial  number  of  the  storage  tank  will  be  given,  or  if  withdrawal  is  to  be  made 
direct  from  receiving  cistern,  application  and  bond  will  so  state.  (T.  D.  2368;  Sept. 
11,  1916.) 

Wlien  alcohol  or  other  distilled  spirits  are  to  be  withdrawn  from  distillery  bonded 
warehouse  free  of  tax  for  export  in  tanks  or  tank  cars,  metal  storage  tanks  m.ust  be 
provided  in  such  v,'arehouse  to  be  constructed  and  arranged  with  proper  pipe  con- 
nections and  suitable  weighing  tanks,  as  prescribed  in  llegulations  No.  30;  when 
withdrawals  are  to  be  made  direct  from  recei\'ing  cisterns  into  tanks  or  tank  cars, 
storage  tanks  need  not  be  provided  in  such  v/arehouse,  in  which  case  the  v/eighing 
tanks  will  l^e  located  in  tire  distillery  cistern  room     (T.  D.  2368;  Sept.  11,  1916.) 

Exportation  of  alcohol  or  other  distilled  spirits  in  tanks  or  tank  cars  restricted  to 
eshipments  by  railroad  destined  for  points  in  contiguous  foreign  territory.  (T.  D, 
2368;  Sept.  11,  1913.) 

Distilled  spirits. 

Under  section  405  of  the  act  of  September  8,  1916,  gin  of  not  less  than  80  per  cent 
proof  may  be  bottled  in  bond  in  bottling  warehouse  on  distillery  premises  for  export 
at  any  time  within  eight  years  after  entrv  in  bond  in  distillery  warehouse;  except 
as  herein  provided  Regulations  No.  23,  revised  December  21,  1912,  and  Regula- 
tions No.  29,  revised  August  18,  1914,  are  made  applicable  to  withdrawal  and"l:>ot- 
Img  in  bond  for  export  before  expiration  of  four  years  after  entrv  in  bonded  dis- 
tillery warehouse;  spirits  withdrawn  tax  paid  and  spirits  withdrawn  for  export  can 


EXPORTS.  251 

Distilled  spirits — Continued, 
not  be  permittad  in  bottling  warehouse  of  distillery  at  same  time.     (T.  D.  2371; 
Sept.  15,  1916.) 

Claims  for  remission  of  tax  on  spirits  lost  in  transit  for  export  not  required  where 
spirits  are  shipped  in  sealed  cars  and  the  seals  on  arrival  of  cars  are  found  intact 
and  where  loss  reported  does  not  exceed  4  wine  gallons  as  to  any  one  pacl:age,  pro- 
vided average  loas  does  not  exceed  2  wine  gallons  per  package  as  to  all  packages 
gauged;  requisites  of  application  for  relief  where  loss  rex)orted  exceeds  amount 
stated;  certificate  setting  forth  whether  spirits  were  iuziured  in  excess  of  market 
value  thereof  exclusive  of  tax;  regulations  applicable  to  spirits  lost  when  shipped 
in  unsealed  cars  except  that  loss  in  excess  of  1  proof  gallon  per  package  v^ill  be 
regarded  in  such  cases  as  excessive.     (T.  D.  2461;  Mar.  16,  1917.) 

Gangers  required  in  making  up  Form  59  reporting  spirits  withdrawn  from  ware- 
house for  export  upon  original  gauge  to  enter  in  proper  columns  complete  data  as 
to  each  package  appearing  in  Form  59  reporting  the  entry  gauge;  when  such  spirits 
are  sliipped  for  export  in  cars  sealed  with  "II.S.C.  in  bond' '  seals,  ganger  will  pre- 
pare separate  Form  59  for  packages  shipped  in  each  car  and  serial  numbers  of  seals 
will  also  be  stated  in  Form  20G,  together  with  serial  number  of  packages;  bills  of 
lading  for  each  car  required  to  ha\"e  seal  numbers  noted  thereon.  (T.  D.  2473; 
Apr.  2,  1917.) 

Requirement  of  article  34,  Regulations  No.  23,  requiring  name  of  domestic  port 
of  cleai'ance  and  port  of  foreign  destination  to  be  marked  on  cases  of  distilled  spirits 
bottled  in  bond  for  export,  waived;  distillers,  however,  required  to  mark  on  "Gov- 
ernment side' '  of  the  cases  the  words  '  'For  export  from  l' .  S.  A. ' '  (T.  D.  24SG;  Apr. 
21,  1917.) 

Rate  of  tax  in  cases  of  loss  in  transit  for  export  will  be  determined  by  date  on 
which  spirits  were  inspected  by  customs  guager  at  port  of  export;  rate  on  spirits 
inspected  on  or  before  October  3,  1917,  will  be  $1.10  per  proof  gallon,  but  where  loss 
is  discovered  on  or  after  October  4,  1917,  tax  due  on  loss  will  be  at  rate  of  $3.20  per 
proof  gallon.     (T.  D.  2539;  Oct.  17,  1917.) 

Metal  packages  for  containing  distilled  spirits  for  export  not  required  to  be 
equipped  with  wooden  surfaces  for  recei\'ing  the  marks,  brands,  and  stamps, 
provided  stamps  are  securely  attached  to  metal  head  by  imper\ions  paste  and 
protected  by  coating  of  varnish,  and  provided  the  required  marks  are  stencDed 
on  the  heads  by  use  of  permanent  stenciling  material.     (T.  D.  2822;  Apr.  19,  1919.) 

Drafts — Stamp  tax. 

Because  of  the  constitutional  restrictioii  that  no  tax  or  duty  shall  be  laid  on 
articles  exported  from  any  State,  drafts  with  bills  of  lading  attached  covering  goods 
in  course  of  exportation  are  not  subject  to  the  tax.     (T.  J).  26S2;  Mar.  20,  1918.) 

The  stamp  tax  imposed  by  subdi^ision  (b)  of  Schedule  A  of  the  act  of  October  3, 
1917,  attaches  to  time  drafts  covering  articles  shipped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone,  and, 
although  time  drafts  covering  shipments  to  the  Virgin  Islands,  the  Philippine 
Islands,  and  Porto  Rico  are  not  s'abject  to  the  tax,  time  drafts  covering  articles 
shipped  to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or  Porto 
Rico  must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified. 
(T.  D.  2782;  Dec.  24,  1918.) 

Drawbacks. 

Manufacturers  of  narcotics  may  lawfully  furnish  to  any  duly  accredited  special 
agent  or  customs  agent  of  the  Treasury  Department,  samples  required  in  order  to 
make  analyses  to  establish  allowance  of  drawback  on  manufactured  drugs  exported 
from  this  country,  taking  receipt  of  such  officer  therefor,  wliich  will  be  filed  with 
official  narcotic  order  forms  and  records.     (T.  D.  2487;  Apr.  28,  1917.) 

Where  alcohol  is  exported  in  its  natural  condition,  drawback  thereon  allowed 
only  when  alcohol  is  exported  in  the  distillers'  original  casks  or  packages,  and  allow- 
ances is  limited  by  section  3329,  Revised  Statutes,  to  90  cents  per  proof  gallon;  where 
the  alcohol  is  used  in  manufacture  of  flavoring  extracts,  medicinal  or  toilet  prepara- 
tions for  export,  the  drawback  should  include  both  tax  of  §1.10  per  proof  gallon,  and 
additional  tax  paid  thereon,  under  act  of  October  3,  1917.  (T.  D.  2572;  Oct.  24, 
1917.) 

There  is  no  drawback  on  exported  automobiles,  automobile  trucks,  etc.  (T.  D. 
2591;  Nov.  24,  1917.) 


252  EXPORTS. 

Excise  taxes. 

Taxes  imposed  by  sections  313,  315,  and  600  of  the  act  of  October  3,  1017,  do  not 
apply  to  articles  sold  in  foreign  commerce  by  any  of  the  methods  outlined  by  manu- 
facturer, producer,  or  importer  located  in  one  of  the  several  States  of  the  United 
States;  this  ruling  applies  only  to  cases  of  exportation  by  manufacturer  making  the 
sale  on  which  but  for  the  exportation  he  would  be  liable  for  the  tax,  the  tax  there- 
fore applying  to  articles  sold  for  domestic  delivery,  but  exported  by  or  at  the  in- 
stance of 'the  buyer;  T.  D.  2739  revoked.     (T.  D.  2781;  Dec.  20,  1918.) 

Taxes  imposed  by  such  sections  313,  315,  and  600  of  the  act  of  October  3,  1917, 
apply,  however,  to  articles  sold  in  foreign  commerce  by  manufacturer  located  in  a 
Territory  elsewhere  in  the  United  States  than  a  State  and  to  articles  going  from 
United  States  to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone, 
except  that  under  acts  of  Congress  articles  going  from  United  States  into  the  West 
Indian  Islands,  or  into  the  Phillippine  Islands  or  Porto  Rico,  are  exempt  to  same 
extent  as  articles  exported  from  a  State  to  a  foreign  country.  (T.  D.  2781 ;  Dec.  20, 
1918.) 

Sale  to  concern  doing  business  in  United  States  is  sale  for  domestic  delivery  unless 
terms  of  order  or  contract  of  sale  show  the  seller  is  to  export  article  or  that  he  is  to  make 
such  delivery  of  it  as  will  result  in  its  exportation.  Examples  of  sale  by  manufac- 
turer which  are  so  taxable,  notwithstanding  ultimate  exportation  of  articles  sold, 
are:  (1)  Sale  to  dealer  in  United  States,  effected  by  compliance  with  his  shipping 
instructions  to  export,  given  subsequent  to  contract  of  sale  which  did  not  require 
shipment;  (2)  sale  to  export  commission  house  in  United  States,  which  is  effected 
by  shipment  consigned  to  commission  house  at  domestic  port  and  which  is  followed 
by  immediate  exportation  to  foreign  buj'er  in  whose  behalf  purchase  was  made; 
(3)  sale  to  corporation  in  United  States  which  immediately  exports  to  foreign  con- 
cern of  which  it  is  a  subsidiary;  (4)  sale  to  member  of  foreign  partnership  conducting 
buying  business  in  United  States  for  his  firm  and  exporting  articles  bought.  In 
such  cases  application  of  tax  is  not  affected  by  provision  in  contract  of  sale  requir- 
ing buver  to  use  or  dispose  of  articles  sold  only  in  some  foreign  country.  (T.  D. 
2781;  Dec.  20,  1918.) 

Tax  imposed  by  section  600  of  the  act  of  October  3, 1917,  does  not  apply  to  moving- 
picture  films  leased  by  the  manufacturer,  producer,  or  importer  located  in  one  of 
the  several  States  of  the  United  States,  where  such  films  are  exported  by  manufac- 
turer making  the  sale  on  which  but  for  the  exportation  he  would  be  liable  for  the 
tax  therefore  applying  to  articles  sold  for  domestic  delivery,  but  exported  by  or  at 
the  instance  of  the  buyer.     (T.  D.  2781;  Dec.  20,  1918.) 

AHidavit  containing  itemized  list  of  articles  sold  in  foreign  commerce  upon  which 
tax  has  been  paid,  giving  names  of  consignees,  destination,  amount  of  tax,  month 
in  which  paid  and  statement  that  goods  were  actually  delivered  to  consignee  named 
in  a  foreign  country  or  the  Philippine  Islands  or  Porto  Rico,  pursuant  to  sale  by 
claimant  by  one  of  the  methods  recognized  in  T.  D.  2781,  and  that  affiant  has  re- 
ceived advice  to  the  effect,  may  be  accepted  as  satisfactory  evidence  in  support 
01  claim  for  recovery  back  of  excise  taxes  paid  under  Title  VI  of  the  act  of  October 
3,  1917,  in  cases  where  because  of  number  of  shipments  and  small  amount  of  tax  in- 
volved in  each  it  is  impracticable  to  furnish  copies  of  invoices  covering  goods  sold, 
ship's  receipts,  or  copies  of  through  bills  of  lading.     (T.  D.  2785;  Jan.  23,  1919.) 

Income  taxes. 

The  net  income  from  the  venture  of  exportation  v/hen  completed,  that  is  to  say, 
after  the  exportation  and  sale  are  actually  consummated,  is  subject  to  taxation 
under  the  general  laws.     (T.  D.  2726;  June  4,  1918.     Ct.  Dec.) 

Income  tax  imposed  by  the  act  of  Octoljer  3,  1913,  is  not  laid  on  articles  in  course 
of  exportation  or  on  anything  which  inherently  or  by  the  usages  of  commerce  is 
embraced  in  exportation  or  any  of  its  processes,  but  on  the  contrary  is  a  general  tax. 
(T.  D.  2726;  June  4,  1918.     Ct.  Dec.) 

Manner  of  exporting. 

Articles  may  be  normally  exported  in  several  ways— (1)  they  may  be  shipped  by 
the  manufacturer  to  agent  in  foreign  country  and  after  reaching  there  may  be  sold 
by  the  agent;  (2)  they  may  be  shipped  by  manufacturer  to  foreign  purchaser  to  fill 
orders  received  1)y  agent  in  foreign  country;  (3)  they  may  be  shipped  by  manu- 
facturer to  foreign  purchaser  to  fill  orders  received  by  manufacturer  in  the  United 
States;  (4)  they  may  be  shipped  by  mabufacturer  to  foreign  purchaser  to  fill  orders 
solicited  by  mail  and  received  by  mail  from  foreign  purchaser;  T.  D.  2739  super- 
seded.    (T.  D.  2781;  Dec.  20,  1918.) 


EXPORTS.  253 

Tobacco,  cigarettes,  etc. 

Ins! ructions  with  reference  to  the  shipment  from  tobacco  and  cigarette  factories  of 
eo-called  soldiers'  kits  or  cartons  containing  packages  of  tobacco  and  cigarettes 
to  New  York,  there  to  bo  repacked  under  supervision  of  customs  officer  for  expor- 
tation to  L'nited  States  soldiers  in  liurope.     (T.  D.  2517;  Aug.  17,  1917.) 

No  provision  is  made  by  law  for  the  exportation  without  the  payment  of  tax  of 
cigarette  papers  in  packages,  books,  or  sets,  or  of  cigarette  tubes.  (T.  D.  2552; 
Oct.  22,  1917.) 

Transportation  tax. 

Amounts  paid  for  transportation  of  property  in  course  of  exportation  to  foreign 
ports  or  places  are  exempt  from  tax  imposed  under  section  500  of  act  of  October 
3, 1917 ;  conditions  under  which  property  may  be  deemed  to  be  in  course  of  exporta- 
tion stated;  if,  when  property  is  delivered  to  carrier,  it  appears  that  goods  are  in 
course  of  exportation,  no  tax  shall  be  collected  on  amounts  of  any  otherwise  taxable 
charges  prepaid  upon  such  property;  tax  must  be  collected  as  and  when  transporta- 
tion charges  are  collected,  if  transportation  charges  be  billed  collect  or  upon  delivery 
of  consignment  if  charges  be  prepaid.     (T.  D.  2676;  Mar.  18,  1918.) 

Adjustment  of  tax  by  carrier  on  ground  that  charge  is  exempted  by  reason  of 
exportation  is  not  authorized  after  collection  of  charge  and  tax.  (T.  D.  2676;  Mar. 
18,  1918,) 

Procedure  to  be  observed  in  filing  claims  for  refund  of  transportation  tax  based 
on  ground  that  tax  was  collected  on  property  in  process  of  exportation  stated. 
(T.  D.  2727;  June  5,  1918.) 

Wines. 

Domestic  wines  may  be  exported  to  foreign  countries  or  may  be  shipped  to  Porto 
Rico,  the  Philipine  Islands,  and  to  the  Panama  Canal  Zone,  free  of  tax;  like  exemp- 
tion, however,  does  not  ajjply  to  ehipmeuts  to  the  island  of  Guam.  (T.  D.  2387; 
Oct.  30,  1916.) 

Where  domestic  wines  are  to  be  removed  from  bonded  premises  free  of  tax  for 
exportation,  party  intending  to  export  same  shall  file  with  collector  of  district  in 
which  such  premises  are  located  bond  in  stated  form,  to  be  executed  in  duplicate, 
one  copy  to  be  retained  by  collector,  and  one  copy  to  be  forwarded  to  Commissioner 
of  Internal  Revenue;  penal  sum  of  bond  must  be  at  least  equal  to  double  amount  of 
tax  on  estimated  cjuautity  of  wine  to  be  removed  during  periou  of  three  months, 
and  in  no  case  less  than  .fil,000;  bond  will  be  continuing  bond,  and  an  account  will  be 
kept  with  each  bond  in  which  principal  will  be  charged  with  tax  on  each  lot  remoA^ed 
for  exportation  and  will  receive  credit  for  each  lot  concerning  wliich  satisfactory 
proof  of  exportation  is  received.     (T.  D.  2416;  Dec.  12,  1916.) 

Withdrawal  and  export  entry  required  to  be  in  stated  form,  and  when  approved  to 
be  returned  to  exporter  and  by  him  filed  in  duplicate  with  collector  of  customs  at 
port  from  which  wines  are  to  be  shipped  at  least  six  hours  prior  to  shipment;  upon 
issuing  certificate  of  clearance  original  entry  requii-ed  to  be  returned  to  collector 
of  internal  revenue,  who  will  credit  export  bond  and  will  forward  entry  and  bill 
of  lading  to  Commissioner  of  Internal  Revenue.     (T.  D.  2416; 'Dec.  12,  1916.) 

Where  exportation  is  by  rail  and  locks,  seals,  and  tags  on  cars  are  found  intact, 
collector  required  to  append  to  entry  or  transportation  manifest,  and  under  seal 
specified  certificate;  return  of  entry  and  transportation  manifest  to  collector  at  port 
from  wliicli  merchandise  was  originally  shipped;  certificate  of  collector  of  port  from 
which  merchandise  was  shipped.     (T.  D.  2505;  June  25,  1917.) 

Where  exportation  is  otherwise  than  by  rail,  and  wines  are  found  to  agree  with 
what  is  specified  in  entry,  collector  required,  after  goods  have  been  duly  laden  and 
cleared,  to  append  to  entry  specified  certificate;  uul ess  through  bill  of  lading  has  been 
filed  with  collector  of  customs  forwarding  said  entry,  proper  bill  of  lading  must  be 
filed  with  collector  of  customs  at  port  of  transshipment.     (T.  D.  2505;  Jun  e  25, 1917. 

Upon  receipt  of  entry,  collector  at  port  of  transshipment  will  direct  officer  to  ex- 
amine wines  and  ascertain  whether  same  agree  with  entry  and  to  superintend  lading 
of  same,  or,  in  case  wines  are  shipped  in  sealed  cars,  to  examine  the  seals;  duties 
of  inspector  on  finding  the  seals  intact  and  also  where  such  seals  are  found  not  in- 
tact.    (T.  D.  2505;  June  25,  1917.) 

All  packages  or  cases  containing  wines  for  export  must  be  plainly  marked  or 
tagged  for  identification,  and  such  identifying  marks  must  contain  the  words  "For 
export,"  in  letters  not  less  than  2  inches  in  height.     (T.  D.  2505;  June  25,  1917.) 


254  EXPRESS  COMPAIsriES EXTRACTS. 

Wines — Continued. 

Where  wines  entered  for  export  arc  to  be  transshipped  or  are  to  be  sliipped  in 
sealed  cars  tlii-ough  a  frontier  port,  collector  of  customs  with  T^^hom  entry  is  filed 
required,  upon  inspection  and  lading  of  goods,  to  transmit  one  copy  of  said  entry, 
together  with  copy  of  transportation  manifest,  to  collector  of  customs  at  port  of 
transshipment;  he  will  also  note  upon  entry  so  transmitted  whether  through  bill  of 
lading  has  been  filed  in  his  office.     (T.  D.  2.505;  June  25,  1917.) 

In  case  of  shipment  of  %vines  free  of  tax  from  bonded  premises  established  under 
section  402  of  act  of  September  8,  191G,  to  bonded  manufacturing  warehouse  to  bo 
manufactured  into  articles  for  export,  proprietor  must  execute  Form  703,  in  quad- 
ruplicate; on  arrival  of  v/ines  at  port  of  entry  manufacturer  v/ill  report  same  to  col- 
lector of  customs,  who  will  cauGe  wines  to  be  inspected  and  gauged  and  will  certify 
receipt  of  wines  on  blue  Form  703,  returning  one  blue  copy  to  collector  of  internal 
revenue  and  sending  other  to  commissioner;  separate  transportation  bond  covering 
tax  on  wines  need  not  be  executed;  credit  given  bond  (Form  699  or  G99A)  on  re- 
ceipt of  certificate  by  collector  of  internal  revenue  from  collector  of  customs.  (T.  D. 
2738;  June  20,  191&.) 

Withdrawal  of  spirits  or  tobacco. 

Where  goods  entered  at  one  port  are  to  be  transshipped  at  another  (outer)  port, 
the  withdrawal  entry  and  accompanying  bill  of  lading  must  be  forwarded  to  collec- 
tor of  customs  with  whom  the  export  entrv  is  originally  filed;  article  92  of  Regu- 
lations No.  29  modified.     (T.  D.  2;510;  July  2,  1917.) 

Instructions  with  reference  to  supplying  maniifacturei-g  of  tobacco,  enuff,  cigars, 
and  cigarettes  with  revised  Form  550,  application  for  v.-ithdrawal  for  export.  (T. 
D.  2521;. Sept.  1,  1917.) 

Regulations  of  October  26,  1917,  relative  to  sale  and  uso  of  distilled  spirits  for 
other  than  beverage  pui-poses  under  acts  of  August  10,  1917,  and  October  3,  1917, 
do  not  apply  to  spirits  withdrawn  for  export.     (T.  D.  2559;  Oct.  2G,  1917.) 

EXPHSSS  COMPANIES. 


Transportation  of  property. 

See  "Transportation" J  "Transportation  Tax.' 


EXTBACTS. 
Alcohol. 

Alcohol  tax  at  rate  of  $2.29  per  gallon,  whether  produced  from  materials  fermented 
before  or  after  September  9,  1917,  may  be  used  in  manufacture  of  bona  fide  flavoring 
extracts,  which  themselves  are  not  fit  for  beverage  purposes;  such  flavoring  ex- 
tracts may  be  subsequently  used  for  flavoring  beverages  whether  alcoholic  or  not. 
(T.  D.  2567;  Oct.  30,  1917.) 

^Vhere  alcohol  is  used  in  the  manufacture  of  flavoring  extracts  for  export,  draw- 
back thereon  should  include  both  tax  of  $1.10  per  proof  gallon  and  additional  tax 
paid  thereon,  under  act  of  October  3,  1917.     (T.  D.  2572;  Oct.  24,  1917.) 

Where  blanket  permits  for  sale  and  use  of  nonbeverage  alcohol  have  been  issued, 
collectors  will  have  complete  reexamination  made  of  permits  and  where  foimd  to 
cover  alcoholic  eom}x>unds  or  preparations  which  it  is  possible  to  use  internal!}', 
such  as  flavoring  extracts,  they  will  have  thorough  investigation  made  and  obtain 
data  required  in  T.  D.  2576,  and  T.  D.  2699;  defective  permits  must  be  corrected, 
and  where  essential,  copy  of  permit  in  collector's  office  as  weW  as  copy  in  possession 
of  holder,  should  be  corrected  to  show  exact  use  to  which  alcohol  is  to  be  put.  (T. 
D.  2699;  Apr.  16,  1918.) 

Manufacturers  of  alcoholic  preparations  which  it  is  possible  to  use  internally, 
such  as  flavoring  extracts,  must,  wherever  standard  process  of  manufacture  is  pre- 
scribed by  Secretary  of  Agriculture,  use  such  process.     (T.  D.  2699;  Apr.  16,  1918.) 

All  so-called  malt  tonics  and  malt  extracts  containing  in  excess  of  2  per  cent  of 
alcohol  by  volume  and  not  containing  at  least  12  per  cent  of  solids  due  to  malt  are 
properly  classed  as  fermented  malt  liquors,  and  all  existing  pro\-ision3  of  internal- 
revenue  law  and  regulations  relating  to  fermented  malt  liquora,  including  sections 
ot  law  imposing  special  tax  on  account  of  sale  thereof,  are  applicable  to  such  prepa- 
rations.    (T.  D.  2727;  May  28,  1918.) 

Where  any  preparation  containing  more  than  one-half  of  one  per  cent  of  alcohol 
by  volume,  whether  sold  as  medicine  or  flavoring  extract  or  in  anv  other  manner, 
does  not  conform  to  required  standard,  liabiUtv  will  be  as^^erted  to" tax  at  beverage 
rate  on  alcohol  used;  similar  action  will  be  taken  in  case  of  preparation  made  in 


EXTEACTS.  255 

Alcohol — Continued, 
conformity  with.  such,  standard  if  sold  by  a  manufacturer  for  bcveiage  puipoee.?. 
(T.  I).  27C0;  Oct.  9,  1918.) 

Wlieu  it  is  desired  to  use  nonbeveragc  alcohol  in  making  flavoring  extract  for 
which  no  specific  standard  or  proces.?  has  been  proscribed  by  Secretary  of  Agricul- 
ture, manufactm-er  must  furnish,  in  duplicate,  data  req^uired  by  T.  D.  2576  witJi 
respect  to  alcoholic  medicinal  compounds  not  conforming  to  U.  S.  P.  or  N.  F.; 
samples  of  product  will  be  required  when  doubt  exists  as  to  nonbeveragc  character 
of  same,  which  samples  will  be  forwarded  by  express,  charges  prepaid,  to  Division 
of  Chemistry,  Office  of  the  Commissioner  of  Internal  Revenue.  (T.  D.  2760;  Oct. 
9,  1918.) 

Persons  who  manufacture  or  deal  in  alcoholic  medicinal  prejDarations,  flavoring 
extracts,  etc.,  even  though  made  in  accordance  with  standards  prescribe<:l,  arc  only 
relieved  from  special  tax  liabihty  as  long  as  they  make  sales  for  legitimate  purposes 
only;  if  preparation  containing  more  than  one-half  of  one  Y)0y  cent  of  alcohol  by 
volume  is  sold  for  bevera^'e  purposes  or  under  circumstances  warranting  reasonable 
belief  that  it  is  to  be  used  as  a  bevemgo,  liability  to  lax  will  be  asserted  re;;ardles.i 
of  what  other  ingredients  preparation  may  contain.     (T.  D.  2760;  Oct.  9,  1918.) 

Pei-sons  who  use  nonbevenige  alcohol  must  first  comply  with  preliminary  require- 
ments of  laws  pertaining  to  same  and  regulations  issued  in  pursuance  thereof;  use 
of  nonbeveragc  alcohol  for  manufacture  of  medicinal  preparations,  flavoring  extracts, 
etc.,  is  permitted  only  under  same  conditions  and  subject  to  same  restrictions  as 
govern  manufacture  and  sale  of  same  preparations  without  payment  of  special  tax. 
(T.  D.  2760;  Oct.  9,  1918.) 

Use  of  alcohol  by  manufacturing  chemists  or  flavoring  extract  manufacturers 
recovered  from  dregs  or  marc  of  i>ercolatiou  or  extraction  in  any  other  manner  than 
that  prescribed  by  section  3246,  Revised  Statutes,  as  amended  bj'  act  March  3, 1915, 
without  payment  of  special  tax,  will  not  be  permitted.     (T.  D.  27G0;  Oct.  9,  1918.) 

Manufactm-ers  of  flavoring  extracts  who  do  not  pay  special  tax  must  comply  with 
standards  prescribed  by  Secretary  of  Agriculture;  if  no  standard  has  been  proscribed, 
liability  to  special  tax  will  be  regarded  as  incurred  on  account  of  manufactiure  of 
flavoring  extracts,  as  well  as  of  essences,  soft  drinks,  sirups,  etc.,  if  fini.shed  product 
contains  more  alcohol  than  is  necessary  to  cut  the  oils  or  extract  the  desired  active 
principles  and  hold  them  in  solution.     (T.  D.  2760;  Oct.  9,  1918.) 

Definitions. 

An  '"extract,' '  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3,  1917, 
is  a  preparation  supposed  to  possess  the  characteristic  property  or  virtue  of  the 
original  substance  in  concentrated  form,  and  includes  essences,  flavoring  extracts, 
and  the  like.     (T.  D.  2719;  Art.  XXIX.) 

A  flavoring  extract  is  a  solution,  in  ethyl  alcohol  of  proper  strength,  of  the  sapid 
and  odorous  principles  derived  from  an  aromatic  plant  or  parts  of  the  plant,  with 
or  without  its  coloring  matter,  and  conforms  in  name  to  the  plant  used  in  its  prepara- 
tion.    (T.  D.  2940;  Oct.  29,  1919.) 

.\lmond  extract  is  the  flavoring  extract  prepared  from  oil  of  bitter  almonds,  free 
from  hydrocyanic  acid  and  contains  not  less  than  1  per  cent  by  volume  of  oil  of 
bitter  almonds.     (Id.) 

Anise  extract  is  the  flavoring  extract  prepared  from  oil  of  anise,  and  contains 
not  less  than  3  per  cent  by  volume  of  oil  of  anise.     (Id.) 

Celery-seed  extract  is  the  flavoring  extract  prepared  from  celery  seed  or  the  oil 
of  celery  seed,  or  both,  and  contains  not  less  than  0.3  of  1  j^er  cent  by  volume  of 
oil  of  celery  seed.     (Id.) 

Cassia  extract  is  the  flavoring  exti-act  prepared  from  oil  of  cassia,  and  contains 
not  less  than  2  per  cent  by  volume  of  oil  of  cassia.     (Id.) 

Cinnamon  extract  is  the  flavoring  extract  prepared  from  oil  of  cinnamon,  and 
contains  not  less  than  2  per  cent  by  A-olume  of  oil  of  cinnamon.     (Id.) 

Clove  extract  is  the  flavoring  extract  prepared  from  oil  of  cloves,  and  contains 
not  less  than  2  per  cent  by  volume  of  oil  of  cloves.     (Id.) 

Lemon  extract  is  the  flavoring  extract  prepared  fi-om  oil  of  lemon  or  from  lemon 
peel,  or  both,  and  contains  not  less  than  5  per  cent  by  volume  of  oil  of  lemon. 
Terpeneless  extract  of  lemon  is  the  flaA'oring  extract  prepared  by  shalring  oil  of 
lemon  with  diluted  alcohol,  or  by  dissolving  terpeneless  oil  of  lemon  in  diluted 
alcohol,  and  contains  not  less  than  0.2  of  the  per  cent  by  weight  of  citral  derived 
from  oil  of  lemon.     (Id.) 


256  EXTRACTS. 

Definitions — Continued. 

Nntmep;  extract  is  the  flavoring  extract  prepared  from  oil  of  nutmeg,  and  contains 
not  less  than  2  per  cent  by  A'olume  of  oil  of  nutmeg.     (Id.) 

Orange  extract  is  the  flavoring  extract  prepared  from  oil  of  orange  or  from  orange 
peel,  or  both,  and  contains  not  less  than  5  per  cent  by  volume  of  oil  of  orange. 
Terpeneless  extract  of  orange  is  the  flavoring  extract  prepared  by  shaking  oil  of 
orange  with  diluted  alcohol,  or  by  dissolving  terpeneless  oil  of  orange  in  diluted 
alcohol,  and  corresponds  in  flavoring  strength  to  orange  extract.     (Id.) 

Peppermint  extract  is  the  flavoring  extract  prepared  from  oil  of  peppermint  or 
from  peppermint,  or  both,  and  contains  not  less  than  3  per  cent  by  volume  of  oil 
of  peppermint.     (Id.) 

Rose  extract  is  the  flavoring  extract  prepared  from  otto  of  roses  with  or  without 
red  rose  petals,  and  contains  not  less  than  0.4  of  1  per  cent  by  volume  of  otto  of 
roses.     (Id.) 

iSavory  extract  is  the  flavoring  prepared  from  oil  of  savory  or  fi'om  savory,  or 
both,  and  contains  not  less  than  0.35  of  1  per  cent  by  volume  of  savory.     (Id.) 

Spearmint  extract  is  the  flavoring  extract  prepared  from  oil  of  spearmint  or  fi'om 
spearmint,  or  both,  and  contains  not  less  than  3  per  cent  by  volume  of  oil  of  spear- 
mint.    (Id.) 

Star  anise  extract  is  the  flavoring  extract  prepared  from  oil  of  star  anise,  and 
contains  not  less  than  3  per  cent  by  volume  of  oil  of  star  anise.     (Id.) 

Sweet  basil  extract  is  the  flavoring  extract  prepared  from  the  oil  of  sweet  basil 
or  from  sweet  basil,  or  both,  and  contains  not  less  than  0.1  of  1  per  cent  by  volume 
of  oil  of  sweet  basil.     (Id.) 

Sweet  marjoram  extract  is  the  flavoring  extract  prepared  from  the  oil  of  marjoram 
or  from  marjoram,  or  both,  and  contains  not  less  than  1  per  cent  by  volume  of  oil 
of  marjoram.     (Id.) 

Thyme  extract  is  the  flavoring  extract  prepared  from  oil  of  thyme  or  from  thyme, 
or  both,  and  contains  not  less  than  0.2  of  1  per  cent  by  volume  of  oil  of  thyme.     (Id.) 

Tonka  extract  is  the  flavoring  extract  prepared  from  tonka  bean,  with  or  without 
sugar  or  glycerin,  and  contains  not  less  than  0.1  of  I  per  cent  by  weight  of  coumarin 
extracted  from  the  tonka  bean,  together  with  the  corresponding  proportion  of  the 
other  soluble  matters  thereof.     (Id.) 

^'anilla  extract  is  the  flavoring  extract  prepared  from  vanilla  beans,  with  or 
without  sugar  or  glycerin,  and  contains  in  100  cubic  centimeters  the  soluble  matter 
from  not  less  than  10  gi-ams  of  vanilla  beans.     (Id.) 

Wintergreen  extract  is  the  flavoring  extract  prepared  from  oil  of  wintergreen, 
and  contains  not  less  than  3  per  cent  by  volume  of  oil  of  wintergreen.  Imitation 
wintergreen  extract  or  methyl  salicylate  contains  not  less  than  3  per  cent  by  A'olume 
of  methyl  salicylate.     (Id.) 

Tincture  of  Jamaica  ginger  is  held  to  be  a  medicinal  preparation  and  must  be 
made  according  to  the  United  States  Pharmacopceia.  It  is  held  not  to  be  a  flavor- 
ing extract.     (Id.) 

Distilled  spirits. 

Prohibition  against  m.ixing  of  distilled  spirits  vv'ith  wines  does  not  apply  to  lim- 
ited use  of  alcohol  in  making  of  fluid  extracts  from  herbs  which  may  be  used  in  manu- 
facture of  cordials;  quantity  or  percentage  of  alcohol  permitted  in  preparation  of 
biich  extracts  for  manufacture  of  cordials  must  in  all  cases  conform  to  United  States 
Pharmacopoeia.     (T.  D.  2387;  Oct.  30,  1916.) 

Tax-paid  still  wines,  domestic  and  foreign,  and  tax -paid  distilled  spirits  may  be 
used  by  rectifiers  in  the  manufacture  of  vermuths,  liqueurs,  cordials,  and  similar 
compounds  and  fluid  extracts,  imder  stated  conditions;  bond  given  by  rectifier; 
marking  of  containers;  notice  and  records;  gauging  of  products  after  rectification; 
marking,  branding,  and  stamping  compounds.     (T.  D.  2403;  Xov.  29,  1916.) 

The  sale  or  use  of  medicinal  and  culinary  flavoring  extracts  made  with  nonbev- 
ci-age  distilled  spirits  for  be\erage  purposes  or  for  manufacture  into  beverages  is 
illegal.     (T.  D.  2559;  Oct.  26,  1917.) 

Use  of  distilled  spirits  for  nonbeverage  purposes  includes  manufacture  of  bona 
fide  United  States  Pharmacop.eia  or  National  Formulary  medicinal,  culinary,  and 
flavormg  extracts.     (T.  D.  2559;  Oct.  26,  1917.     T.  D."2788;  Feb.  6,  1919.) 

Nonbeverage  distilled  spirits  taxable  at  rate  of  $2.20  per  proof  gallon  may  be  used 
by  manufacturers  of  flavoring  extracts  where  such  extracts  are  unfit  for  use  as  a 
beverage,  and  such  extracts  may  in  turn  be  used  in  manufacturing  beverages. 
(T.  D.  2566;  Oct.  27,  1917.) 


FAIRS.  257 

Distilled  spirits — r,,ntlmied. 

l)i:-lill(Ml  ppiritH  used  in  nianufacturo  of  ordinary  flavoring  extracts  arc  Fubjert 
only  to  additional  tax  of  $1.10  per  proof  gallon  imposed  by  section  303  of  act  of 
October  3,  1917.     (T.  D.  2584;  Nov.  20,  1917.) 

Persons  subject  to  tax. 

Where  concentrates  or  extracts  are  sold  to  be  farther  manufactured  into  flavoring 
extracts  or  sirups,  the  person  completing  the  manufacture  is  subject  to  the  tax; 
where  concentrates  or  extracts  are  sold  to  the  bottler  or  the  manufacturer  of  soft 
drinks,  the  manufacturer  of  the  concentrates  or  extracts,  is  subject  to  the  tax. 
(T.  D.  2570;  Nov.  C,  1917.) 

Soft  diinks. 

Tax  imposed  by  section  313  (a)  of  tlie  act  of  October  3,  1917,  is  based  ou  price  for 
■which  prepared  sirups  or  extracts,  if  intended  for  use  in  manufacture  or  produc- 
tion of  beverages,  commonly  known  as  soft  drinks,  by  soda  fountains,  bottling 
establishments,  and  other  similar,  places,  are  sold  by  the  manufacturer;  possible 
selling  prices  and  corresponding  tax  per  gallon  in  each  case,  stated.  (T.  D.  2719; 
Art.  XXV  111.) 

An  "extract,' '  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3, 1917, 
is  a  preparation  supposed  to  possess  the  characteristic  property  or  virtue  of  the 
original  substance  in  concentrated  form,  and  includes  essences,  flavoring  extracts, 
and  the  like.     (T.  I).  2719;  Art.  XXIX.) 

Foam,  concentrates,  acid  solution,  cocoa  paste,  ginger  ale  paste  and  emulsions, 
and  ordinary  household  extracts  like  vanilla,  are  subject  to  tax  imposed  by  section 
313  (a)  of  act  of  October  3,  1917,  when  sold  if  intended  for  use  in  production  of  soft 
drinks;  extracts  intended  for  use  for  culinary  purposes  or  in  manufacture  of  ice 
cream,  are  not  taxable;  "Sundae  dressings,"  used  exclusively  for  pouring  over 
ice  cream,  are  not  taxable;  prepared  sirups  and  extracts  used  by  rectifiers  of  spirits 
and  as  bar  flavors  are  not  taxable;  an  extract  sold  to  another  extract  or  sirup  manu- 
facturer for  use  in  producion  of  prepared  sirup  \vhich  is  to  be  sold  as  such,  is  not 
eubject  to  tax;  no  tax  is  imposed  upon  sirups  or  extracts,  as  such,  used  by  the 
maker  for  further  manufacturing  purposes  and  not  sold  bv  him.  (T.  D.  2719; 
Art.  XXX.) 

The  tax  imposed  by  section  313  (b)  of  the  act  of  October  3.  1917,  is  1  cent  for  each 
gallon  of  unfermented  grape  juice,  soft  drinks,  and  artificial  mineral  waters,  but 
carbonated,  and  fermented  liquors  containing  less  than  one-half  per  cent  of  alcohol, 
sold  by  the  manufacturer  in  bottles  or  other  closed  containers;  tax  is  none  the  less 
payable  because  tax  may  have  been  paid  on  extracts  or  prepared  sirups  entering 
into  manufacture  of  such  soft  drinks;  manufacturer  may  be  bottler  or  proprietor 
of  soda  fountain.     (T.  D.  2719;  Art.  XXXI.) 

Manufacturers  of  flavoring  extracts  who  do  not  pay  special  tax  must  comply 
with  standards  prescribed  by  Secretary  of  Agriculture.  If  no  standard  has  been 
prescribed,  liability  to  special  tax  will  be  regarded  as  incnured  on  account  of  manu- 
facture of  flavoring  extracts,  as  well  as  of  essences,  soft  drinks,_  sirups,  etc.,  it 
finished  product  contains  more  alcohol  than  is  necessary  to  cut  the  oils  or  extract  the 
desired  active  principles  and  hold  them  in  solution.     "(T.  D.  27(30;  Oct.  9,  1918.) 

Where  sirups  or  extracts  taxable  under  section  313  (a),  act  of  October  3,  1917, 
are  prepared  in  final  marketable  form  by  A,  who  marks  or  labels  them  only  with 
the  name  or  trade-mark  of  B,  who  on  their  being  delivered  to  him  sells  them  with- 
out further  manufacture  to  his  own  customers,  if  transaction  between  A  and  B  is 
an  actual  sale  and  not  merely  employment  of  A  by  B  to  manufacture  the  articles 
as  his  agent  at  a  specified  profit,  A  is  the  "manufacturer"  who  is  liable  for  the  tax; 
artii-le  2  of  Kegulations  No.  44  can  not  be  construed  as  adopting  any  of  the  provi- 
sions of  article  21.     (T.  D.  2795;  Feb.  2G,  1919.) 

FAIRS. 

Agricultural  fairs — Capital  stock  tax. 

Provision  of  article  2,  of  Regulations  38,  exempting  agricultural  organizations, 
only  applies  to  those  organizations  that  are  engaged  in  that  business  merely  for  the 
general  welfare  and  benefit  of  the  public,  such  as  agricultural  fairs  or  exhibitions;  a 
corporation  engaged  in  general  farming,  raising  cattle,  or  the  agricultural  business  for 
profit  is  liable  to  the  tax.  (T.  D.  2417;  Dec.  16,  1916.  T.  D.  2750,  Art.  12;  Aug. 
8,  1918.) 

70420°— 21 17 


258  FALSE — FARMERS. 

Agricultural  fairs— Continued. 

Definition. 

The  term  "agricultural  iair3,"  aa  used  in  section  700  of  the  act  of  October  3,  1917, 
includes  live  stock  and  similar  shows  for  promotion  of  agricultural  interests,  but  not 
bench  shows  or  other  indoor  exhibitions.     (T.  D.  2681;  Jlar.  26,  1918.) 

Horticultural  fairs— Capital  stock  tax. 

Provision  of  article  2.  of  Regulations  38,  exempting  from  tax  horticultural  organiza- 
tions, only  applies  to  those  corporations  that  are  engaged  in  that  business  merely  for 
the  general  welfare  and  benefit  of  the  public,  such  as  horticultural  fairs  or  exhibitions. 
(T.  D.  2417;  Dec.  16,  1916.     T.  D.  2750,  Art.  12,  Aug.  9,  1912). 

Income  taxes — Exemptions. 

Agricultural  organizations  do  not  include  corporations  engaged  in  growing'  agri- 
cultural productsor  raising  live  stock  or  similar  products  for  profit,  but  include  only 
those  organizations  which,  having  no  net  income  inuring  to  benefit  of  members,  are 
educational  or  instructive  in  character,  and  which  have  for  their  pui-pose  the  better- 
ment of  conditions  of  those  engaged  in  these  pursuits,  improvement  of  growing  of 
their  products,  and  encouragement  and  promotion  of  industries  to  higher  degree  of 
efficiency;  included  in  this  class  as  exempt  are  county  fairs  and  like  associations  of  a 
quasi-public  character;  societies  or  associations  holding  race  meets  from  which 
profits  inure  or  may  inure  to  members  or  stockholders  are  not  exempt.  (T.  D.  2690; 
art.  73.) 

FALSE. 
Definition. 

The  word  '  'false,"  as  used  in  the  fifth  subdivision  of  section  38  of  the  act  of  August 
5, 1909,  means  '  'untrue  "  or '  'incorrect, ' '  and  does  not  necessarily  mean  intentionally 
or  fraudulently  false.     (T.  D.  2697;  Apr.  16,  1918.     Ct.  Dec.) 

FAMILY  USE. 
Wines. 

Exemption  from  tax  on  wines  produced  for  family  use,  under  section  402  (b)  of 
act  September  8,  1916,  does  not  apply  to  (a)  wines  made  by  one  person  for  use 
of  another,  whetlier  consumed  on  premises  or  removed  therefrom  for  family  use  of 
owner;  (b)  wines  produced  by  a  single  person,  unjess  he  is  the  head  of  a  family; 
(c)  wines  produced  by  married  man  liWng  apart  from  his  family,  and  not  for  usl; 
of  that  family;  (d)  wines  made  by  partnershi}),  or  to  wines  produced  at  a  winery 
owned  and  operated  bv  several  heads  of  families  jointlv;  (e)  wines  furnished  ranch 
hands  or  boarders,     (f .  D.  2765;  Oct.  21,  1918.) 

Each  person  entitled  to  and  desiring  to  avail  himself  of  exemption  provided  by 
section  402  (b)  of  act  September  8,  1916,  must  file  notice  with  collector  of  internal 
revenue  before  commencing  manufacture  of  wine;  such  notice  must  be  on  paper 
8  by  lOA  inches  in  size  and'^in  stated  form.     (T.  D.  2765;  Oct.  21,  1918.) 

FARMS. 
Definition. 

The  term  "farm,"  as  used  in  instructions  governing  preparation  of  income  tax 
returns  by  farmers,  held  to  embrace  farm  in  the  ordinarily  accepted  sense,  and  in- 
cludes plantations,  ranches,  stock  fai'ms,  daii-y  fai'ms,  poultrv  fai-ms,  truck  farms,  and 
all  land  used  for  similar  purposes.     (T.  D.  2665;  Mar.  8,  19 Is.) 


See  "Farmers. 


FARM  LOAN  ASSOCIATIONS. 

FARMERS. 


Capital  stock  tax — Agricultural  organizations. 

Provision  of  article  2,  of  Regulations  38,  exempting  agi-icultural  or  horticultural 
m-gauizations,  only  applies  to  those  corporations  that  are  engaged  in  that  business 
merely  for  the  general  welfare  and  benefit  of  the  public,  such  as  agricultural  or  horti- 
c:ultural  fairs  or  exhibitions;  a  corporation  engaged  in  general  farming,  raising  cattle, 
or  the  agriculturalbusiness  for  profit,  is  liable  to  tax  the  same  as  any  other  corporation. 
(T.  1).  2417;  Dec.  16,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.)  ' 


FARMERS.  259 

Capital  stock  tax — Continued. 

— ■ —  Insurance  companies. 

Farmers'  or  other  mutual  hail,  cyclone,  or  fire  insurance  company  of  purely  local 
character,  income  of  which  consists  Bolely  oi  assessments,  dues,  and  fees  collected 
from  members  for  sole  purpose  of  meeting  expenses,  is  exempt  from  tax  imposed  bv 
section  407  of  the  act  or  September  8,  1910.  (T.  D.  2383 ;  Oct.  19, 191G.  T.  D.  2750, 
art.  12;  Aug.  9,  191S.) 

— —  Mutual  ditch  or  irrigation  companies. 

Farmers'  or  other  mutual  ditch  or  irrigation  company  of  purely  local  character, 
income  of  which  consists  solely  of  assessments,  dues,  and  fees  collected  from  members 
for  sole  ijurposo  of  meeting  expenses,  is  exempt  from  tax  imposed  by  section  407  of 
act  of  September  8,  191(i.  (T.  D.  2383;  Oct.  19,  1910.  T.  D.  2750,  art.  12;  Aug. 
9,  1918.) 

Mutual  tolephone  companies. 

Farmers'  or  other  mutual  or  cooperative  telephone  company  of  purely  local  ciiar- 
acter,  income  of  which  consists  solely  of  asseesments,  dues,  and  fees  collected  from 
members  for  purpose  of  meeting  expenses,  is  exempt  from  tax  imposed  by  section  407 
of  act  of  September  8,  1910.  (T.  D.  23S3;  Oct.  19, 1910.  T.  D.  2750,  art.  12;  Aug. 
9,  1918.) 

National  farm-loan  associations. 

National  farm-loan  associations,  as  provided  in  section  2G  of  the  act  of  July  17, 1916, 
are  exempt  from  tax  imposed  by  section  407  of  act  of  September  8,  1916.  (T.  D. 
2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

■ Sales  associations. 

Farmers',  fruit  growers',  or  like  assaciations,  organized  and  operated  as  sales  agent 
for  purpose  of  marketing  products  of  members  and  turning  back  to  them  proceeds 
of  sales  less  necessary  selling  expenses  on  basis  of  quantity  of  produce  furnished  by 
them,  arc  exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8,  1916. 
(T.  D.  2383;  Oct.  19,  1910.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Definition. 

All  corp3rations,  partnerships,  or  individuals  who  cultivate,  operate,  or  manage 
farms  for  gain  or  profit,  either  as  owners  or  tenants,  are  farmers  for  the  purposes  of 
instruction  governing  preparation  of  income  tax  returns  by  farmers.  (T.  D.  2665; 
Mar.  8,  1918.) 

Persons  cultivating  or  operating  farm  for  recreation  or  pleasure  on  basis  other  than 
recognized  i^rinciples  of  commercial  farming,  result  of  which  is  a  continuous  loss 
from  year  to  year,  is  not  regarded  as  a  farmer.     (T.  D.  2690;  art.  4.) 

Income  taxes — Exemptions. 

Interest  on  securities  issued  under  provisions  of  Federal  farm  loan  act  of  July  17, 
1916,  shall  not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

Agricultural  organizations  are  e.xenipt  from  tax  without  condition;  collector,  be- 
ing satisfied  tliat  organization  comes  within  exempted  class,  is  authorized  to  elimi- 
nate it  from  his  list  and  relieve  it  from  necessity  of  making  returns.  (T.  D.  2690; 
art.  68.) 

Farmers'  or  other  mutual  hail,  cyclone  or  fire  insurance  company,  mutual  ditch 
or  irrigation  company,  or  mutual  or  cooperative  telephone  company  is  specifically 
exempt  fi-om  income  tax,  provided  that  their  entire  income  consists  solely  of  assess- 
ments, dues  and  fees  collected  from  members  for  sole  purpose  of  meeting  expenses 
incurred  in  pursuance  of  purpose  for  which  organized;  if  any  such  organization  has 
income  from  any  source  other  than  assessments,  dues,  and  fees  such  income  is  tax- 
able, and  organizations  receiving  same  will  be  required  to  make  returns.  (T.  D. 
2690;  art.  69.) 

Farm  loan  associations  organized  pursuant  to  act  of  Jidy  17, 1916,  are  exempt  from 
tax  without  condition;  collector,  being  satisfied  that  organization  comes  \sithin 
exempted  class,  is  authorized  to  eliminate  it  from  his  list  and  relieve  i  t  from  necessity 
of  making  returns.     (T.  D.  2690;  art.  68.) 

.Vgficultural  or  horticultural  organizations  do  not  include  corporations  engaged  in 
growing  agricultural  or  horticultural  products  or  raising  live-stock  or  similai-  products 
for  profit,  but  include  only  those  organizations  which,  having  no  net  income  inuring 


2(30  FARMEES. 

Income  taxes — Exemptions — Contiiuicd. 

to  benefit  of  members,  are  educational  or  instructive  in  character,  and  which  have 
lor  their  purpose  the  betterment  of  conditions  of  those  engaged  in  these  pursuits,  im- 
provement of  growing  of  their  products,  and  eucouragement  and  promotion  of  in- 
(hisfries  to  higher  degree  of  efficiency;  included  in  this  class  as  exempt  are  county 
fairs  and  like  ass  Delations  of  a  quasi-public  character;  SDcieties  or  associations  hold- 
ing race  meets  from  which  profits  inure  or  may  inure  to  members  or  stockholders  arc 
not  exempt.     (T.  D.  2690;  art.  73.) 

Corporation  engaged  in  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other 
products  of  this  clia.racter,  as  means  of  livelihood  and  for  purpose  of  gain,  is  an  agri- 
cultural or  horticultural  society  only  in  the  sense  that  its  name  indicates  the  kind  of 
business  in  which  it  is  engaged,  and,  as  such,  is  not  exempt  from  taxation.  (T.  D. 
2690;   art.  74.) 

Farmers',  fruitgrowers',  or  like  sssooiation,  organized  and  operated  as  a  sales  agent 
to  market  products  of  its  members,  in  order  to  come  within  the  exemption  provided 
in  paragraph  "eleventh"  of  section  11  of  the  act  of  September  8,  1916,  as  amended, 
must  establish  to  satisfaction  of  collector  or  Commissioner  of  Internal  Revenue  fact 
that,  for  their  own  account,  they  have  no  net  income,  and  that  entire  proceeds  of 
marketing  products  of  their  members,  less  necessary  selling  expenses,  are  turned 
back  or  p\id  to  members  on  basis  of  quantity  of  produce  furnished  by  them — quan- 
tity and  grade  being  considered — as  purchase  price  of  such  produce.  (T.  D.  2690; 
art.  75.)  '  See  T.  D.  2737;  June  19,  1918. 

Net  income. 

Where  expenses  incurred  in  operating  a  farm  for  recreation  or  pleasure  are  in  ex- 
cess of  receipts  therefrom,  entire  receipts  from  sale  of  products  may  be  ignored  in 
rendering  return  of  income,  and  expenses  will  not  constitute  allowable  deductions 
in  return  of  income  derived  from  other  sources.     (T.  D.  2690;  art.  4.) 

Under  paragraph  7  of  section  5  (a)  of  the  act  of  1916  there  may  be  claimed  a  rea- 
sonable allowance  for  depreciation  on  farm  buildings  (other  than  dv/elling  occupied 
by  owner),  farm  machinery,  and  other  physical  property,  including  stock  purchased 
for  breeding  purposes,  but  no  claim  for  depreciation  on  stock  raised  or  purchased 
lor  resale  will  be  allowed.     (T.  D.  2690;  art.  4.) 

In  case  of  sale  total  amount  received  for  stock  raised  and  for  stock  purchased  for 
resale  is  to  be  accounted  for  as  income.     (T.  D.  2690;  art.  4.) 

Individual  engaged  in  raising  and  selling  stock  may  not  claim  as  loss  value  of  such 
a.nimals  raised  as  die;  in  case  of  animals  purchased,  which  die,  amount  of  purchase 
money  will  be  an  allowable  deduction,  if  not  previously  deducted  as  business  ex- 
pense.    (T.  D.  2690;  art.  4.) 

When  farm  products  are  held  for  favorable  market  prices,  no  deduction  on  account 
of  shrinkage  in  weight  or  physical  value,  or  losses  by  reason  of  such  shrinkage  or  de- 
terioration in  storage  shall  be  allowed.     (T.  D.  2690;  art.  4.) 

Cost  of  farm  machinery  is  not  an  allowable  deduction  as  item  of  expense,  but  cost 
oi  ordinary  tools  of  short  life  or  insignificant  cost,  such  as  hand  tools,  including 
shovels,  rakes,  etc.,  may  be  included  under  this  item.     (T.  D.  2690;   arts.  4,  123.) 

Money  expended  for  stock  for  breeding  purposes  is  regarded  as  capital  invested, 
and  where  stock  dies  from  disease  or  injury  or  is  killed  by  order  of  authorities  of 
State  or  United  States  and  cost  thereof  has  not  been  claimed  as  item  of  expense, 
amounts  so  expended,  less  any  depreciation  which  may  have  been  previously 
claimed,  may  be  deducted  as  a  loss;  if  reimbursement  is  made  by  State  or  United 
States,  anount  received  shall  be  reported  as  income  for  vear  in  which  reimburse- 
ment is  made.     (T.  D.  2690;  arts.  4,  123.) 

If,  in  case  of  farmers',  fruit  growers',  or  like  association,  organi-'od  and  operated  as 
as  sales  agent  to  market  products  of  its  members,  amounts  paid  to  members  are  based 
solely  upon  quantity  of  produce  furnished,  such  amounts  may  be  deducted  from 
gross  proceeds  of  sale,  and  taxable  net  income  will  be  amount  of  earnings  passed  to 
surplus,  or  distributable  among  members  on  basis  of  their  stock  holdings.  (T.  D. 
2690;  art.  75.) 

There  may  be  claimed  a  reasonable  allowance  for  depreciation  on  farm  buildings, 
farm  machinery,  and  other  physical  property,  including  stock  purchased  for  breed- 
ing purposes,  but  no  claim  for  depreciation  on  stock  raised  or  purcha.sed  for  resale 
will  be  allowed.     (T.  D.  2690;  art.  123.) 

Corporations  engaged  in  operating  plantations,  ranches,  stock  farms,  poultry- 
farms,  and  lands  used  for  raising  fruit,  truck,  etc.,  including  orchards  of  all  kinds, 


TAKMEES.  261 

Income  taxes— Continued. 

Net  income — Continued. 

shall  make  their  returns  on  the  basis  of  the  products  actually  marketed  and  sold 
during  the  vear.  whether  such  products  were  produced  or  purchased  and  resold. 
(T.  D.  2C9(),;   art.  123.) 

In  determining  cost  of  stock  for  purpose  of  ascertaining  deductible  loss  there  shall 
be  taken  into  account  only  the  purchase  price  and  not  the  cost  of  any  feed,  pasturage, 
or  care  wliich  has  been  deducted  as  an  expense  of  operations.     (T.  D.  2690;  art.  123.) 

Cost  of  live  stock  purchased  for  resale  by  corporation  engaged  in  operating  planta- 
tions, stock  farms,  etc.,  is  an  allowable  deduction  under  item  of  expense.  (T.  I). 
2690;  art.  123.)     But  see  T.  D.  2665. 

All  deductions  by  corporations  engaged  in  operating  plantations,  ranches,  etc., 
shall  be  based  upon  legitimate  expense  incident  to  current  year  whellier  for  produc- 
tion of  present  or  future  years,  except  that  in  case  wherein  corporation  is  engaged 
in  producing  crops  which  take  more  than  a  j^ear  from  time  of  ])lanting  to  process  of 
gathering  and  disposing,  income  reported  and  expenses  deducted  should  be 
determined  upon  crop  basis.     (T.  D.  2690;  art.  123.)    But  see  T.  D.  2665. 

Returns — Accounts. 

Farmers  who  keep  books  according  to  some  approved  method  of  accounting, 
which  clearly  shows  net  income,  and  take  annual  inventories,  may  prepare  returns 
m  accordance  with  showing  made  by  such  books  and  inventories;  ascertainment  of 
gross  income  where  inventory  method  is  adopted  by  farmer.  (T.  D.  266r3;  Mar. 
8,  1918.) 

Deductions. 

Amount  expended  in  purcha.sing  stock  for  resale  is  an  investment  of  capital  and 
is  not  to  be  taken  as  an  item  of  expense  for  year  in  which  stock  was  purchased  or  for 
any  subsequent  year,  but  when  stock  so  purchased  is  sold  its  cost  is  to  be  deducted 
from  sales  price  in  ascertaining  amount  of  gain  or  profit  returnable  for  tax  purposes; 
where  cost  of  stock  or  farm  products  purchased  in  1916  or  any  previous  year  for 
resale  has  been  claimed  as  a  deduction,  and  such  stock  or  farm  products  were  sold 
during  1917,  entire  proceeds  are  to  be  returned  aa  income  for  year  in  which  sale  was 
made.     (T.  D.  2605;  Mar.  8,  1918.) 

All  items  of  expense  connected  with  the  planting,  cultivating,  harvesting,  and 
marketing  of  a  crop,  or  the  care,  feeding,  and  marketing  of  live  stock,  may  be  claimed 
as  deductions  only  in  the  return  rendered  for  the  year  during  which  such  expendi- 
tures were  made;  this  applies  even  though  crop  or  stock  may  not  have  been  sold 
or  exchanged  for  money  or  money  equivalent  during  year  for  which  return  is  ren- 
dered.    (T.  D.  2665;  Mar.  8,  1918.) 

Rents  received  in  crop  shares  must  be  returned  as  of  year  in  which  shares  are 
reduced  to  money  or  money  equivalent,  and  allowable  deductions  must  be  claimed 
in  return  of  income  for  tax  year  in  which  they  apply,  although  expenses  and 
deductions  may  be  incident  to  products  which  remain  unsold  at  end  of  year.  (T.  D. 
2690;  art.  4.) 

— —  Exchange  of  produce  for  merchandise. 

Where  farmer  exchanges  farm  produce  for  merchandise,  groceries,  or  mill  prod- 
ucts, the  market  value  of  the  article  or  product  received  in  exchange  is  to  be  re- 
turned as  income.     (T.  D.  2665;  Mar.  8,  1918.) 

— Inventories. 

Where  farmer  has  adopted  inventory  method  of  keeping  accounts,  he  should,  in 
order  to  ascertain  gross  income,  add  to  amount  received  from  sales  during  year  the 
inventory  of  the  live  stock  and  products  on  hand  at  the  close  of  the  year,  and  then 
deduct  amount  expended  in  purchasing  live  stock  and  products  plus  inventory  of 
live  stock  and  products  at  beginning  of  year;  no  deduction  can  be  made  for  stock 
or  products  lost  during  year;  stock  purchased  for  any  purpose  other  than  resale 
may  be  included  in  inventory  for  each  year  at  a  figure  which  will  reflect  reduction 
in  value  estimated  to  have  occurred  through  increase  or  age  or  other  causes;  cost 
price  of  articles  sold  must  not  be  taken  as  additional  deduction.  (T.  D.  2665; 
Mar.  8,  1918.) 

Produce  consumed  by  family. 

A  farmer  is  not  required  to  include  in  his  income-tax  return  the  value  of  farm 
produce  consumed  by  himself  and  family.     (T.  1).  2665;  Mar.  8,  1918.) 

Farmers  who  do  not  keep  books  of  account  and  ascertain  their  gross  income  by 
inventory  should  prepare  returns  of  annual  net  income  on  basis  of  actual  receipta 


262      FEDERAL  FARM  LOANS — FEDERAL  EESERVE  BOARD. 

Income  taxes — Continued. 

Returns— Continued. 

Heceipts  and  disbursements. 

and  disbursements  in  order  that  returns  may  be  susceptible  of  audit  for  purposes  of 

verification.     (T.  D.  2665;  Mar.  8,  1918.) 

Sales  agents. 

If,  in  course  of  their  business,  farmers',  fruit  jjfrowers',  or  like  association,  organ- 
ized and  operated  as  sales  agents  to  market  products  of  its  members,  purchase  for 
cash  at  a  stipulated  price  articles  of  produce  with  view  of  selling  them  for  gain,  they 
Avill  be  required  to  make  returns  of  annual  net  income  and  include  therein,  for  pur- 
pose of  tax,  all  income  deri^'ed  from  such  transactions.     (T.  D.  2690;  art.  75.) 

Periodical  refunds  made  by  cooperative  societies  in  accordance  with  by-laws  or 
published  rules  are  to  be  regai-ded  as  discounts  or  rebates,  tending  to  reduce  the 
taxable  net  income  of  the  organizations,  and  they  should  appear  as  an  added  item 
of  cost  in  the  detailed  schedule  of  cost  items  submitted  with  the  orgajiization's  return 
of  income.     (T.  D.  2737;  June  19,  1918.) 

Time  as  of  which,  made. 

All  gains,  profit.-,  and  income  derived  from  sale  or  exchange  of  farm  products, 
whether  produced  on  the  farm  or  purchased  and  resold  by  the  farmer,  shall  be  in- 
cluded in  the  return  of  income  for  year  in  which  products  were  actually  marketed 
and  sold.     (T.  D.  2665;  Mar.  8,  1918.) 

FEDERAL   FARM   liOANS. 

Interest  on  securities— Income  tax. 

Interest  on  securities  issued  under  provisions  of  Federal  farm  loan  act  of  July  17, 
1916,  shall  not  Ix?  included  as  income.     (T.  D.  2690.  art.  5.) 

FEDEHAL   LAND   BANKS. 
Capital  stock  tax. 

Federal  land  banks,  as  provided  in  section  26  of  act  of  July  17,  191G,  are  exempt 
from  tax  imuosed  by  section  407  of  act  of  September  8,  1916.  (T.  D.  2383;  Ocf 
19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Tax  does  not  apply  to  joint-stock  land  banks  as  to  income  derived  from  bonds  or 
debentures  of  other  joint-stock  laud  banlcs  or  Federal  land  bank  belonging  to  such 
joint-stock  land  bank.     (T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Income  taxes — Exemptions. 

Federal  land  banks  are  exempted  from  tax  without  condition;  collector,  being 
satisfied  that  organization  comes  within  exempted  class,  is  authorized  to  eliminate 
it  from  his  list 'and  relieve  it  from  necessity  of  making  returns.  (T.  D.  2690;  art. 
68.) 

FEDERAL  RESERVE  BANKS. 

Income  taxes — Exemptions. 

Exemption  pro^■ided  for  in  Federal  reserve  statute,  section  3,  of  the  act  of  October 
22,  1914,  attaches  to  and  follows  income  derived  from  dividends  on  stock  of  Federal 
reserve  banks  into  hands  of  stockholders,  that  is  to  say,  dividends  received  on  stock 
of  such  banks  are  exempt  from  taxes  imposed  by  acts  of  September  8,  1916,  as 
amended,  and  of  October  3,  1917;  this  ruling  does  not  contemplate  that  di\idends 
paid  by  member  banks  are  exempt  from  the  2  per  cent  tax,  but  such  dividends,  in 
so  far  as  they  may  be  received  by  other  corporations,  may  be  treated  as  a  credit 
against  net  income  in  computing  the  war  incom.e  tax  imposed  by  Title  I  of  the  act 
of  October  3,  1917.     (T.  D.  2690;  art.  86.^ 

FEDERAL  RESERVE  BOARD. 

Bankers'  acceptances — Stamp  taxes. 

The  rule  that  the  stamp  tax  on  drafts  and  checks  imposed  by  Schedule  A  of  Title 
yill  of  the  act  of  October  3, 1917,  attaches  to  drafts  or  checks  at  the  time  of  delivery, 
if  delivered  within  the  territorial  jurisdiction  of  the  United  States  and  expressed  "to 
be  payable  otherwise  than  at  sight  or  on  demand,  but  not  to  drafts  or  checks  not  yet 
delivered  or  deli^'ered  in  a  foreign  country  or  expressed  to  be  payable  at  sight  or 
on  demand,  is  applicable  to  bankers'  acceptances  as  defined  by  the  regulations 
of  the  Federal  Reserve  Board.     (T.  D.  26S2;  Mar.  26,  1918.) 


FEES — FEEMENTED  LIQUORS.  2G3 

Trade  acceptances — Stamp  taxes. 

The  rule  that  the  stamp  tax  on  drafts  and  checks  imposed  bj--  Schedule  A  of  Title 
VIII  of  the  act  of  October  3, 1917,  attaches  to  drafts  or  checks  at  the  time  of  delivery, 
if  delivered  within  the  territorial  jurisdiction  of  the  United  States  and  expressed  to 
be  payable  otherwise  than  at  sight  or  on  demand,  but  not  to  drafts  or  checks  not 
yet  delivered  or  delivered  in  a  foreign  country  or  expressed  to  be  paj'able  at  sight 
or  on  demand,  is  applicable  to  trade  acceptances  as  defined  by  the  regulations  of 
the  Federal  Reserve  Board.     (T.  D.  2682;  Mar.  20,  1918.) 

FEES. 
Income  taxes — Claim. 

Collectors  are  authorized  to  pay  clerk  of  court  his  legal  fees  for  certificateB  furnished 
by  him  relative  to  litigated  taxes,  and  will  be  credited  in  their  expense  accounts  for 
amounts  so  paid  on  tiling  therewith  vouchers  covering  expenses  thus  incurred. 
(T.  D.  2690;  art.  255.) 

Membership. 

See  "  Dues." 

FERMENTED  LIQUORS. 
Act  published. 

Extract  from  act  of  September  8,  1916,  relating  to  tax  on  fermented  liquors,  pub- 
lished for  information  of  internal-revenue  officers  and  others  concerned.  (T.  D.  23G5 ; 
Sept.  11,  1916.) 

Alaska. 

Extracts  from  act  of  February  14,  1917,  prohibiting  manufacture  and  sale  of  alco- 
holic liquors  in  Alaska,  published  for  information  of  internal-re^'enue  officers  and 
others  concerned.     (T.  D.  2466;  Mar.  27,  1917.) 

Alcoholic  content. 

Alcoholic  content  of  fermented  malt  liquor  produced  in  United  States  (except  ale 
and  porter)  must  in  no  case  exceed  2|  per  cent  of  alcohol  by  weight.  (T.  D.  2618; 
Dec.  21,  1917.) 

All  so-called  malt  tonics  and  malt  extracts  containing  in  excess  of  2  per  cent  of 
alcohol  by  volume  and  not  containing  at  least  12  per  cent  of  solids  due  to  malt  are 
properly  classed  as  fermented  malt  liquors,  and  all  existing  pro^'isions  of  internal- 
revenue  law  and  regulations  relating  to  fermented  malt  liquors,  including  section 
of  law  imposing  special  tax  on  account  of  sale  thereof,  are  applicable  to  such  prepara- 
tions.    (T.  D.  2717;  May  28,  1918.) 

Analysis. 

Officers  having  reason  to  suspect  that  contents  of  package  sent  out  from  brewery 
premises  have  alcoholic  content  exceeding  2f  per  cent  instructed  to  forward  sample 
for  analvsis,  after  having  dissolved  in  sample  5-grain  tablet  of  bichloride  of  mercury ; 
label  to  be  specifically  marked  "Poison."     (T,  D.  2618;  Dec.  21,1917.) 

Bonds. 

Execution  of  new  bonds  required  wherever  specific  acts  of  Congress  or  rates  of 
taxation  necessitate  such  bonds.     (T.  D,  2525;  Sept.  24,  1917.) 

Carbonated  beverages. 

Carl)ouated  fermented  liquors  containing  less  than  one-half  pcii-  cent  of  alcohol 
arc  to  be  classed  as  cai'bonated  beverages  and  not  as  fermented  liquors  within  mean- 
ing of  section  313  (b)  of  the  act  of  October  3,  1917,  and  are  accordingly  not  directly 
taxed  unless  manufactured  and  sold  by  the  manufacturer,  producer,  or  importer  of 
the  carbonic  acid  gas  used  in  carbonating  them.     (T.  D.  2719;  Art.  XXXI.) 

Carbonic  a,cid  gas. 

Carbonic  acid  gas  used  in  manufacture  of  ale  is  taxable.  (T.  D.  2598;  Nov.  24, 
1917.) 

Tax  imposed  by  section  315  of  the  act  of  October  3,  1917,  is  5  cents  for  each  pound 
of  carbonic  acid  gas  in  drums  or  containers  .sold  by  the  manufacturer,  if  intended 
for  use  in  the  manufacture  or  production  of  carbonated  water  or  drinks,  including 
fermented  liquors  containing  less  than  one-half  per  cent  of  alcohol;  carbonic  acid 
gas  used  in  ckawing  beer  from  containers  or  in  operation  of  refrigerating  plants,  or  in 


264  FERMEJvJTED   LIQUORS. 

Carbonic  acid  gas — Continued. 

preserving  food  product?,  or  in  manufacture  of  beverages  containing  one-half  per 
cent  or  more  of  alcohol,  is  not  subject  to  the  tax;  in  all  cases  of  sales  of  carbonic 
acid  g-AS  for  use  other  than  in  the  manufacture  of  carbonated  water  or  other  drink", 
manufacturer  must  prominently  stamp  on  or  affix  to  container  a  warning,  as  foUoiVs: 
"  Federal  tax  not  paid.  Unlawful  to  use  in  the  manufacture  of  beverages." 
(T.  D.  2719;  Art.  XXXV.) 

Cisterns. 

Temporary  regulation  providing  that  until  further  notice  brewers  having  estab- 
lished pipe  line  for  transfer  of  fermented  liquors  may  set  aside  and  utilize  one  or 
more  ci^^terns  pertaining  thereto  for  containing  liquors  containing  not  to  exceed  one- 
half  of  1  per  cent  of  alcohol  by  volume  for  transfer  through  the  pipe  line  for  sole  pur- 
pose of  bottling,  under  certain  conditions  and  restrictions;  duties  of  deputy  collector 
in  attendance.     (T.  D.  2359;  Sept.  9,  1916.) 

Regulation  as  to  construction  of  measuring  cisterns  for  determination  of  quantity 
of  taxable  materials  transferred  from  brewery  to  contiguous  industrial  distillery, 
such  cisterns  to  be  used  also  as  charge  tanks  for  distillery,  to  enable  collector  to  make 
prescribed  survey.     (T.  D.  2564;  Oct.  26,  1917.) 

Floor  tax. 

All  vermuths,  cordials,  and  other  compounds,  in  which  distilled  spirits  exclusively 
have  not  been  used,  1;ut  which  contain  spirits  produced  by  fermentation,  and  those 
produced  by  distillation,  will  be  considered  as  haAdng  15  per  cent  alcohol  by  vol- 
ume produced  by  natural  fermentation,  and  additional  tax  of  .$2.10  per  proof  gallon 
will  be  due  only  on  alcoholic  content  in  excess  of  15  per  cent;  where  vermuths, 
cordials,  and  other  compounds  are  manufactured  with  mixtures  of  wdnes  and  spirits, 
additional  tax  will  be  due  only  on  distilled  spirits  contained  therein  and  not  on 
spirits  contained  in  fermented  wines  used.     {T.  D.  2579;  Nov.  5,  1917.) 

Ma-lt  liquors — Conservation  of  food  or  feed  materials. 

Brewers  producing  fermented  malt  liquors  on  and  after  January  1,  1918,  must 
conserve  from  residue  the  animal  feed;  instructions  with  reference  to  conservation 
of  slops;  penalty  for  violation  of  ruling.     (T.  D.  2618;  Dec.  21,  1917.) 

Grain  or  other  food  or  feed  material  used  in  production  of  fermented  malt  lic|uor3 
for  any  quarter  limited  to  70  per  cent  of  amount  of.grain,  etc.,  used  in  production  of 
such  liquor  during  corresponding  cjuarter  for  calendar  year  1917;  rules  as  to  brew- 
(jries  not  in  operation  during  corresponding  quarter  of  year  1917,  and  breweries 
never  operating  during  corresponding  quarter,  and  where  there  has  been  a  suc- 
cession to  business  conducted  on  same  brewery  premises,  and  where  two  or  more 
breweries  effect  bona  fide  consolidation  of  business  for  purpose  of  economy.  (T.  D. 
2618;  Dec.  21,  1917.) 

Brewers  intending  to  produce  fermented  malt  liquor  on  and  after  January  1,  1918, 
required  to  apply  for  license  to  operate  under  food-control  act  of  October  10,  1917; 
contents  and  form  of  application;  issuance  and  posting  of  license.  (T.  D.  2618; 
Dec.  21,  1917.) 

Executive  order,  dated  September  16,  1918,  and  regulations  promulgated  by  the 
President  under  date  of  September  80,  1918,  covering  production  of  malt  liquors  aiid 
the  alcoholic  content  thereof,  publishe  1  for  information  of  revenue  officers  and  others 
concerned.     (T.  D.  2/68;  Nov.  2,  1918.) 

If  at  any  time  the  President's  proclamation  of  September  16,  1918,  providing  that 
en  and  after  December  1,  1918,  no  person  shall  use  any  sugar,  glucose,  corn  oi'  rice, 
or  any  other  foods,  fruits,  food  materials  or  feeds,  including  malt,  in  the  production 
of  malt  liquors,  including  near  beer,  for  beverage  purposes,  whether  or  not  such  malt 
liquors  contain  alcohol,  becomes  inoperative  as  to  near  beer,  brewers  may  re-ume 
the  manufacture  thereof  prior  to  May  1,  1919,  where  the  alcoholic  content  during 
the  process  of  manufacture  exceeds  one-half  of  1  per  cent  by  volume,  but  doo>  not 
exceed  2f  per  cent  by  weight,  on  the  brewery  premises,  provided  the  alcoliolic 
content  at  the  time  of  removal  for  sale  and  consumption  does  not  exceed  the  limit 
of  less  than  one-half  of  1  per  cent  of  alcohol  by  volume.     (T.  D.  2788;  Feb.  6,  1919.) 

Within  the  intent  of  the  act  of  November  21,  1918,  a  beverage  containing  one-half 
of  I  per  cent  or  more  of  alcohol  by  volume  will  be  regarded  as  intoxicatiuir.  (T. 
D.  2788;  Feb.  6,  1919.) 

Where,  in  the  process  of  manufacture  of  a  so-called  near  beer  the  alcoholic  content 
of  the  fermented  wort  is  always  kept  at  less  than  one-half  of  1  per  cent  of  alcohol  by 


FERMENTED  LIQUORS.  2G5 

Malt  liquors— Conservation  of  food  or  feed  materials — rontimicd. 

voluino,  and  llie  product  is  so  marketed  in  sterile  containers  or  otlierwise  that  the 
alcoholic  content  at  no  time  before  consumption  will  he  increased  to  one-half  of  1 
per  cent  by  volume  or  more,  the  manufacturer  thereof  will  not  be  regarded  as  a 
distiller  or  as  a  I'rewer,  and  special  tax  liability  for  its  manufacture  and  sale  will  not 
be  incurred,  but  the  manufacturer  will  }>e  required  to  tile  a  modified  notice,  Form 
27c,  as  set  forth  in  Mini.  No.  192().     (T.  D.  2788;  Feb.  6,  J919.) 

After  May  1,  1919,  persons  will  not  be  permitted  to  qualify  as  brewers  where  the 
alcoholic  content  of  their  product  at  anj'  time  during  the  process  of  manufacture 
e([uals  or  exceeds  one-half  of  1  per  cent  by  volume,  regardless  of  tlie  alcoholic  content 
v/lien  removed  for  consumption  or  sale.  After  that  date,  when  lirewers  w'ill  not  be 
permitted  to  qualify  as  such  by  reason  of  the  act  of  Xovember  21,  1918.  for  tlie 
manufacture  of  either  l)eer  or  near  l)eer,  it  will  he  necessary  for  manufacturers 
de-iring  to  produce  near  beer  exceeding  one-half  of  1  per  cent  of  alcohol  by  volume 
at  any  stage  of  its  manufacture  to  qualify  as  industrial  distillers  under  the  act  of 
October  .3,  1913,  and  regvilations  made  in  pursuance  thereof,  subject  to  the  so-called 
"spoiled  corn"  order  while  the  same  remains  in  effect.     (T.  D.  2788;  Feb.  6,  1919.) 

Manufactuiers  of  near  beer,  regardless  of  the  method  of  production,  are  charged 
with  the  duty  of  seeing  that  the  product  is  less  than  one-lialf  of  1  per  cent  of  alcohol 
l>y  volume  and  always  so  remains  until  it  is  consumed:  it  should  be  marketed  in 
glass  bottles  or  other  sterile  containers,  after  pasteurization  or  otherwise  destroying 
the  yeast,  where  the  same  contains  fermentable  matter  vrhen  marketed;  unless  this 
product  is  thus  marketed,  the  ]>arrel  tax  and  all  special  taxes  will  be  asserted,  and 
prosecution  instituted,  if  the  product  is  found  on  the  market  containing  one-half  of 
1  per  cent  or  more  of  alcohol  by  volume.  AH  containers  of  near  beer  must  bear  a 
label  indicating  the  character  of  the  contents  and  showing  clearly  the  name  of  the 
manufacturer  and  the  location  of  his  factory,  the  district  and  State  in  whicli  made. 
(T.  D.  2788;  Feb.  (J,  1919.) 

Any  violation  of  the  law  or  regulations  which  is  a  violation  of  the  act  of  August  10, 
1917,  or  the  act  of  November  21,  1918,  can  not  be  made  the  subject  of  compromise 
by  the  Commissioner  of  Internal  Revenue  under  section  3229,  I-ve\ised  Statutes, 
which  section  is  applicable  to  offenses  arising  under  the  internal-revenue  laws  only. 
(T.  D.  2788;  Feb.  d,  1919.) 

Internal-revenue  storekeeper-gangers  and  storekeeper-gangers  assigned  as  gangers 
will  be  guided  by  the  acts  of  August  10,  1917,  and  November  21,  1918,  and  the 
regulations  and  rulings  thereunder,  and  w^ill  not  permit  the  use  in  the  production 
of  lieverage  spirits  or  wines  of  anv  material  held  to  he  foods,  fruits,  food  materials, 
or  feed.     (T.  D.  2788;  Feb.  (i,  1919.) 

Storekeeper-gaugers,  storekeeper-gangers  assigned  as  gangers,  and  deputy  collectors 
will  report  to  their  immediate  superiors  and  revenue  agents  and  collectors  will 
report  to  the  Commissioner  of  Internal  Revenue  violations  of  the  law  and  regulations. 
(T.  D.  2788;  Feb.  6,  1919.) 

Tlie  words  "grains,  cereals,  fruit,  or  other  food  product'"  appearing  in  the  act  of 
November  21,  1918,  applv  to  the  same  products  referred  to  in  the  act  of  August  10, 
1917,  as  ■•foods,  fruits,  food  materials  or  fee'ds. "     (T.  D.  2788;  Feb.  6,  1919.) 

Denatured  alcohol. 

Fermented  malt  liquor  may  be  conveyed  by  pipe  line  without  tax  payment  from 
brewery  premises  where  produced  to  contiguous  industrial  distillery  of  either  class 
established  under  act  of  October  3, 1913,  there  to  be  used  as  distilling  material,  where 
the  brewery  premises  and  the  industrial  distillery  premises  are  separate  and  distinct, 
and  for  which  re(]uisite  notices  and  bonds  shall  have  been  given;  must  be  com- 
plete separation  by  sufjstantial  unbroken  partitions  between  brewery  and  distillery 
from  cellar  to  roof  where  they  are  in  same  building  or  separate  buildings  immediately 
adjoining.     (T.  D.  2564;  Oct.  26,  1917.) 

Supervision  o\er  removal  of  taxable  fermented  liquor  from  brewery  to  distillery 
and  over  operation  of  distillery  and  denaturation  of  product  will  be  exercised  by 
pipe-line  deputy  where  one  is  on  duty,  or  in  cases  where  there  is  no  such  deputy  or 
he  is  unable  to  perform  reciuired  duties,  a  storekeeper-gauger  will  be  assigned  in  the 
usual  manner  to  the  distillerv.  with  compensation  not  less  than  $3  nor  more  than  |4 
per  day.     (T.  D.  2564;  Oct.  26,  1917.) 

Residue  from  distilleries. 

Residue  from  industrial  distilleries  containing  less  than  one-half  of  1  per  cent 
of  alcohol  by  volume,  used  in  making  nontaxable  beverages,  may  be  manipulated 
by  cooling,  flavoring,  carbonating,  settling,  and  filtering  on  the  distillery  premiaea 


266  FERMENTED  LIQUORS. 

Malt  liquors— Continued. 

- —  S-esidue  from  distilleries — Continued, 
or  on  the  brewery  premises,  or  transferred  from  distUlery  ])remises  to  other  premises 
for  bottling  by  'means  of  unstamped  packages  tmlike  those  ordinarily  used  for 
containing'fermented  liquor,  or  if  like  packages  are  used  both  heads  to  be  equipped 
in  solid  color  with  certain  lettering.     (T.  D.  2564;  Oct.  26,  1917.) 

Residue  from  industrial  distilleries  containing  less  than  one-half  of  1  per  cent 
of  alcohol  by  volume  may  be  transferred  to  otlier  premises  for  bottling  or  otherwis? 
by  way  of  separate  pipe-line,  which  may  be  connected  on  bottling  premises  with 
tank  or  with"  the  filling  machine  commonly  used  for  bottling  fermented  liquors 
received  from  brewer v  premises;  such  pipes  must  be  open  to  inspection  throughout 
their  entire  lengths.  '  (T.  D.  2564;  Oct.  2G,  1917.) 

Keturns  and  reports  of  brewei-ies. 

Form  18,  as  re\'ised,  required  to  be  used  to  exclusion  of  all  former  editions  on  and 
after  July  1, 1917,  at  which  date  forms  of  former  edition  should  be  destroyed;  con- 
tents of  forms  stated;  commencing  with  July  1,  1917,  collector 's  copy  of  Form  IS 
required  to  be  filed  in  loose-leaf  binder,  alphabetically,  by  name  of  brewer,  tlius 
constituting  an  original  record  of  each  month  s  transactions  for  each  brewer,  and 
taking  place  of  record  20,  keeping  of  wMch  on  and  after  July  1,  1917,  was  discontin- 
ued. ^(T.  D.  2471;  Apr.  2,  1917.) 

Liquors  will  be  reported  as  produced  by  the  brewer  and  so  entered  on  his  record 
(Form  104)  and  return  (Fcrna  18),  forming  part  of  the  general  product  of  the  brewery; 
credit  will  be  taken  on  such  record  and  return  for  quantity  removed  as  distilling 
material,  same  not  to  be  subject  to  beer  tax;  distillery  to  take  up  material  received 
on  record  book  606  and  abstract  thereof  to  be  sent  monthly  to  collector.  (T.  D. 
2564;  Oct.  2G,  1917.) 

Refund  or  abatement  of  tax. 

Provisions  of  T.  D.  2688  do  not  govern  in  case  of  claims  for  refund  or  abatement 
of  taxes  OB  distilled  spirits,  fennentod  liquors,  and  -wines.  (T.  D.  2926;  Sept.  29, 
1919.) 

Samples. 

Insti'uctions  relative  to  taking  samples  at  brewery,  on  premises  of  dealers,  at 
vinegar  factories,  etc.,  and  assessments  for  taxes  where  cereal  beverages  contain  or 
are  suspected  of  containing  one-half  of  1  percent  or  more  of  alcohol  by  volume. 
(T.  D/2921;  Sept.  15,  1919.) 

Stamp  orders. 

Form  7,  as  re\'ised,  required  to  be  used  to  exclusion  of  all  former  editions  on  and 
after  July  1,  1917,  at  which  dateallforms  of  former  editionsrequired  to  bedestroyed; 
revised  Form  7  required  to  be  filed  in  check-size  drawers  behind  guide  cards  bearing 
name  of  each  brewer,  forming  original  record  of  orders  for  stamps  and  taking  place 
of  record  19;  two  sets  of  guides  to  be  used,  pro^iding  current  and  closed  file.  (T.  D. 
2471;  Apr.  2,  1917.) 

Temperance  beer. 

iletal  packages,  v/hisky  or  A'inegar  barrels,  or  remodeled  beer  packages  differing 
in  size  and  shape  from  the  regular  statutory  packages  for  containing  fermented 
liquors  may  be  employed  to  contain  temperance  beer;  rcgidar  hem'  cooperage  mav 
be  used  under  certain  conditioiLS.     (T.  D.  2410;  Dec.  8,  1916.) 

Responsibility  of  brewers,  manufacturers  of  beverages,  and  dealers  who  place  or 
market  unstamped  beverages  foirnd  to  contain  more  than  one-half  of  1  per  cent  of 
alcohol  by  volume,  stated;  duty  of  revenue  agents  having  reason  to  suspect  that 
such  beverages  are  placed  on  market  vnthout  pavnnent  of  tax.  (T.  D.  2370;  Sept. 
18.  1916.) 

If  at  any  time  the  President's  proclamation  of  September  10,  1918,  providing 
that  on  and  after  December  1,  1918,  no  person  shall  use  any  sugar,  gluccse,  corn  or 
rice,  or  any  other  foods,  fruits,  food  materials  or  feeds,  including  malt,  in  the  pro- 
duction of  malt  liquors,  including  near  beer,  for  beverage  purposes,  whether  or  not 
such  malt  liquors  contain  alcohol,  becomes  inoperative  as  to  near  beer,  brewers  may 
resume  the  manufacture  thereof  prior  to  ilay  1,  1919,  where  the  alcoholic  content 
during  the  process  of  manufacture  exceeds  one-half  of  1  per  cent  by  volume,  but 
does  not  exceed  2|  per  cent  by  weight,  on  the  brewery  premises,  provided  the  alco- 
holic content  at  the  time  of  removal  for  sale  and  consumption  does  not  exceed  the 
limit  of  less  than  one-half  of  1  per  cent  of  alcohol  by  volume.  (T.  D.  2788;  Feb.  6, 
1919- ) 


FIDELITY  INSUCANCE — FIDUCIARIES.  2G7 

Temperance  beer — Continued. 

After  May  1,  1919,  i)erKonfi  will  not  be  poiiuitlfd  to  qualify  as  brewers  where  the 
alcoholic  content  of  their  product  at  any  time  during  the  process  of  manufacture 
equals  or  exceeds  one-half  of  1  per  cent  by  volume,  rejiardless  of  the  alcoholic  con- 
tent when  I'emoved  for  consumption  or  sale.  After  that  date,  when  brewers  will 
not  be  permitted  to  qualify  as  such  by  reason  of  the  act  of  November  21,  1918,  for 
the  manufacture  of  either  beer  or  near  beer,  it  will  be  necessary  for  manufacturers 
desiring  to  produce  near  beer  exceed  iiig  one-half  of  1  per  cent  of  alcohol  by  volume 
at  any  stage  of  its  manufacture  to  qualify  as_ industrial  distillers  under  the  act  of 
October  .S,  1913,  and  the  regulations  made  in  piu-suance  thereof,  subject  to  the 
so-called  "spoiled  corn"  order  while  the  same  remains  in  effect.  (T.  D.  2788; 
Feb.  G,  1919.) 

Manufacturers  of  near  beer,  regardless  of  the  method  of  production,  are  charged 
with  the  duty  of  seeing  that  the  product  is  less  than  one-half  of  1  per  cent  of  alcohol 
by  volume  and  always  so  remains  \intil  it  is  consumed;  it  should  be  marketed  in 
glass  bottles  or  other  sterile  containers,  after  pasteurization  or  otherwific  destroying 
the  yeast,  where  the  same  contains  fermentable  matter  when  marketed;  unless  this 
product  is  thus  marketed,  the  barrel  tax  and  all  special  taxes  will  be  asserted,  and 
prosecution  instituted,  if  the  product  is  found  on  the  market  containing  one-lialf 
of  1  per  cent  or  more  of  alcohol  by  volum^e.  All  containers  of  near  beer  must  bear 
a  label  indicating  the  character  of  the  contents  and  showing  clearly  the  name  of 
the  manufacturer  and  the  location  of  his  factory,  the  district  and  State  in  whiih 
made.     (T.  D.  2788;  Feb.  G,  1919.) 

Where,  in  the  process  of  manufacture  of  a  so-called  near  beer,  the  alcoholic  content 
of  the  fermented  wort  is  always  kept  at  less  than  one-half  of  1  per  cent  of  alcohol 
by  volume,  and  the  lU'oduct  is  so  marketed  in  sterile  containers  or  otherwise  that 
the  alcoholic  content  at  no  time  before  consumption  will  be  increased  to  one-half 
of  1  per  cent  by  volume  or  more,  the  manufacturer  thereof  will  not  be  regarded  as 
a  distiller  or  as  a  brewer,  and  special  tax  lia1:)ility  for  its  manufacture  and" sale  will 
not  be  incurred,  but  the  manufacturer  will  be  required  to  file  a  modified  notice, 
Form  27c,  as  set  forth  in  Mim.  No.  1926.     (T.  D.  2788;  Feb.  6,  1919.) 

Time  taxes  effective. 

War  revenue  taxes  on  fermented  liquors  removed  from  place  of  production  or 
storage  took  effect  on  and  after  morning  of  October  4,  1917.  (T.  D.  2547;  Oct.  22, 
1917.) 

FIDELITY  INSURANCE. 
See  "Insurance. " 

FIDUCIARIES. 
Definition. 

"Fiduciary' '  is  a  term  which  applies  to  all  persons  or  corporations  that  occupy 
positions  of  peculiar  confidence  towards  others,  such  as  trustees,  executors,  or 
administrators;  fiduciary  for  income-tax  purposes  is  any  person  or  corporation  that 
holds  in  trust  an  estate  of  another  person  or  persons;  there  may  be  fiduciary  rela- 
tionship betv.'een  an  agent  and  a  principal,  but  the  word  "agent' '  does  not  denote  a 
"fiduciary"  vv-ithin  meaning  of  income-tax  law.     (T.  D.  2690;  art.  29.) 

Estate  tax. 

Thirty-day  notice  (Form  705)  must  be  filed,  within  30  days  after  death  of  decedent 
whose  estate  is  taxable,  by  fiduciaries  holding  property  of  any  kind,  jointly  or  in 
entirety,  for  decedent  and  another  or  others.     (T.  D.  2454;  Feb.  28,  1917.) 

Income  taxes — Collection  and  x^ayment. 

Liability  for  tax  due  from  deceased  person  or  from  his  estate  attaches  to  estate 
itself,  and  when  by  reason  of  distribution  of  estate  and  discharge  of  executor  or 
administrator  it  shall  appear  that  collection  of  tax  can  not  be  made  from  executor 
or  administrator,  collector  will  make  demand  on  distributees  for  their  propor- 
tionate share  of  tax  due  and  unpaid.     (T.  D.  2600;  art.  29.) 

Administrators  or  executors  should  pay  tax  found  by  return  for  calendar  year  in 
wliich  administration  was  closed  to  be  due  immediately  upon  receipt  of  notice  and 
demand  for  pajinent  of  such  tax.     (T.  D.  2G90;  art.  26.) 

Liability  for  payment  of  income  tax  attaches  to  the  person  of  an  executor  or  admin- 
istrator up  to  and  including  date  of  discharge  regardless  of  fact  that  time  in  which 
claim  is  made  and  filed  against  estate  has  expired  or  where,  prior  to  distribution  and 
discharge,  executor  or  administrator  had  notice  of  obligations  to  Federal  Govern- 
ment, or  where  he  failed  to  exercise  due  diligence  in  determining  whether  or  not 
such  obligations  existed.     (T.  D.  2699;  art.  29.) 


268  riDuciAEiES. 

Income  taxes — Continued. 
Exemptions. 

Fiduciaries  acting  for  minors  or  incompetent  persons  are  permitted  to  take 
personal  exemption  as  to  income  derived  from  property  of  which  they  have  charge 
in  favor  of  each  ward  or  beneficiary.     (T.  D.  2690;  art.  14.) 

Where  person  having  taxable  income  dies  within  calendar  year,  his  personal 
representatives  in  making  return  for  him  may  claim  full  exemption  granted  by 
statutes  for  calendar  year.     (T.  D.  269:);  art.  14.) 

Where  husband  or  wife  having  taxable  income  dies  within  calendar  year,  and 
full  exemption  for  yar  is  used  by  personal  representative  in  making  return,  if  sur- 
vivor is  also  required  to  make  return  at  cloe  of  yeear  for  income  received  within 
that  year,  the  full  personal  exemption,  according  to  marital  status  of  survivor  at  close 
of  year,  may  be  claimed  in  return  of  income.     (T.  D.  2690;  art.  14.) 

Gross  income. 

A  deed  of  trust  must  be  absolute  so  far  as  the  conveyance  of  title  is  concerned  and 
irrevocable  by  the  donor,  otherwise  income  from  properly  in  question  will  accrue 
to  donor  and  must  be  accounted  for  by  him.     (T.  D.  2690;  art.  29.) 

Income  accumulated  in  trust  for  unascertained  persons  or  persons  with  contingent 
interests  is  income  accruing  to  the  estate  and  is  taxable  to  the  estate.  (T.  D.  2690; 
art.  20.) 

Stock  dividends  paid  from  earnings  or  profits  accumulated  after  March  1,  1913, 
received  by  fiduciary  and  retained  as  an  accretion  to  the  estate,  under  the  terms 
of  the  will  or  trust,  are  held  to  be  income  to  the  estate  and  taxable  as  such  to  the 
estate.     (T.  I).  2690;  art  29.) 

Where,  during  period  of  administration,  executor  converts  estate  into  money  to 
settle  estate  and  close  administration,  realizing  a  profit  which  with  other  income 
exceeds  $1,000,  return  should  be  made  covering  period  of  administration,  in  which 
should  be  included  all  gains,  profits,  and  income  during  such  period.  (T.  D.  2690; 
art.  29.) 

Proceeds  of  life  insurance  policies  payable  to  estate  of  decedent,  when  received 
by  executor  or  administrator  are,  in  amount  by  which  they  exceed  the  premium 
or  premiums  paid  by  decedent,  income  of  the  estate  to  be  accounted  for  under 
section  2  (b)  of  the  act  of  September  8,  1916;  return  should  be  made  on  Form  1040 
or  1040A.     (T.  D.  2690;  art.  29.) 

Net  income. 

Expenses  of  administration  of  estate,  such  as  executor's  commissions,  etc.,  are 
chargeable  against  corpus  of  estate  and  are  not  allowable  deductions.  (T.  D.  2690; 
art.  8.) 

- —  Returns. 

Where  net  income  of  decedent  from  January  1  to  date  within  year  was  .$]  ,000  or 
over,  if  unmarried,  or  $2,000  or  over,  if  married,  return  must  be  made  by  executor 
fir  administrator,  who  may  claim  all  deductions  and  exemptions  to  which  decedent 
would  have  been  entitled;  executors  and  administrators  whose  duty  consists  of 
administering  on  estate  for  purposes  of  its  distribution  stand,  during  period  of 
administration,  instead  of  their  principal,  and  must  make  returns  of  income  for 
estate,  and  pay  tax  due.     (T.  D.  2690;    art.  4.) 

The  exception  to  the  rule  that  returns  of  indi^'iduals  can  not  be  accepted  prior 
to  close  of  calendar  year,  in  cases  of  closed  administration,  is  matter  of  convenience 
to  tliose  concerned,  and  is  granted  by  reason  of  fact  that  period  to  be  covered  by 
return  has  completely  elapsed.     (T.  D.  2690;  art.  26.) 

An  executor  acts  for  his  principal  and  not  for  the  beneficiaries  of  the  estate  of 
his  principal,  and  beneficiaries  are  not  entitled,  as  such,  to  inspect  returns  filed  by 
such  executor.     (T.  D.  2690;  art.  26.) 

Ancillary  administrator  is  merely  an  agent  of  the  domiciliary  administrator  and 
ehould  transmit  to  him  all  information  as  to  income  of  estate  received  by  ancillary 
administrator,  so  that  original  administrator  may  make  return  covering  entire 
income  of  estate.     (T.  D.  2690;    art.  26.) 

Administrators  or  executors  may,  upon  final  accounting,  file  return  for  income 
of  estate  for  calendar  year  in  which  administration  was  closed,  attaching  thereto 
copy  of  certificate,  under  seal,  setting  forth  fact  of  final  accounting  and  discharge 
liability  for  return  is  fixed  as  of  December  31,  and  return  mil  be  rec[uired  in  ac- 
cordance with  provisions  of  law  existing  on  that  date.     (T.  D.  2690;  art.  26.) 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returns, 
in  cases  arising  under  section  2  (b)  of  the  act  of  September  8,  1916,  as  amended, 


riDucj  ARIES.  269 

Income  taxes — Contimiod. 

Returns — Continued. 

when  income  of  estate  or  trust,  as  an  entity,  is  $1,000  or  over,  puch  return  to  be 
made  on  Form  1049  or  1040A;  tidiiciariv;s  must  make  returns  on  Form  1041  wlien- 
ever  interest  of  beneficiary  in  net  income  of  estate  or  trust  is  $1,000  or  over  for  an 
unmarried  beneficiary,  and  wheneAer  interest  of  married  beneficiary  is  $2,000  or 
over.     (T.  D.  2690;  art.  27.) 

Fiduciaries  acting  for  minors  or  other  incompetents,  required  to  make  returns  ac- 
cordin;?  to  marital  status  of  beneficiary;  wlieriever  interest  of  beneficiary  in  net 
imcome  of  estate  or  trust  is  $1,030  or  over,  for  an  unmarried  beneficiary,  or  in  case  of 
married  beneficiary,  wlieuever  interest  is  $2,000  or  over,  fiduciaries  are  required  to 
make  return.     (T.  D.  2690;  art.  27.) 

Where  beneficiary  is  nonresident  alien  individual,  tax  is  to  be  accounted  for  by 
fiduciary  on  retiu'n  of  income  for  such  nonrendent  alien  beneficiary,  on  Income 
Tax  Form  1040  or  1040 .\,  as  case  may  be.     (T.  D.  2690;  art.  28.) 

Income  held  for  future  distribution  under  terms  of  will  or  trust  is  taxable  to  the 
estate  except  when  returned  by  the  beneficiary  for  the  purpose  of  the  tax.  (T.  D. 
2690;  art.  29.) 

AH  amounts  paid  by  fiduciaries  to  beneficiaries  of  trust  estates  from  income  of  such 
estates,  whetJier  from  receipts  or  otherwise,  are  held  to  be  distributions  of  income 
and  will  be  treated  for  income-tax  purposes  in  accordance  with  provisions  of  law 
and  regulations  applicable  to  income  of  such  beneficiaries.     (T.  D.  2690;  art.  29.) 

Fiduciary  acting  for  beneficiary  in  more  than  one  estate  or  trust  is  required  to 
account  for  each  estate  separately  when  amounts  are  such  as  to  require  filing  of  a 
return,  and  also  a  return  information;  fiduciary  acting  for  minor  or  insane  person 
ha\ang  net  income  of  $1,000  or  $2,000,  according  to  marital  status  of  such  person, 
required  also  to  file  return  for  such  incompetent  on  Form  1040  and  1040A,  and  pay 
tax  found  to  be  due,  when  there  is  more  than  one  beneficiary  of  the  income  of  tlie 
same  trust.     (T.  D.  2690;  art.  29.) 

Beneficiary  will  be  required  in  case  of  trust  estate  to  account  for  actual  amounts 
distributed  or  credited  to  him.     (T.  D.  2690;  art.  29.) 

Where  fiduciary  in  United  States  is  recipient  of  trust  income  for  which  a  non- 
resident alien  is  the  sole  beneficiary,  fiduciary  required  to  niake  full  and  complete 
return  on  Form  1040  or  1040 A,  as  case  may  be,  for  such  income  on  behalf  of  non- 
resident alien,  and  pay  any  and  all  normal  tax  found  by  such  return  to  be  due, 
and  any  and  all  surtax,  provided  the  income  is  not  returned  for  the  purpose  of 
the  tax  by  the  beneficiary;  where  there  are  two  or  more  beneficiaries,  one  or  all  of 
whom  are  nonresident  aliens,  fiduciary  shall  render  return  on  Form  1041,  and 
personal  return  on  Form  1040  or  1040A,  for  each  nonresident  alien  beneficiary. 
(T.  D.  2690,  art.  29,  as  amended  by  T.  D.  2988;  Mar.  3,  1920.j 

Where  income  under  the  provisions  of  section  2  (b)  of  the  act  of  September  8, 
1916,  is  accounted  for  in  return  by  the  executor,  administrator,  or  trustee,  and 
the  tax  shall  have  been  assessed  and  paid,  income  is  therefore  freed  of  all  tax  liabil- 
ity; return  on  Form  1040  or  1040A,  subject  to  all  deductions  and  exemptions,  shall 
be  made  by  executor  or  administrator  for  estate  during  period  of  administration, 
and  entire  tax  paid  thereon.     (T.  D.  2690;  art.  29.) 

Where,  in  case  of  more  than  one  trust,  creator  in  each  instance  is  same  person, 
and  trustee  in  each  instance  is  the  same,  trustee  should  make  single  return  on  P'orm 
■1041  for  all  trusts  in  his  hands,  notwithstanding  fact  that  they  arise  from  different 
instruments;  when  trusts  are  created  by  different  persons  for  benefit  of  same  bene- 
ficiary, trustee  should  make  return  for  each  trust  separately  on  Form  1041.  (T.  D. 
2690;  art.  29.) 

All  fiduciaries  are  indemnified  against  claims  or  demands  of  their  beneficiary  for 
all  payments  of  taxes  whicli  they  shall  be  required  to  make,  and  they  shall  be 
credited  for  such  pavments  in  any  accounting  which  they  make  as  such  fiduciaries. 
(T.  D.  2690;  art.  29.) 

Fiduciary  relationship  for  purposes  of  income  tax  can  not  be  created  by  power  of 
attorney;  agent  with  authority  to  effect  leases  with  tenants  entirely  on  his  own 
responsibility,  paying  all  charges  in  connection  with  property  out  of  rent  funds, 
merely  turning  over  net  profits  to  principal  by  virtue  of  authority  conferred  by 
power  of  attorney,  is  not  a  fiduciary  within  the  income  tax  law;  in  all  cases  where  no 
legal  trust  has  been  created  in  the  estate  controlled  by  the  agent  and  attorney 
liability  under  the  law  rests  with  the  principal.     (T.  D.  2690;  art.  29.) 

Income  received  by  minor  child  from  sources  other  than  parent  should  be  in- 
cluded by  parent  in  his  return;  fact  that  such  income  is  not  appropriated  by  parent 
is  immaterial;  where  income  is  from  separate  estate  and  parent  Las  been  appointed 


270  FIDUGIAEIES. 

Income  taxes — Continued. 

Returns — Continued. 

guardian,  and  conditions  arc  such  that  income  so  received  is  to  be  held  for  use  of 
child,  it  shall  not  be  included  in  parent's  return,  but  shall  be  accounted  for  other- 
wise for  pirrposes  of  tax  in  manner  and  form  as  called  for  by  facts  of  particular  case. 
(T.  D.  2690;  art.  29.) 

Fiduciary  making  return  shall  make  oath  that  he  has  sufficient  knowledge  of 
affaks  of  person,  trust,  or  estate  for  whom  or  which  he  acts  to  enable  him  to  make 
return,  and  that  same  is  to  best  Of  his  knowledge  and  belief  true  and  correct.  (T.  D. 
2690;  art.  29.) 

Where  fiduciary  in  United  States  is  recipient  of  trust  income  for  which  a  non- 
resident alien  is  the  sole  beneficiary,  fiduciary  required  to  make  full  and  complete 
return  on  Form  1040  or  1040A,  as  case  may  be,  for  such  income  on  behalf  of  non- 
resident alien;  where  there  are  two  or  more  beneficiai'ies,  one  or  all  of  whom  are  non- 
resident aliens,  fiduciary  shall  render  return  on  Form  141,  and  personal  return  on 
Form  1040  or  1040A,  for  each  nom-esident  alien  beneficiai-y.     (T.  D.  2090;  art.  29.) 

Return  by  one  of  two  or  more  joint  fiduciaries  in  form  prescribed,  filed  in  district 
in  which  such  fiduciary  resides,  shall  be  sufiicient  compliance  with  requirement  for 
fiduciary  return.     (T.  *D.  2690;  art.  29.) 

Committee  of  property  of  incompetent  person  hel  d  to  be  fiduciary  for  purpose  of 
income  tax  and  required  to  make  return  on  Form  1040,  revised,  for  incompetent 
whenever  amount  of  income  is  sufficient  to  require  same.     (T.  D.  2G90;  art.  29.) 

\\'here  terms  of  will  or  trust  or  decree  of  coiut  provide  for  keeping  corpus  of  trust 
estate  intact  and  where  physical  property  has  suffered  depreciation  through  its 
employment  in  business,  deduction  fi'om  gross  income  to  care  for  this  depreciation, 
where  deduction  is  applied  or  held  by  fiduciary  for  making  good  such  depreciation, 
may  be  claimed  by  liduciary  in  his  return;  content»o  of  return.     (T.  D.  2690;  art.  29.) 

Inspection. 

Return  of  individual  is  open  to  inspection  by  administrator,  executor,  or  trustee 
of  taxpayer's  estate,  or  by  duly  constituted  attorney  in  fact  of  such  administrator, 
executor,  or  trustee,  where  maker  of  return  has  died;  and.  in  discretion  of  Com- 
missioner, by  one  of  ^he  heirs  at  law  or  next  of  kin  of  deceased  person  upon  showing 
that  he  has  a  material  interest  which  will  be  affected  bv  information  contained  in 
the  return.     (T.  D.  2961;  Jan.  7,  1929.) 

Original  income  return  or  copy  thereof  may  bo  fin-nished  by  Commissioner  to 
United  States  attorney  for  use  as  evidence  l)ei"ore  United  States  grand  jury  or  in 
litigation  in  any  court  where  the  United  States  is  interested  in  the  result,  or  for 
use  in  preparation  for  such  litigation,  or  to  attorney  connected  with  Depai'tment 
of  Justice  designated  by  Attorney  General  to  handle  such  matters,  if  and  when 
Attorney  General  states' to  Commissioner  in  writing  that  such  attorney'  is  so  deag- 
nated ;  return  or  copy  thereof  thus  furnished  miust  be  limited  in  use  to  piu'pose 
for  which  fiu'nished,  and  is  under  no  conditions  to  be  made  public  except  whei'e 
publicity  necessarily  results  from  such  use;  where  original  return  is  necessary,  it 
shall  be  placed  in  evidence  by  the  Commissioner  or  by,  some  officer  or  employee 
of  the  Bureau  designated  by  the  Commissioner  for  that  purpose,  and  aftea-  being 
placed  in  evidence  it  shall  l>e  returned  to  files  in  office  of  Commissioner  in  Wa.sh- 
ington;  original  return  will  be  furnished  only  in  exceptional  cases,  and  then  only 
when  it  is  made  to  appear  that  ends  of  justice  may  otherwise  be  defeated;  neither 
the  original  nor  a  copy  desired  for  use  in  litigation  where  United  States  Government 
is  not  interested  and  where  such  use  might  result  in  making  public  the  information 
contained  therein  will  be  furnished,  except  as  otherwise  provided  in  the  next 
succeeding  paragraph.     (T.  D.  2962;  .Tan.  7,  1920.) 

Copy  of  income  return  may  be  furnished  by  the  Commissioner  to  person  v.dio 
made  the  return  or  to  his  duly  constituted  attorney,  or  if  jjerson  is  deceased,  to 
his  executor  or  administrator,  or,  if  entity  is  in  hands  of  receiver,  trustee  in  bank- 
ruptcy, guardian,  or  similar  legal  custodian,  to  the  receiver  or  other  custodian 
upon  written  application  for  same,  accompanied  by  satisfactory  evidence  that 
applicant  comes  Avithin  this  iwovision;  "person  who  made  the  return,"  as  herein 
nsed,  refers  in  case  of  an  individual  return  to  the  individual  Avhose  return  is 
desired,  and  in  case  of  return  of  corporation,  etc.,  or  fiduciary,  to  the  cor]>oration, 
etc.,  or  fiduciary,  a  copy  of  whose  return  is  desired;  corporation  may  also  designate 
officer  or  individual  to  whom  copy  made  by  corporation  may  be  furnished,  and 
upon  sufficient  evidence  of  such  action  and  of  identity  of  officer  or  individual, 
copy  may  be  furnished  to  such  person;  copy  of  partnership  return  will  be  fur- 
nished to  partners  only  in  case  all  the  partners  join  in  the  request  therefor,  and  if 
partnership  has  been  dissolved  the  members  snr\T.ving  may  be  furnished  a  copy 
if  all  the  members  surviving  join  in  the  request.     (T.D.  29G2;  Jan.  7,  1920.) 


FILMS — FLOOR  TAXES.  271 

FILMS. 


See  "Moving  Pictures." 

FIRE  INSURANCE. 

See  "Insurance." 

FISCAL  AGENTS. 

See  "Princiijal  and  Agent.' ' 

FISCAL  YEAR. 
Itetarns  on  basis  of. 
See  specific  heads. 


Dues. 

See  "Dues." 

See  "Extracts.' 


FISHING  CLUBS, 

FLAVORING  EXTRACTS. 
FLOOR  TAXES. 


Alcohol. 

Alcohol  held  on  October  3,  1917,  by  manufacturer.^  of  proprietary  medicines  for 
use  in  manufactui'e  of  medicines  is  subject  to  floor  tax,  unless  on  day  act  of  October 
3,  1917,  took  effect,  it  was  in  process  of  manufacture  and  had  been  rendered  unfit 
for  beverage  purposes.    (T.D.2547;  Oct.  22, 1917.)    But  see  T.  D.  2643;  Jan.  28, 1918. 

Alcoholic  corapounds. 

Tax  of  15  cents  per  proof  gallon  required  ou  all  compounds  in  possession  of 
rectifier  on  October  4,  1917,  or  thereafter  produced,  and  additional  floor  tax  on 
product  must  be  paid  after  inventorj'  and  return,  in  same  manner  as  floor  tax  on 
distilled  spirits.     (T.  D.  2.536;  Oct.  13,  1917.) 

Automobile  dealers. 

Dealers  in  automobiles  who  sell  both  to  users  and  subagents  for  resale  are  whole- 
salers within  the  meaning  of  section  602  of  the  act  of  October  3,  1917,  and  are  liable 
to  floor  tax  imposed  by  said  section.     (T.  D.  2577;  Nov.  13,  1917.) 

Beverages. 

No  floor  tax  was  imposed  by  act  of  October  3,  1917,  upon  sirups  in  hands  of  v.diolo- 
salers  or  jobbers  on  October'4,  1917.     (T.  D.  2598;  Nov.  24,  1917.) 

Distilled  spirits. 

All  distilled  spirits  in  possession  of  manufacturing  chemists,  pharmacists,  or  any 
other  person  held  for  sale,  although  not  for  sale  as  distilled  spirits  on  October  4,  1917, 
are  subject  to  additional  floor  tax  at  $1.10  or  S2.10  per  proof  gallon  as  case  may  be; 
distilled  spirits  in  possession  of  manufacturers  on  October  4,  1917,  which,  in  legiti- 
mate processes  of  manufacture,  had  been  rendered  unfit  for  use  as  beverages,  arc 
not  subject  to  additional  floor  tax.  (T.  D.  2-566;  Oct.  27,  1917.)  But  see  T.  D. 
2643;  Jan.  28,  1918. 

All  vermuths,  and  other  compounds  made  exclusively  from  distilled  spirits  are 
subject  to  so-called  floor  tax  of  $2.10  additional  on  each  proof  gallon  or  fraction  of  a 
gallon  of  full  alcoholic  content  thereof;  where,  however,  such  compounds  are  manu- 
factured with  mixture  of  wine  and  spirits,  additional  tax  of  §2.10  per  proof  gallon 
will  be  due  only  on  distilled  spirits  contained  therein,  and  not  ou  the  spirits  con- 
tained in  the  fermented  wines  used.     (T.  D.  2579;  Nov.  5,  1917.) 

All  vermuths,  cordials,  and  other  compounds,  in  which  distilled  spirits  exclu- 
sively have  not  been  used,  but  which  contain  spirits  produced  by  fermentation, 
and  those  produced  by  distillation,  will  be  considered  as  having  15  per  cent  alcohol 
by  volume  produced  by  natural  fermentation,  and  additional  tax  of  $2.10  per  projf 
gallon  will  be  due  onlv  on  alcoholic  content  in  excess  of  15  per  cent.  (T.  D.  2579; 
Nov.  5,  1917.) 

All  inotices  required  to  perfect  lien  against  parties  liable  to  tax  should  be  issued 
promptly,  including  notice  on  Form  668,  v.hich  should  be  filed  in  office  of  propcr 
clerk  of  United  States  District  Court,  or  in  oihce  of  proper  registrar,  or  recorder  of 
deeds,  where  State  law  authorizes  such  filing;  notice  should  always  bo  filed  in 
doubtful  cases  where  large  sums  are  involved  as  soon  as  practicable,  and  collector 
is  of  opinion  that  such  action  is  necessary  to  protect  interests  of  Government. 
(T.  D.  2648;  Jan.  28,  1918.) 


272  FLOOK   TAXES. 

Distilled  spirits — Continued. 

Section  30.S.  revenue  act  of  1917,  imposing  floor  taxes  on  distilled  spirits,  applies 
to  distilled  spirits  held  on  board  American  ships  and  intended  for  sale,  whether  the 
vessel  on  wliich  tliev  were  held  was  at  dock  in  this  country,  on  tlie  high  seas,  or 
in  foreign  waters.     (T.  I).  3098;  Dec.  7,  1920.) 

Ownership  of  goods. 

Goods  shipped  and  invoiced  prior  to  October  4,  1917,  are  property  of  consignee, 
and  if  .shipped  to  wholesaler  are  subject  to  floor  tax;  it,  however,  title  is  reserved 
in  manufacturer  he  is  subject  to  manufacturer's  tax  and  wholesaler  is  relieved  from 
floor  tax.     (T.  D.  2547;  Oct.  22,  1917.) 

Under  section  1003  of  act  October  3,  1917,  tax  on  spirits  in  hands  of  bankruptcy 
court  .June  1.  1917.  shall  be  collected  from  purchaser  thereof  by  trustees  in  bank- 
ruptcy or  their  agent,  and  quantity  sold  and  amount  of  tax  collected  during  any  cal- 
endar month  shall  be  re|iorted  to  collector  of  district  in  which  sales  are  made  not 
later  than  10th  day  of  month  succeeding,  which  report  shall  be  transmitted  to 
Commissioner's  office,  whereupon  assessment  vv-ill  be  made  and  tax  collected  in 
ordinary  course;  person  collecting  tax,  whether  it  is  specifically  charged  as  such  to 
person  to  whom  spirits  are  delivered  or  not,  m  ill  be  held  liable  for  same.  (T.  D.  2749; 
July  29,  1918.) 

Payment — Distraint  for  nonpayment. 

Collectors  should  use  vigilance  in  collection  of  taxes  and  issue  distraint  warrant 
wherever  necessary;  if  taxes  secured  by  tiling  of  bond  are  not  paid  within  time 
limit,  collector  should  endeavor  to  collect  by  distraint.     (T.  D.  2574;  Oct.  31, 1917.) 

Where  stock  of  goods  upon  which  floor  tax  has  not  been  paid  is  depleted  by  being 
eold  or  removed  in  such  manner  as  will  result  in  jeopardizing  collection  of  taxes, 
same  should  be  seized  under  provision  of  section  3453,  Revised  Statutes,  ^^dthout 
awaiting  result  of  distraint  proceedings.     (T.  D.  2648;  Jan,  28,  1918.) 

Extending  time — Security. 

Collectors  authorized  to  accept  in  lieu  of  surety  bonds  as  security  for  payment  of 
floor  taxes,  covered  by  section  1002  of  the  act  of  October  3,  1917,  Liberty  bonds  of 
the  United  States  ecjuivalent  to  the  actual  amount  of  taxes  paid.  (T.  D.  2537; 
Oct.  17,  1917.) 

Bonds  deposited  as  security  must  be  immediately  forwarded  to  Commissioner  of 
Internal  Revenue  by  registered  mail  for  safe-keeping,  except  where  collector's 
office  is  in  same  city  as  Federal  reserve  bank,  in  which  case  coupon  bonds  receivec 
should  be  deposited  with  such  bank,  Avhich  will  issue  its  receipt;  disposition  of 
receipts;  assignment  of  registered  bonds;  insurance  of  packages.  (T.  D.  2554; 
Oct.  25,  1917.) 

('oUectors  authorized  to  accept  certificate  of  bank  or  trust  company,  member  of 
Federal  Reserve  System,  sufficiency  and  solvency  of  which  are  satisfactory  to  col- 
lector, to  effect  that  taxpayer  has  deposited  cash  or  Trea^iury  certificates  of  indebt- 
edness in  full  payment  of  Liberty  loan  bond  subscriptions  in  name  of ' '  Commissioner 

of  Internal  Revenue  in  trust  for ,"  or  in  event  bond  transaction  is  not 

consummated  taxes  will  be  paid  to  collector  in  cash  or  corporate  security  bond  filed; 
form  of  certificate  indicated;  certificate  to  be  forwarded  to  Commissioner  of  Internal 
Revenue.     (T.  D.  2554;  Oct.  25,  1917.) 

Form  of  bond  with  personal  surety  to  be  executed  in  penal  sum  of  not  less  than 
tax  due  and  in  no  case  less  than  $1,000  prescribed;  personal  surety  need  not  be  re- 
quired to  qualify  on  Form  33  when  he  is  supported  by  collateral  security  of  a  value 
clearly  in  excess  of  amount  of  tax  due.     (T.  D.  2557;  Oct.  27,  1917.) 

Bond  as  security  for  payment  of  floor  taxes  filed  before  expiration  of  10  days 
after  the  date  of  notice  and  demand  for  payment  should  be  accepted  as  security; 
bond  may  be  accepted  after  such  10  days,  if  sufficient  in  amount  to  cover  tax  and 
accrued  penalties.     (T.  D.  2574;  Oct.  31,  1917.) 

Form  of  bond  to  be  executed  in  duplicate  with  approved  surety  company  pre- 
scribed for  extending  payment  to  date  not  exceeding  seven  months  from  passage  of 
act  of  October  3,  1917,  of  additional  taxes  imposed  by  act.  (T.  D.  2533;  Oct.  6, 
1917.)  Penal  sum  of  bond  fixed  at  not  less  than  tax  due;  if  tax  as  shown  by  return 
is  less  than  §1,000,  penal  sum  of  bond  mav  be  less  than  11.000.  (T.  D.  2574;  Oct. 
31,  1917.) 

Where  Liberty  bonds  are  deposited  as  security,  principal  must  execute  bond  in 
stated  form;  Liberty  bonds  deposited  and  in  possession  of  collector  of  internal  reve- 


FLOUR- — FOOD  AND  FOOD  MATERIALS.  273 

Payment — Coiitimiod. 

Extending  time — Sectirity — Contiiniod. 

nue  should  be  surrendered  to  taxpayer  as  soon  as  the  tax  and  interest  have  been 
paid;  if  tax  is-  paid  in  installments,  a  proportionate  amount  of  the  collateral  depos- 
ited may  be  surrendered  in  the  discretion  of  the  collector.  (T.  D.  2574;  Oct.  31, 
1917.) 

Where  (Collateral  other  than  T>iberty  bonds  is  deposited  as  security,  principal  must 
execute  bond  in  stated  form,  and  collector  is  required  to  i,'ive  certain  receipt;  col- 
lateral should  be  surrendered  to  taxpayer  as  soon  as  tax  and  interest  have  been 
paid;  if  tax  is  paid  in  installments,  proportionate  amount  of  collateral  deposited 
may  be  surrendered  in  discretion  of  collector.     (T.  D.  2574;  Oct.  31,  1917.) 

Any  registered  or  coupon  bonds  of  the  United  States  may  be  accepted  as  security 
for  payment  of  floor  taxes,  in  accordance  with  T.  D.  2537,  T.  D.  2554,  and  T.  D.  2557. 
(T.  D.  2606;  Dec.  13,  1917.) 

Where  satisfactory  bonds  have  not  been  given  for  extension  of  time  for  making 
payment,  notice  and  demand  should  be  mailed  as  provided  by  section  3184,  Revised 
Statutes,  which  notice  and  demand  should  be  served  on  Form  1-17,  and  should  be 
followed  in  order  by  Form  1-21  and  Form  69,  within  intervals  of  10  days  of  each 
other;  notice  where  required  bonds  have  been  given;  penalties;  suits  on  bonds. 
(T.  D.  2648;  Jan.  28,  1918.) 

Retailer  of  goods. 

Where  bookkeeping  and  stock  keeping  of  wholesale  and  retail  departments  are 
kept  separate,  they  will  be  regarded  as  if  they  were  separate  and  distinct  depart- 
ments, and  retail  stock  will  not  be  subjected  to  floor  tax.  (T.  D.  2547;  Oct.  22, 
1917.) 

"A  retailer  who  is  not  also  a  wholesaler"  is  a  retailer  who  does  not  from  the  same 
stock  of  goods  also  sell  at  wholesale;  hence,  where  wholesale  and  retail  stocks  are 
kept  separate,  tax  applies  only  to  wholesale  stock;  where  automobiles  are  sold  at 
both  wholesale  and  retail  by  person  who  acts  as  agent  for  manufacturer,  no  floor 
tax  applies,  but  manufacturer  is  liable  for  tax  upon  all  sales.  (T.  D.  2601;  Dec. 
3,  1917.) 

Tobacco,  cigars,  etc. 

Tax-paid  manufactured  tobacco,  etc.,  in  excess  of  specified  quantity  held  for  sale 
on  October  4,  1917,  as  well  as  contents  of  broken  packages  and  goods  in  transit  on 
such  date,  required  to  be  inventoried  and  returned  for  assessment  of  tax  pro\'ided 
for  by  section  403  of  the  act  of  October  3,  1917;  dealers  and  others  required  to  pay 
tax  must  make  return  on  Form  416  C,  in  duplicate,  under  oath,  on  or  before  Novem- 
ber 2,  1917;  payment  of  tax  required  at  time  of  filing  return,  but  may,  upon  filing 
of  bond,  be  extended  to  date  not  exceeding  seven  months  from  passage  of  act  of 
October  3,  1917;  principal  ottice  or  place  of  business  to  make  return  where  two  or 
more  stores  are  operated  by  same  dealer.     (T.  D.  2556;  Oct.  16,  1917.) 

Stocks  of  cigars,  tobacco,  and  cigarettes  held  for  sale  at  close  of  business  October 
3,  1917,  at  post  exchanges  at  Army  camps  are  not  subject  to  floor-stock  taxes  im- 
posed by  section  403  of  act  of  October  3,  1917.     (T.  D.  2584;  Nov.  20,  1917.) 

FLOUR. 

See  "Mixed  Flour." 

FOOD    AND    FOOD   MATERIALS. 
Distilled  spirits. 

See  "Distilled  Spirits." 
Excise  taxes. 

See  "Excise  Taxes. " 
Fermented  malt  liquors. 

See  "  Fermented  Liquors." 
Mixed  flour. 

See  "Mixed  Flour." 
Oleomargarine. 

See  "  Oleomargarine." 
70420°— 21 18 


274  FOR  TRADE F0REIC4N  COUNTRIES. 

FOB  TRADE. 

Definition. 

The  words  "for  trade,"  as  used  in  section  603  of  act  October  3,  1917,  mean  for 
busines;^  particularly  the  business  of  buying  and  selling,  or  for  commerce.  (T.  D. 
2753;  Aug.  23,  1918.) 

FOREIGN. 
Definition. 

The  term  "foreign,"  as  used  in  war  excess -profits  tax  regulations,  means  created 
imder  the  law  (statutory  or  other)  of  any  possession  of  the  United  States  other  than 
Alaska,  Hawaii,  or  the  District  of  Columbia,  or  of  any  foreign  country  or  Govern- 
ment, and  unless  otherwise  indicated  by  the  context,  term  will  be  deemed  to  be 
used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  3.) 

FOREIGN   CORPORATIONS. 
Capital  stock  tax. 

See  "Capital  Stock  Tax." 

Definition. 

The  term  "foreign  corporation,"  as  used  in  article  35  of  Regulations  No.  33,  re- 
vised, means  one  not  organized  and  existing  under  the  laws  of  the  United  States  or 
of  any  State  or  Territory  thereof,  or  of  the  District  of  Columbia,  Porto  Rico,  or  tJie 
Philippine  Islands.     (T.  D.  2759;  Oct.  2,  1918.) 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 

Income  tax. 

See  "Income  Taxes  (Corporation)." 

FOREIGN   COUNTRIES. 

See  "Aliens"';  "Exports";  "Nonresidents." 

Capita,!  stock  tax — Investments. 

No  deductions  are  allowed  corporations  organized  in  the  United  States  for  capital 
invested  in  England,  France,  and  other  foreign  countries.     (T.  D.  2417;   Dec.  16, 

1916.) 

Club  dues. 

Dues  and  fees  paid  by  residents  of  United  States  to  clubs  located  in  foreign  country 
and  having  no  branches  or  organizations  here,  are  not  subject  to  tax  imposed  by 
section  701  of  act  of  Octobers,  1917.     (T.  D.  2681;   Mar.  26,  1918.) 

Distilled  spirits. 

Section  303,  revenue  act  of  1917.  imposing  floor  taxes  on  distilled  spiiits,  applies 
to  distilled  spirits  held  on  board  American  ships  and  intended  for  sak?,  whether 
the  vessel  on  which  thev  were  held  was  at  dock  in  this  countrv,  on  the  hish  seas, 
or  in  foreign  waters.     (T.  D.  3098;  Dec.  7,  1920.) 

Drafts— Stamp  tax. 

If  a  draft  drawn  abroad,  on  a  foreign  drawee,  mth  a  foreign  payee,  passes  through  a 
l)ank  here  in  the  course  of  collection,  no  tax  is  payable  unless  it  should  be  delivered 
by  an  agent  of  the  drawer  to  an  agent  of  the  payee  within  the  United  States.  (T.  D. 
2682;  Mar.  26,  1918.) 

Estate  tax. 

If  decedent  maintained  more  than  one  residence,  his  principal  residence  (actual 
domicile)  determines  internal-revenue  district  in  which  return  must  be  filed  and 
tax  paid;  if  decedent  was  nonresident  and  liis  solo  property'  ^nthin  United  States, 
Hawaii,  or  Alaska  was  stock  or  bonds  of  an  American  corporation,  returns  should  be 
filed  with  collector  in  whose  district  head  office  of  cor"poi"ation  is  located,  unless 
estate  has  representative  in  this  country  in  charge  of  stocks  or  bonds,  in  which  cas3 
return  may  be  filed  with  collector  in  whose  district  representative  has  his  office. 
(T.  D.  2513;  July  16,  1917.) 


FOREIGN  COUNTBIES.  275 

Estate  tax — Continued. 

Securities,  such  as  shares  of  stock  in  domeslic  corporations  which  are  property 
within  the  United  States  within  the  meaning  of  Title  II  of  the  act  of  September  8, 

1916,  deposited  by  an  indiWdual  not  resident  within  the  United  States  vnth  the 
British  Treasury,  l"or  which  certificates  of  deposit  were  issued,  are  at  the  death  of 
such  nonresident,  if  such  certificates  have  not  ])een  transferred,  a  part  of  his  gross 
estate  and  subject  to  estate  tax.     (T.  D.  2772;  Nov.  8,  1918.) 

Excise  taxes. 

A  foreign  Government  buying  or  leasing  an  article  for  its  own  use  is  not  a  dealer, 
nor  in  the  case  of  mo\'ing-picture  films  is  it  deemed  an  exhibitor  or  exchange.  (T .  I) . 
2719;  Art.  XXXVII.)  ' 

Boats  used  in  the  United  States  or  na\-igating  United  States  waters  are  subject  to 
tax  imposed  by  section  603  of  act  October  3,  1917,  although  of  foreign  register. 
(T.  D.  2753;  Aug.  23,  1918.) 

Freight  transportation. 

Where  consignment,  having  b  )th  origin  and  destination  v/ithin  United  States, 
passes  out  of  United  States  on  its  journey,  gross  transportation  charges  from  point  of 
origin  to  final  destination  are  subject  to  tax  imposed  by  section  500  of  act  of  October 
3,  1917.     (T.  D.  2676;  Mar.  18,  1918.) 

Tax  imposed  under  section  500  of  the  act  of  October  3,  1917,  does  not  apply  to 
property  passing  through  United  States  from  one  foreign  port  or  place  to  another,  but 
if  such  proi^ei-ty,  while  so  passing  through  United  States,  be  reconsigned  to  a  destina- 
tion within  United  Sta-tes,  tax  applies  to  transportation  charges  thereon  from  point 
or  place  of  entry  to  such  destination.     (T.  D.  2676;  Mar.  18,  1918.) 

Amounts  paid  by  foreign  Governments  for  transportation  and  transmission  services 
are  subject  to  the  taxes  imposed  bv  section  5G0  of  the  act  of  October  3,  1917.  (T.  D. 
2785;  Jan.  23,  1919.) 

Income  taxes — Exemptions. 

Section  30  of  the  act  of  September  8,  3916,  as  amended  by  the  act  of  October  3, 

1917,  does  not  exempt  from  tax  any  income  collected  by  foreign  Governments  from 
investmer.t>?in  the  United  States  in  stocks,  bonds,  or  other  domestic  seciu'ities,  which 
are  not  bona  fide  owned  by  but  are  loaned  to  such  foreign  Government.  (T.  D. 
2690;  art.  87.) 

Iniormation  at  source. 

Wherever  a  foreigii  country  or  foreign  corporation  issuing  bonds  has  appointed 
a  paying  agent  in  this  country,  charged  ■with  duty  of  paying  interest  upon  such 
bonds,  sucli  agent  shall  be  source  of  information;  if  such  country  or  corporation 
has  no  such  agent,  then  last  bank  or  collecting  agent  in  this  country  shall  be 
soiu'ce  of  information;  in  case  of  dividends  on  stock  of  foreign  corporation,  first  bank 
or  collecting  agent  accepting  such  item  for  collection  shall  be  source  of  informa- 
tion.    (T.  D.  2759;  Oct.  2,  1918.) 

Banks  or  agents  collecting  foreign  items  required  to  obtain  licenso  from  Commis- 
sioner of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such 
regulations  for  furnishing  of  information  as  the  ComniLssioner,  with  approval  of 
Secretarv  of  the  Treasurv,  shall  prescribe,  and  to  penalties  prescribed  for  failure 
to  obtain  such  licens-.     (T.  D.  2759;  Oct.  2,  1918.) 

Ownership  eertiiicates. 

Where  income-tax  ownership  certificates  (Form  1001,  reWsed),  have  been  exe- 
cuted by  nonresident  alien  firms  or  organizations  not  engaged  in  business  or  trade 
within  United  States  and  not  having  any  office  or  place  of  business  therein,  to 
accompany  coupons  detached  from  obligations  of  domestic  corporations,  they  may 
be  accepted  by  debtor  corporations  and  withholding  agents  prior  to  Januarj^  1,  1917, 
*.f  the  words  "not  exempt''  are  stamped  in  large  type  across  face  of  certificates 
before  presentation;  debtor  corporations  and  withholding  agents  held  liable  under 
T.  D.  2374  for  normal  tax  provided  to  be  withheld  bv  act  of  September  8,  1910. 
(T.  D.  2377;  Oct.  4,  1916.) 

Where  bonds  of  foreign  countries  or  bonds  or  stocks  of  foreign  corporations  are 
owned  by  citizens  or  residents  of  United  States,  individual  or  (iduciarj-,  or  by 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  insurance  com- 
panies, or  partnerships,  ownership  certiri(;ate  100  LA  shall  be  executed  by  liis  actual 
owner,  or  by  his  duly  authorized  agent,  when  presenting  item  for  collection,  whether 


276  FOEEIGN    COUNTEIES. 

Income  taxes — Continued. 

Ownership  certificates — Continued. 

item  is  dividend  or  interest  payment,  except  in  case  of  foreign  country  or  foreign 
corporation  having  paying  agent  in  this  country  and  issuing  bonds  containing 
"tax-free"  covenant  clause;  in  such  cases  paying  agent  will  withhold  normal  tax 
upon  interest  on  such  bonds,  and  ownership  certificate,  Form  1000,  properly  modi- 
fied to  show  that  debtor  has  paying  agent  in  this  country,  should  be  used,  unless 
owner  desires  to  claim  exemption,  when  Form  1001 A  should  be  used.  (T.  D.  2759; 
Oct.  2,  1918.) 

Where  bonds  of  foreign  countries  or  bonds  or  stocks  of  foreign  corporations  are 
owned  by  nonresident  alien  individuals,  or  foreign  corporations,  associations,  or 
partnerships,  ownership  certificate.  Form  1071,  revised,  shall  be  used  for  and  on 
behalf  of  such  owners  bv  any  responsible  bank  or  banker,  either  foreign  or  domestic. 
(T.  D.  2759;  Oct.  2,  1918.) 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting 
agent  unless  indorsed  as  prescribed  or  accompanied  by  proper  ownership  certifi- 
cate, giving  all  information  called  for  by  such  certificate;  where  first  licensed  bank 
or  collecting  agent  is  source  of  information,  licensee  shall  attach  ownership  certifi- 
cate and  indorse  on  item  the  words  "  Certificate  attached  and  information  furnished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue 
(Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of  month  following 
that  during  which  items  were  accepted,  accompanied  by  letter  of  transmittal, 
showing  number  of  certificates  and  aggregate  amount  of  foreign  items  disclosed 
thereon.     (T.  D.  2759;  Oct.  2,  1918.)      \ 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall  ac- 
company coupon  to  paying  agent  in  this  coimtry,  or  if  there  is  no  such  agent,  then 
to  last  bank  or  collecting  agent  handling  item  in  this  country;  when  more  than  one 
coupon  of  same  matiuity  is  received  at  one  time  from  same  owner  and  from  same 
issue  of  bonds,  single  certificate  may  be  used ;  when  foreign  items  have  been  properly 
indorsed,  certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal 
Revenue  (Sorting  Division),  W'ashington,  D.  C,  on  or  before  20th  day  of  month 
following  tliat  during  which  items  were  accepted,  accompanied  by  letter  of  trans- 
mittal, showing  number  of  certificates  and  aggregate  amount  of  foreign  items  dis- 
closed thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source 
of  information,  ownership  certificates  shall  accompany  coupon  to  such  agent  or 
eoiu'ce  of  information,  who  shall  forward  ownership  certificate  to  Commissioner 
of  Internal  Revenue,  in  manner  provided  where  duty  is  placed  upon  licensee, 
provided  that  in  case  ownership  certificate.  Form  1000,  is  used,  paving  agent 
shall  make  retiu-n  on  Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

• B-eturns. 

Commissioner  of  Internal  Revenue  may,  in  his  discretion,  upon  application 
therefor  and  upon  satisfactory  showing,  grant  reasonable  extension  of  time  for 
tiling  returns  by  persons  residing  or  traveling  abroad  who  are  unable  to  file  on  or 
before  March  1  of  each  year.     (T.  D.  2690;  art.  22.) 

Returns  executed  abroad  may  be  attested  free  of  charge  before  any  United  States 
consular  officer;  wjiere  foreign  notary  or  other  official  having  no  seal  shall  act  as 
attesting  oflScer,  his  authority  should  be  certified  to  by  some  judicial  official  or  other 
proper  officer  having  knowledge  of  appointment  and  official  character  of  attesting 
officer.     (T.  D.  2690;  art.  26.) 

Passenger  transportation. 

Subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  applies  to  amounts  paid 
for  transportation  of  persons  by  carriers  from  point  in  United  States  to  another  point 
therein,  even  though  persons 'pass  out  of  United  States  in  course  of  transportation, 
and  from  point  in  United  States  to  another  point  therein,  or— Avhere  ticket  is  sold  or 
issued  in  United  States— from  point  in  United  States  to  point  in  Canada  or  Mexico, 
when  such  transportation  is  part  of  through  transportation  to  or  from  foreign  country 
ether  than  Canada  or  Mexico.     (T.  D.  2676;  Mar.  IS,  1918.) 

Where  exchange  order  is  issued  outside  the  United  States,  Canada,  or  Mexico  as 
part  of  or  in  connection  with  through  transportation,  ticket  for  which  exchange 
order  is  exchanged  deemed  to  be  ticket  sold  and  issued  at  point  where  exchange  is 


FOREIGN  ITEMS — FORFEITURES.  277 

Passenger  transportation — Conlinuod. 
made,  and  tax  imput^ed  by  subdiviBion  (c)  of  section  500  of  act  of  October  3,  1917, 
applies  to  any  additional  "amount  paid  in  United  States  in  connection  with  ticket 
or  exchange  order  issued  in  Canada,  Mexico,  or  any  other  foreign  country.     (T.  D. 
2()76;  Mar.  18,  1918.) 

Stamp  act  provided  for  by  subdivision  10  of  Schedule  A,  section  807,  of  act  of 
October  3,  1917,  is  imposed  on  cost  of  a  one-way  or  round-trip  ticket  for  each  passenger 
8old  or  issued  in  United  States  for  passage  by  any  vessel  from  port  in  United  States, 
Canada,  or  Mexico,  to  port  or  place  not  in  United  States,  Canada,  or  Mexico,  pro- 
vided cost  of  vessel 's  proportion  exceeds  $10;  if  passage  be  paid  on  through,  one-way, 
or  round-trip  ticket,  involving  transportation  partly  by  rail  and  partly  by  water, 
tax  applies  to  that  proportion  of  amount  paid  which  accrues  to  vessel;  table  showing 
vessel's  proportion  of  selling  price  of  each  ticket;  governmental  exemption;  method 
of  paying  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

The  10  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October 
3,  1917,  applies  to  amounts  paid  for  accommodations  in  parlor  or  sleeping  cars,  or  on 
vessels,  for  use  in  connection  with  transportation  between  points  in  United  States 
or  from  point  in  United  States  to  point  in  Canada  or  Mexico,  whether  payment 
tliercof  be  made  in  United  States  or  elsewhere,  and  even  though  such  transporta- 
tion be  part  of  through  transportation  to  or  from  a  foreign  country  other  than  Canada 
or  Mexico.     (T.  D.  2G76;  Mar.  18,  1918.) 

FOBEIGN  ITEMS. 

See  "Income  Taxes  (Individuals)." 

Definition. 

The  term  "foreign  item,"  as  used  in  article  35  of  Regulations  No.  33,  rcA-ised, 
means  any  dividend  upon  stock  of  foreign  corporation  or  any  item  of  interest  upon 
bonds  of  foreign  countries  or  of  resident  foreign  corporations,  whether  or  not  such 
(lividend  or  interest  is  paid  in  the  United  States  or  by  check  drawn  on  a  domestic 
bank.    (T.  U.  2759;  Oct.  2,  1918.) 

FOREIGN  PARTNERSHIPS. 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 

Income  taxes. 

See  "Income  Taxes  (Corporations)." 

FORFEITURES. 

See  "Distraint;"  "Seizures." 
Distilled  spirits. 

Distilled  spirits  seized  because  of  filing  of  incorrect  return  or  failure  to  file  return 
not  willful  may  be  released  on  payment  of  tax  and  compromise  offer  of  25  per  cent; 
payment  of  tax  and  compromise  offer  of  100  per  cent  required  in  case  of  false  return 
or  willful  failure  to  file  return.  Acceptance  of  such  offers  is  in  lieu  of  forfeiture 
only.     (T.  D.  2877;  June  27,  1919.) 

Property  used  to  defeat  law. 

Statute  for  raising  of  revenue  even  when  contaiidng  provisions  of  highly  penal 
nature  is  still  to  be  considered  as  a  whole  and  in  a  fair  and  reasonable  manner,  and 
not  strictly  in  favor  of  claimant  to  property  used  to  defeat  the  revenue  laws,  for- 
feited under  provisions  of  such  statute.     (T.  D.  2789:  Feb.  10,  1919.     Ct.  Dec.j 

The  inference  of  intention  of  statute  to  exempt  from  forfeitxu-e  property  of  inno- 
cent owner  used  in  violating  internal-revenue  laws  will  1)C  adopted  where  property 
has  been  taken  by  a  trespasser  or  thief,  or  the  owner  thereof  has  been  depri\ed  of 
possession  by  force  of  nature  beyond  his  control;  biit  where  owner  voluntarily 
parts  with  possession  there  is  no  limitation  or  exemption  that  forfeitiire  shall  depend 
upon  proof  of  fraud  in  owner  of  such  convevauce  or  on  any  other  condition.  (T.  D. 
2789;  Feb.  10,  1919.     Ct.  Dec.) 


278  FORMULAS. 

Stills. 

The  requirement  of  law  that  all  stills  set  up  must  be  registered,  wlietlicr  intended, 
for  use  or  not,  applies  to  all  stills,  of  whatever  size  and  for  whatever  purpose  in- 
tended, whether  for  distillation  of  spirits  or  for  pharmaceutical  or  other  purposes; 
and  any  still  or  distilling  apparatus  not  so  registered  is  subject  to  forfeiture  to  the 
United'  Slates,  together  with  all  personal  property  in  the  possession  or  custody  or 
under  the  control  of  the  person  having  possession  or  control  of  such  still  or  distilling 
apparatus  and  found  in  the  building  or  in  any  yard  or  inclosure  connected  'with 
the  building  in  which  same  may  be  set  up.     (T.'D.  2993;  Mar.  22,  1920.) 

Vehicle  used  in  transporting  distilled  spirits. 

Nonparticipation  of  owner  of  automobile  in  its  u.se  in  transporting  distilled 
spirits  upon  which  the  tax  had  not  Ijeen  paid  is  no  bar  to  proceeding  in  rem  for  its 
forfeitiu-e.    (T.  D.  2776;  Dec.  11,  1918.) 

Under  section  3450,  Revised  Statutes,  automobile  used  in  transporting  spirituous 
liquors  on  which  tax  has  not  been  paid,  borrowed  from  piirchaser  thereof,  who 
had  given  his  note  secured  by  deed  of  trust  thereon  for  unpaid  purchase  price,  is 
subject  to  forfeiture  as  against  seller,  though  imder  terms  of  deed  and  the  State 
law  the  seller  could  require  the  trustee  to  seize  such  automobile  and  sell  it  in  satis- 
faction of  his  deed,  and  though  he  had  no  knowledge  of  any  intention  to  use  such 
automobile  for  an  ilkgdl  purpose.     (T.  D.  2789;  Feb.  10,  1919.     Gt.  Dec.) 

FORMULAS. 

See  "National  Formulary";    "United  States  Pharmacopa^ia." 
Alcoliol  and  antiseptic  ixiixture. 

Formulas  for  mixture  of  alcohol  withdrawn  for  use  in  hospitals,  etc.,  with  an 
antiseptic  stated;  application  for  permit  and  bond.     (T.  D.  2496;  May  31,  1917.) 

Formula  25  extended  to  use  in  manufacture  of  3i-  per  cent  tinctiu'e  of  iodine. 
(T.  D.  2527;  Sept.  28,  1917.) 

Apothecaries  will  not  be  charged  with  liability  to  special  tax  on  accoimt  of  sale 
in  quantities  not  exceeding  1  pint  of  alcohol  for  bathing  or  antiseptic  purposes, 
providing  it  is  compounded  prior  to  sale,  but  not  in  bulk  or  in  advance  of  orders, 
in  such  manner  as  to  make  it  unfit  for  use  as  beverage;  approved  formulas  for  pur- 
pose of  rendering  alcohol  unfit  for  beverage  stated;  containers  of  alcohol  treated 
in  such  manner  must  bear  "poison"  labels.    (T.  D.  2760;  Oct.  9,  1918.) 

Denatured  alcohol. 

Formula,  designated  as  No.  23,  for  special  denaturation  cf  alcohol  to  be  used  in 
manufacture  of  liniment  stated ;  formula  not  to  be  used  in  central  denaturing  bonded 
warehouses  or  distill(?ry  denaturing  bonded  warehouses,  l:)ut  use  authorized  for 
denaturation  of  alcohol  in  central  distilling  and  denaturing  plants;  permission 
required  to  use  special  denaturant  in  any  central  distilling  and  denaturing  plant, 
as  provided  in  articles  2  and  19  of  Supplement  No.  2  to  Regulations  30.  (T,  D. 
2379;  Oct.  6,  1916.) 

Formula  for  special  denaturation  of  alcohol  to  be  used  in  manufacture  of  phe- 
nacetin  stated;  it  is  understood  that  no  part  of  alcohol  remains  in  finished  pro(luct 
which  must  meet  specifications  of  United  States  Pharmacopoeia,  and  that  formula 
is  to  be  used  in  completed  process  for  manufacture  of  phenacetin  and  not  merely 
for  any  one  stage  and  that  process  is  to  be  closed  and  continuous.  (T.  D.  2381; 
Oct.  16,  1916.) 

Formula,  designated  as  No.  25,  approved  for  special  denaturation  of  alcohol  to  bo 
used  exclusively  in  manufacture  of  tincture  of  iodine;  formula  not  to  be  used  in 
central  denaturing  bonded  warehouses  or  distillery  denaturing  bonded  warehouses, 
but  use  authorized  for  denaturation  of  alcohol  in  "central  distilling  and  denaturing 
plants.     (T.  D.  2413;  Dec.  11,  1916.) 

Forrnula,  designated  as  No.  26,  for  special  denaturation  of  alcohol  to  be  used 
exclusively  in  the  manufacture  of  ethylaniline  and  diethylaniline  stated;  oflicers 
instructed  to  exercise  great  caution  in  recommending  granting  of  permits  for  use 
of  such  denaturant;  application  must  be  accompanied  by  blue  print  or  drawing  of 
premises,  same  to  be  duly  sworn  to  and  detailed  description  of  process.  (T.  D. 
2430;Jan.2, 1917.) 

Alcohol  denatured  according  to  stated  formula  may  be  used  in  the  manufacture 
of  soap  liniment  (U.S. P.)  chloroform  liniment  (U.S. P.),  liniment  of  soft  soap,  and 
green  soap  when  manufactured  in  accordance  with  standards  of  United*  States 


FORMUL.iS.  279 

Denatured  alcohol — Continued. 
Pharmacopoeia  with  oxceplion  that  products  will  contain  camphor  and  rosemary! 
denaturant  may  be  used  only  in  central  denaturing  and  distilling  plant  of  industrial 
character  as  established  under  subsection  2,  of  paragraph  N,  of  section  4,  of  the  act 
of  October  3, 1913,  and  Supplement  No.  2  to  Regulations  No.  30;  samples  of  liniment 
of  soft  soap  and  green  soap  required  to  be  submitted  together  with  formula  before 
bond  is  approved;  permission  for  use  of  special  denaturants  must  be  obtained. 
(T.  D.  2465;  Mar.  24,  1917.) 

Use  of  formula  G-b,  containing  pyridine  as  a  denaturant,  extended  temporarily 
for  those  purposes  for  which  special  formula  No.  17  has  heretofore  been  authorized, 
and  restriction  in  respect  to  operating  in  connection  with  distillery  or  central 
denaturing  bonded  warehouse  temporarily  removed.     (T.  D.  2484;  Apr.  21,  1917.) 

Formula  3  for  the  complete  denaturation  of  alcohol  made  of  refuse  material  for 
use  as  a  motor  spirit  or  gasoline  substitute  in  Hawaii  authorized  for  use  bv  any 
qualified  denaturer.     (T.'D.  2528;  Oct.  3,  1917.) 

Specifications  for  acetone  content  in  denaturing  grade  of  wood  alcohol  changed  so 
as  to  contain  not  more  than  JO  grams  nor  less  than  3  grams  jjer  100  c.  c.  of  acetone 
and  other  substances  estimated  as  acetone.  (T.  D.  2-587;  Nov.  21,  1917.  See 
T.  D.  22G8;  Dec.  4,  1915.) 

T.  D.  2587  revoked,  and  Article  V  of  Regulations  No.  30,  providing  that  wood 
alcohol  used  in  denaturing  shall  contain  not  more  than  20  grams  nor  less  than  10 
grams  of  acetone  or  other  substances  estimated  as  acetone,  per  100  cubic  centi- 
meters when  tested  by  the  Jlessinger  method,  again  made  effective;  wood  alcohol 
comphdng  ivith  T.  D.  2587,  on  hand  or  in  transit,  permitted  to  be  used  for  denatur- 
ing purposes  until  and  on  January  31,  1919.     (T.  D.  2779;  Dec.  17,  1918.) 

Formula  No.  28,  for  special  denaturation  of  alcohol  for  use  in  manufacture  of 
motor  fuel,  stated;  formula  authorized  to  be  used  exclusivelj'  in  manufacture  of 
motor  fuel  by  a  closed  and  continuous  process,  in  connection  with  a  central  dena- 
turing bonded  warehouse;  analytical  requirements;  process  after  denatui'ation : 
samples  of  finished  product  to  be  furnished:  application  for  use  of  denaturant  to  be 
accompanied  by  blue  prints  and  full  description  of  process  and  premises.  (T.  D. 
2769;  Nov.  4,  1918.) 

Formula  No.  29,  for  denatviration  of  alcohol  for  use  in  nianufactiu'e  of  glacial  aretic 
acid,  stated;  sketches  of  routing  of  alcohol  and  the  closed  and  continuous  process, 
as  well  as  detailed  description,  must  accompanv  application  for  use  of  such  formula. 
(T.  D.  2758;  Sept.  20,  1918.) 

FoiTuula  No.  31,  for  special  denaturation  of  alcohol  to  be  used  in  the  manufacture 
of  tooth  paste,  stated;  samples  of  finished  product,  together  with  formula  of  ingre- 
dients, labels,  advertising  matter,  etc.,  required  to  be  furnished;  this  data  should 
be  accompanied  by  full  description  of  process  of  manufacture  and  a  blue  print  or 
pencil  drawing  showing  location  of  room  or  rooms  in  which  denatured  alcohol  is 
to  be  -used.     (t.  D.  2819;  Apr.  10.  1919.) 

Formula  31A,  for  the  denaturation  of  alcohol  for  use  in  the  manufacture  of  tooth 
paste,  stated.     (T.  D.  2855;  June  7.  1919.) 

Formula  3A.  for  special  denaturation  of  alcohol  for  use  in  the  manufacture  of 
transparent  soap,  modified.     (T.  D.  2820;  Apr.  10,  1919.) 

Formula  No.  30,  for  special  denaturation  of  alcohol  to  be  used  exclusively  as 
reagent  for  analytical  and  testing  purposes  by  chemical  and  physical  laboratories, 
stated;  alcohol  so  denatured  shall  not  be  redistilled  or  purifiedto  use,  and  is  not 
to  be  recovered  for  reuse ;  use  of  this  formula  will  not  be  permitted  until  intended  use 
and  method  of  its  use  is  satisfactorily  set  forth  in  application  filed;  laboratories  re- 
quired to  qualify,  keep  records,  and  comply  with  regulations,  as  in  case  of  manu- 
facturers using  specially  denatured  alcoh'ol."    (T.  D.  2793;  Feb.  20,  1919.) 

Formula  No.  32,  for  denaturation  of  alcohol  for  use  in  manufacture  of  "ethylene," 
stated;  fornnda  may  only  be  used  in  process  which  is  closed  and  continuous  and 
which  will  completely  destroy  the  alcohol  as  such.     (T.  D.  2863;  June  14,  1919. ^ 

Formida  No.  4,  for  complete  denaturation  of  alcohol,  stated;  benzol  submitted 
required  to  conform  to  specifications  set  out.    (T.  D.  2853;  June  3.  1919.) 

Proprietary  medicines. 

Tax  imposed  by  section  GOO  (h)  of  the  act.of  October  3,  1917,  is  2  per  cent  of  the 
price  for  which  all  medicinal  preparations,  compounds,  or  compositions  v»-hatsoevcr 
arc  sold  by  the  manufacturer;  provided  that  the  ma,nufacturer  claims  to  have  any 
private  formula,  secret  or  occult  art  for  making  or  preparing  them.  (T.  D,  2719; 
Art.  XIX.)  =11        = 


280  FORTIFICATION   OF   WINES — FRANCHISE   TAXES. 

Proprietary  medicines — ronliniied. 

Everv  medicinal  preparation,  compound,  or  composition  embraced  within  one  or 
more  of  the  subdi\-isions  in  Article  XIX  of  Regulations  No.  44  is  subject  to  tax;  if 
article  is  made  or  prepared  by  manufacturer  claiming  to  have  private  formula, 
secret  or  occult  art  for  it.  it  is  taxable  even  though  it  is  not  prepared,  uttered,  vended, 
or  exposed  for  sale  under  any  letters  patent  or  trade-mark,  and  it  is  not  held  out  or 
recommended  to  public  as  proprietary  medicine  or  medicinal  proprietary  article  or 
preparation  or  as  a  remodv  or  specific  for  any  disease  or  affection  of  the  human  or 
animal  bo<ly.     (T.  D.  2719;  Art.  XX.) 

Preparations  made  in  accordance  with  formulas  contained  in  United  States  Phar- 
macopceia  and  National  Formulary  by  pharmaceutical  manufacturers,  when  not 
held  out  or  recommended  as  proprietary'  medicines  or  medicinal  proprietary  articles 
or  preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  but  if  so  held  out 
or  recommended  they  are  taxable  although  not  identified  by  any  name,  trade- 
mark, or  otherwise.     (T.  D.  2719;  Art.  XX.) 

WTiere  the  owner  of  a  formula  contracts  with  a  manufacturer  to  prepare  an  article 
afcording  to  such  formula  and  to  deliver  it  to  him  in  complete,  salable  form,  the 
labels  bearing  the  formula  owner's  name,  he  is  considered  the  manufacturer.  (T.  D. 
2719;  Art.  XXl.) 

Printing  on  labels  the  directions  and  indications  for  use,  dosage  and  other  similar 
matter,  will  not  alone  render  preparations  made  under  a  standard  formula  taxable, 
provided  preparation  is  not  held  out  or  recom.mended  as  a  proprietary  preparation 
or  as  a  remedy  or  specific;  where  medicinal  preparations  are  sold  under  labels  which 
do  not  indicate  that  the  formula  is  published  they  will  be  considered  to  be  prepared 
under  private  formulas,  unless  proof  is  submitted  that  the  formula  is  not  secret.  (T. 
D.  2719;  Art.  XXII.) 

FORTIFICATION   OF   WINES. 
See  "Wines." 

FRANCHISES. 

Excess  profits  tax — Invested  capital. 

If  good  vriW.  trade-marks,  trade  brands,  franchises  of  a  corporation  or  partnership, 
or  other  intangible  property  has  been  purchased  with  stock  or  shares  issued  prior  to 
March  3,  1917,  amount  that  may  be  included  in  invested  capital  must  not  exceed  20 
per  cent  of  par  value  of  total  stock  or  shares  outstanding  on  that  date,  nor  actual 
value  of  asset  at  date  acquired,  nor  par  value  of  stock  issued  in  payment  for  the  asset. 
(T.  D.  2694;  art.  57.) 

Subject  to  limitations  stated  invested  capital  of  indi\ddual  is  measured  by  total  of 
actual  cash  paid  into  trade  or  business,  tangible  property  paid  into  trade  or  busi- 
ness, patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  tangible  property.     {T.  D.  2694;  art.  66.; 

Patents  and  copyrights,  and  good  will,  trade-marks,  trade-brands,  franchises  and 
other  similar  intangible  assets  may  be  included  in  invested  capital  at  value  not  to 
exceed  actual  cash  paid  therefor,  or  actual  cash  value  at  time  of  payment  of  tangible 
property  paid  therefor,  but  only  if  bona  fide  payment  was  made  therefor  specifically 
as  such  in  cash  or  tangible  property.     [T.  I).  2694;  art.  68.) 

FRANCHISE   TAXES. 
Exemption. 

Corporation  owning  Liberty  bonds  is  not,  to  that  extent,  exempt  from  franchise 
taxes,  excise  taxes,  and  other  corporation  taxes  of  the  United  States,  and  of  the 
several  States.     (T.  D.  2512;  June  8,  19i7.) 

Income  taxes — Net  income. 

Banks  pa>Ting  taxes  assessed  against  stockholders  on  account  of  ownership  of  shares 
of  stock  issued  by  such  bank  can  not  deduct  amount  of  taxes  so  paid  unless  and  to 
extent  that  laws  of  State  in  which  they  do  business  by  specific  terms  make  tax 
direct  liability  of  such  banks;  fact  that  State  laws  make  it  duty  of  banks  to  pay  tax 
does  not  necessarily  make  tax  a  liability  of  the  banks,  and  such  payments  are  not 
deductible  from  gross  income  of  such  banks;  rule  applies  only  to  taxes  levied  upon 
value  of  capital  stock,  and  is  not  intended  to  prevent  bank  from  deducting  any 
State  tax  imposed  on  value  of  coq>oration's  real  estate,  furniture,  and  fixtures,  or  as 
an  excise  or  franchise  tax;  rule  applies  in  case  of  corporations  other  than  banks, 
upon  value  of  whose  stock  taxes  are  assessed  to  the  stockholders.  (T.  D.  2690; 
art.  192.) 


FRATERNAL  ORGAXIZATinXS FREE  ADMISSIONS.  281 

FRATERNAL.  ORGANIZATIONS. 
Capital  stock  tax. 

Fraternal  beneficiary  society,  order,  or  association,  operating  luuler  the  lod<re 
py.«itcin  or  for  the  exclusive  benefit  of  the  nieniber.s  of  a  fraternity  itself  operating 
under  the  lodge  system,  and  providing  for  payment  of  life,  sick,  accident,  or  other 
benefits  to  member.s  of  such  society,  order,  ur  association,  or  their  dependents,  is 
exempt  from  tax  imposed  by  section  407  of  the  af:t  of  September  8,  1010.  (T.  D. 
2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Dues. 

Dues  or  fees  paid  t« fraternal  orders  not  falling  within  the  express  exemption  of 
section  701  of  the  act  of  October  3,  1917,  are  not  subject  to  the  tax  imposed  by  that 
section,  if  the  purposes  and  practices  of  )he  order  to  which  they  are  paid  are  relig- 
ious, bene\"olent,  or  educational,  and  any  social  activities  of  the  order  are  incidental 
and  subordinate;  where  the  purposes  or  practices  of  any  fraternal  order  are  primarily 
social  in  character,  dues  or  fees  paid  to  it  are  primarily  social  in  character,  dues  or 
fees  paid  to  it  are  subject  to  the  tax.     (T.  D.  2681;  Mar.  2(5,  1918.) 

Income  taxes — Exemptions. 

See  "Income  Taxes  (Corporations)." 

Insignia— Excise  taxes. 

Insignia  of  fraternal  societies,  when  intended  to  be  carried  on  the  person  and 
made  wholly  or  in  part  from  gold,  silver,  or  platinum,  or  having  the  appearance 
thereof,  are  deemed  to  be  jewelry  vrithin  section  600  (e)  of  the  act  of  October  3,  1917. 
(T.  l\  2719;  Art.  XIV.) 

Insurance — Exemption  from  tax. 

Fraternal  beneficiary  society,  order,  or  association,  operating  under  lodge  system 
or  for  exclusive  benefit  of  members  of  fraternity  itself,  operating  under  lodge  system, 
and  providing  for  payment  of  life,  sick,  accident  or  other  benefits  to  the  members  of 
such  society  or  order  or  their  dependents,  is  exempt  from  tax  on  insurance.  (T.  D. 
2588;  Nov.  21,  1917.) 

Occupational  taxes — Pool  or  billiard  tables,  etc. 

Occupation  tax  levied  by  act  of  September  8,  1916,  is  applicable  to  pool  or  bil- 
liard tables  and  bowling  allevs  in  fraternity  houses  and  lodge  halls.  (T.  D.  2462; 
Feb.  16,  1917.) 

FRAUD. 
Returns  of  taxpayers. 
See  specific  heads. 

FREE  ADMISSIONS. 
Taxability. 

Bona  fide  employees,  municipal  officers  on  municipal  business,  and  children 
under  12  years  of  age  when  admitted  free,  are  not  taxable;  application  of  ruling  to 
baseliall  reporters  and  tele^Jjraphers,  employees  of  management  or  of  concessionaires 
selling  refreshments,  newsbovs  selling  newspapers,  newspaper  critics  and  reporters, 
and  doctors  and  attorneys  for  theaters.     (T.  D.  26S1;  Mar.  26,  1918.) 

Every  person,  corporation,  organization,  or  association,  admitting  any  person 
free  to  any  place  where  admission  is  charged,  must  collect  tax  on  such  admissions 
from  the  persons  admitted,  and  make  monthly  return  and  payment  of  collections 
as  provided  in  section  503.     (T.  D.  2681;  Mar.  26,  1918.) 

Free  admissions  are  taxable  at  same  rate  as  paid  admissions  entitling  to  similar 
accommodations;  holder  of  pass  for  single  admission  required  to  pay  tax,  at  option 
of  proprietor,  when  pass  is  issued  (it  then  to  be  stamped  '"Tax  paid' '),  or  when  it  is 
presented  for  admission,  and  holder  of  season  pass  required  to  pay  tax,  at  option- 
of  proprietor,  when  it  is  issued  (it  them  to  be  stamped  "Tax  paid' '),  on  all  admis- 
sions to  which  pass  entitles,  or  whenever  it  is  presented,  on  each  single  admission; 
tax  must  be  paid  by  holder  of  pass;  where  pass  is  "Tax  paid' '  no  refund  of  tax  will 
be  allowed  on  account  of  failure  to  use  any  or  all  of  admissions  covered;  admission 
of  lady  on  gentleman's  ticket  without  extra  charge  is  not  taxable,  because  same 
ticket  covers  both,  even  though  unaccompanied  lady  must  pay  same  admission  aa 
gentleman.     (T.  D.  2681;  Mar.  26,  1918.) 


282  PEEK  TRA2C5PORTATIOX FUTUKES. 

FBEE  TRANSPORTATION. 
Taxability. 

Tax  imposed  by  sections  500  and  501  of  act  of  October  3,  1917,  applies  to  trans- 
portation by  carrier  of  property  belonging  to  or  for  personal  use  of  anj-  of  its  officers, 
agents,  or  employees,  even  thoueli  such  property  be  transported  free  of  charge. 
(T.  D.  2676;  ifar:  IS,  1918.) 

The  8  per  cent  tax  imposed  by  section  500  of  the  act  of  October  3,  1917,  does  not 
apply  to  amounts  paid  for  transportation  of  persons  by  carriers  where  they  are 
carried  free  under  the  provisions  of  Federal  or  State  laws;  the  10  per  cent  tax  im- 
posed by  such  section  does  not  apply  where  accommodations  in  parlor  or  sleeping 
cars  or  on  vessels  are  fumislted  free  under  the  provisions  of  Federal  or  State  laws. 
(T.  D.  2676;  Mar.  18,  1918."i 

Tax  imposed  by  subdi-v-ision  (b)  of  section  500  of  act  of  October  3,  1917,  apfdies 
whether  package,  parcel,  or  shipment  be  transported  by  rail,  water,  mechanical 
motor  power  or  other  means  of  conveyance;  if  facilities  of  railroad  company  on  line 
of  which  express  company  operates  be  necessary  for  use  of  latter  company,  and  if 
such  latter  company,  under  contract,  transports  commodities  necessary  to  main- 
tain or  operate  such  facilities,  and  express  company  makes  no  charge  for  transpor- 
tation, chaises  which,  but  for  such  arrangement,  would  have  accrued  on  such 
transpDrtation,  are  exempt  from  tax.     (T.  D.  2676;  Mar.  1?,  191S.) 

FREIGHT  TRANSPORTATION. 
See  '  ■  Transportation  " :  "  Transport  ation  Tax." 

Incorae  tax — Infonnation  at  source. 

Bills  paid  for  freight  do  not  require  reports  of  informaiion.  (T.  D.  2G70;  Mar. 
11,  1918.;) 

FRUITS. 

See '•■  Distilled  Spirits";  '^Horticulture";  '•'Orchards'';  'Wines,'! 

FRUIT  BRA1>JDY. 
See  "Brandy." 

FRUIT  GROWERS'  ASSOCIATIONS. 

Capital  stock  tax. 

Fruit  growers"  association  organized  and  operated  as  sales  agent  to  market  product 
of  its  members,  turning  back  to  them  proceeds  of  sales  less  necessary  selling  ex- 
penses, on  basis  of  quantity  of  produce  furnished  bv  them,  is  exempt  from  tax 
imposed  bv  section  407  of  the  act  of  September  S,  191G.  {T.  D.  23S3;  Oct.  19.  1910. 
T.  D.  2750",  art,  12:  Aug.  9,  1918.) 

Horticultural  organizations. 

See  ■'Horticulture.'' 

FUTURES. 

Exchanges,  sales  on — Affixing  and  canceling  stamps. 

Stamps  in  value  equal  to  amount  of  tax  on  sales  must  be  aflSxed  to  memorandum 
or  other  e^ldence  of  sale  or  agreement  to  seR;  clearing  house;  acting  as  agent,  re- 
quired to  make  returns  showing  stamps  aflixed  and  cancelled;  manner  of  canceling 
stamps  stated.     (T.  D.  260S:  Xov.  30?  1917.,( 

Cotton. 

Contract  oi  sale  of  cotton  for  future  deUverv  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  busines,  is  taxed  at  the  rate  of  $0.02  for  each 
pound  of  cotton  involved  (to  be  paid  by  stamps :  tax  not  to  be  le\-ied  on  contracts 
compljTng  with  conditions  prescribed.  '  (T.  D.  2-55S;  Oct.  26,  1917.) 

■ Exempt  transactions- 

2s  o  tax  is  imposed  cm  cash  sales  of  produce  or  merchandise  for  immediate  or  prompt 
dehven.-,  which,  in  good  faith,  are  actually  intended  to  be  delivered;  sellers  of 
produce,  etc.,  may  transfer  contracts  to  clearinghouse  association  and  such  transfer 
shall  not  be  deemed  to  be  a  sale  or  agreement  of  sale,  provided  it  does  not  A-est  bene- 


GAJVIES.  283 

Exchanges,  sales  on — Continued. 

Exempt  transactions — Continued. 

ficial  interest  in  such  association  and  is  made  only  to  enable  such  association  to 
adjust  accounts  of  its  members;  no  by-law*  or  custom  of  any  exchange  or  similar 
institution,  inconsistent  writh  the  act  of  October  3,  1917,  or  any  regulations  there- 
under, nor  any  collateral  agreement  inconsistent  with  such  act  or  regulations 
thereunder  shall  exempt  anv  person  from  pavment  of  tax.  (T.  D.  260S;  Nov.  30, 
1917.) 

Sales  of  produce  or  merchandise  for  future  delivery  must  be  made  at  an  exchange  or 
board  of  trade  or  other  similar  place  in  order  for  tax  imposed  by  section  S07,  Schedule 
A.  subdiv-ision  5,  act  of  October  3,  1917,  to  apply;  sale  by  member  of  exchange  made 
bv  mail  or  wire  not  at  an  cxchansre  is  not  subject  to  the  tax.  (T.  D.  2795;  Feb. 
26,  1919. 1 

— —  Memorandum. 

Every  sale  or  agreement,  not  evidenced  by  memorandum  or  contract  expressly 
reqiiiring  inunediate  or  prompt  deliver^-  shall  be  deemed  to  be  for  future  delivcrj-; 
every  person  making  sale  of  any  product,  etc.,  at,  on,  or  in  any  exchange  for  future 
delivery,  shall  deliver  to  the  buyer  a  biU,  memorandum,  or  other  evidence  of  such 
sale,  showing  certain  specified  data  and  items  of  information;  no  single  sale  or  con- 
tract made  upon  an  exchange  by  one  member  for  another  need  be  evidenced  by 
more  than  one  memorandum,  written  return  of  sheet  to  clearing  house,  acting  as 
agent,  considered  to  be  memorandum;  return  bv  clearing  house.  (T.  D.  2(iOS:  Xo\-. 
30,  1917.) 

Records. 

-\11  persons  who  make  sales  or  contracts  of  sales,  including '  •  transferred  or  scratched 
sales."  '"pass  outs."'  '"pair-offs."  or  ''matched  trades,"  and  all  other  forms  of  sale 
of  any  product  or  merchandise  on  exchanges  for  future  delivery  required  to  keep 
record  showing  specified  items  of  information;  form  of  record  required;  clearing 
houses  to  keep  record  showing  certain  data.     (T.  D.  2608;  Nov.  30,  1917.) 

Registration. 

Regulation  Xo.  -iO,  Part  2,  requii-es  a  statement  of  registration  by  persons  making 
contract  of  sale  of  produce  or  merchandise  on  exchanges  for  future  delivery;  record 
of  registration  to  be  kept  by  collector,  and  certificate  of  registration  to  be  issued  and 
posted;  forms;  statement  of  registration  bv  exchanges  and  clearing  houses.  (T.  D. 
260S:  Nov.  30.  1917.) 

Returns. 

Clearing  houses  and  persons  making  contracts  of  sale  at,  on,  or  in  any  exchange, 
etc.,  for  futiu-e  delivery,  required  to  make  return  showing  specified  data  and  infor- 
mation; substitute  returns;  clearing  houses,  acting  as  agents,  required  to  return 
statements  of  amounts  of  stamps  aflixed  to  memoranda  of  sales.  (T.  D.  260S;  Nov. 
30.  1917.) 

Stamp  sales. 

Stamps  required  to  be  affixed  to  contracts  of  sale  of  any  product  or  merchandise 
before  a  delivery-  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treas- 
urer, or  other  designated  United  States  depositai-y;  State  agents;  requisitions  for 
stamps;  records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 

GAMES. 
Admissions — Athletic  contests. 

Admissions  to  school  or  college  athletic  contests  and  other  college  entertaiumerit.s 
are  not  taxable  if  proceeds  go  to  the  school  or  the  college,  but  they  are  if  proceeds 
are  used  for  support  of  athletics  or  other  separate  purposes.  (T.  D.  26S1;  Mar.  2(i, 
1918.) 

Baseball  games. 

Admi.^sions  of  baseball  reporters  and  telegraphers,  occupying  special  space  at 
baseball  parks,  and  admitted  by  passes  issued  by  baseball  writers'  association,  and 
.   of  newsbovs  selling  newspapers  are  exempt  from  tax  under  section  700  of  the  act  of 
October  3,  1917.     (T.  D.  2681;  Mar.  26,  1918.) 

Where  rain  checks  attached  to  tickets  sold  for  canceled  baseball  game  are  redeem- 
able in  cash  with  refund  of  the  tax,  or  by  issue  of  ticket  for  another  game,  the  box- 
oflSce  statement  for  the  canceled  game  may  be  marked  '"Canceled,"  but  in  its  next 


284  GAS. 

Admissions — Continued. 

Baseball  games — Continued. 

return  the  tax  must  be  accounted  for  by  tlie  club  on  any  tickets  not  redeemed  as 
showTi  by  comparison  of  box-office  statement  for  canceled  game  with  statements  for 
subsequent  games.     (T.  D.  2681;  Mar.  2(3,  1916.) 

Excise  taxes. 

The  tax  imposed  by  section  600  (f)  of  the  act  of  October  3, 1917,  is  3  per  cent  of  the 
price  for  which  games  and  parts  of  games,  except  playing  cards  and  children's  toys 
and  games,  are  sold  by  the  manufacturer;  parts  of  games  are  taxable,  and  if  used  in  a 
complete  game  sold  as  such  the  tax  attaches,  even  though  parts  have  been  separately 
taxed ;  the  game  of  cribbage  is  taxable  as  a  whole  although  it  consists  partly  of  playing 
cards  on  which  a  tax  has  been  paid;  card  games  to  be  played  by  adults  as  well  as 
children,  other  than  ordinarv  pla\'ing  cards,  are  subject  to  the  tax.  (T.  D.  2719; 
Art.  XVII.) 

Bowling  alley  tenpins  are  "parts  of  games"  within  the  meaning  of  section  600(f) 
of  the  act  of  October  3,  1917,  and  are  subject  to  taxation  thereunder.  (T.  D.  2795; 
Feb.  26,  1919.) 

GAS. 

Income  taxes — Depletion  and  depreciation. 

Section  14  of  the  act  of  September  8,  1916,  amending  section  3225,  Re\-ised  Stat- 
utes, providing  that  it  shall  not  apply  to  statements  or  returns  made  or  to  be  made  in 
good  faith  regarding  annual  depreciation  of  oil  or  gas  wells  and  mines,  does  not 
purport  to  be  retroactive  in  its  operation.     (T.  D.  2661;  Mar.  5,  1918.     Ct.  Dec.) 

In  case  of  lessee,  capital  to  be  returned  is  amount  paid  in  cash  or  its  equivalent 
as  bonus  or  otherwise  by  lessee  for  lease,  plus  expenses  incurred  in  developing 
property  (exclusive  of  physical  property)  prior  to  receipt  of  income  therefrom  suf- 
ficient to  meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and 
lessee,  such  incidental  expenses  as  are  paid  for  wages,  fuel,  etc.,  in  connection 
v.dth  drilling  of  wells  and  further  development  of  property  may  be,  at  option  of 
operator,  deducted  as  operating  expense  or  charged  to  capital  account.  (T.  D. 
2690;  art.  170.) 

In  case  of  operating  fee  owner,  amount  returnable  through  depletion  deductions 
is  fair  market  value  of  property  (exclusive  of  cost  of  physical  property)  as  of  March 
1 ,  1913,  if  acquired  prior  to  that  date,  or  actual  cost  of  property  if  acquired  subsequent 
to  that  date,  plus,  in  either  case,  cost  of  development  (other  than  cost  of  physical 
j)roperty  incident  to  such  development  up  to  point  at  which  income  from  clevel- 
oped  territory  equals  or  exceeds  deductible  expenses'.     (T.  D,  2690;  art.  170.) 

Essence  of  sections  5  and  12  of  the  act  of  September  8, 1916,  as  amended  by  the  act 
of  October  3,  1917,  is  that  owner  or  operator  of  gas  or  oil  properties  shall  secure 
through  an  aggregate  of  annual  depletion  deductions  the  return  of  amount  of  capital 
actually  invested,  or  amount  not  in  excess  of  fair  market  value  as  of  March  1,  1913, 
of  properties  owned  prior  to  that  date.     (T.  D.  2690;  art.  170.) 

As  to  both  fee  owner  and  lessee,  capital  invested  in  pliysical  property  upon  which 
depreciation  deduction  is  computed  should  be  segregated  in  books  of  account  from 
that  invested  in  oil  or  gas  territory  or  in  lease  or  leases,  with  respect  to  which  deduc- 
tion for  depletion  or  return  of  capital  is  claimed,  and  credits  for  depreciation  may 
be  made  in  same  manner  as  provided  for  depletion.     (T.  D.  2690;  art.  170.) 

Both  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition  to  and 
separate  from  deduction  allowable  for  depletion  or  return  of  capital,  be  permitted 
to  deduct  reasonable  allowance  for  depreciation  of  physical  property,  such  as 
machinery,  tools,  equipment,  pipes,  etc.,  amount  deductible  on  this  account  to  be 
such  an  amount,  based  upon  its  capitalized  value  (cost)  equitably  distributed  over 
its  useful  life  as  will  bring  it  to  its  true  salvage  value  when  no  longer  useful  for 
purpose  for  which  property  was  acquired.     (T.  D.  2690;  art.  170.) 

Where  operator  is  owner  of  fee,  value  determined  and  set  up  as  of  March  1,  1913, 
or  cost  of  property  if  acquired  subsequent  to  that  date,  or,  if  operator  is  lessee,  actual 
amount  paid  for  lease,  plus,  in  case  of  both  owner  and  lessee,  cost  of  subsequent 
development,  exclusive  of  physical  property,  if  such  cost  is  capitalized,  will  be 
basis  for  determining  depletion  deduction  or"  deduction  for  return  of  capital  for  all 
subsequent  years  during  continuance  of  ownership  under  which  value  was  fixed 
or  by  which  investment  was  made;  during  such  ownership  there  can  be  no  revalu- 
ation for  purpose  of  deduction  if  it  should  be  found  that  quantity  of  oil  or  gas  was 
underestimated  at  time  value  was  fixed  or  property  was  acquired,  or  at  time  lease 
contract  was  entered  into  or  purchased.     (T.  D.  2690;  art.  170.) 


GASOLINE — GAUGERS.  285 

Income  tax — Depletion  and  depreciation — Continued. 

If  quantity  of  oil  or  gas  can  not  be  determined  with  certainty,  depletion  deduction 
will  be  computed  in  accordance  with  rules  set  out  in  T.  D.  2447,  except  that  lessees 
may  compute  deductions  for  return  of  capital  (cost  of  lease  and  development)  in 
same  manner  as  owners  in  fee;  that  is,  they  may  extinguish  such  capital  on  basis  of 
reduction  in  flow  and  production  as  compared  with  preceding  year,  or,  in  case  of 
leasehold  properties  brought  in  or  developed  during  year,  depletion  detluction 
may  be  computed  on  basis  of  decline  in  settled  flow  and  j)roduction,  as  evidenced 
by  tests  and  gauges  made  at  end  of  year  as  compared  with  similar  tests  and  gauges 
made  at  time  settled  flow  was  determined;  for  purpose  of  computing  depletion,  ter- 
ritory comprehended  in  given  lease  will  be  considered  unit  with  respect  to  which 
depletion  deduction  may  be  claimed  and  allowed.     (T.  D.  2690;  art.  170.) 

Every  individual  or  corporation  entitled  to  deduction  on  account  of  depletion  or 
for  return  of  capital  invested  shall  keep  accurate  ledger  account,  in  which,  in  case 
of  fee  owner,  sliall  be  charged  fair  market  value  as  of  March  1,  1913,  or  cost,  if  ac- 
quired subsequent  to  that  date,  of  oil  or  gas  property  plus  cost  of  development,  or, 
in  case  of  lessee,  amount  actually  originally  invested  in  lease  and  its  development; 
this  amo-int  shall  be  credited  with  amount  claimed  each  year  as  deduction  on  account 
of  depletion  or  as  return  of  capital,  to  end  that  when  credits  to  account  equal  debits 
no  further  deductions  on  either  account,  with  respect  to  this  property  and  capital 
invested  therein,  will  be  allowed;  or,  in  lieu  of  direct  credit  to  property  account, 
amounts  so  claimed  and  allowed  as  deduction  maj^  be  credited  to  depletion  reserve 
account.     (T.  D.  2690;  art.  170.) 

Estimate,  subject  to  approval  of  Commissioner  of  Internal  Revenue,  required  to 
be  made  of  probable  quantity  of  oil  or  gas  contained  in  or  to  be  recovered  from  ter- 
ritory with  respect  to  which  investment  is  made;  invested  capital  will  be  diA"ided 
by  number  of  units  of  oil  or  gas  so  estimated,  and  quotient  will  be  per  unit  cost  or 
amount  of  capital  invested  in  each  unit  recoverable;  this  quotient,  when  multi- 
plied by  number  of  units  removed  from  territory  in  one  year,  will  determine  amount 
which  will  be  allowably  deducted  from  gross  income  for  that  year  on  account  of 
depletion  or  as  return  of  invested  capital  until  total  of  such  deduction  shall  equal 
capital  invested.     (T.  D.  2690;  art.  170.) 

If  individual  or  corporation  charges  expense  of  drilling  wells  or  further  develop- 
ment to  capital  account,  the  same,  in  so  far  as  expense  is  represented  by  physical 
property,  may  be  taken  into  account  in  determining  reasonable  allowance  for  depre- 
ciation during  each  year  until  property  account  thus  augmented  has  been  extin- 
guished through  annual  depreciation  deductions,  after  which  no  further  deduction 
on  this  account  will  be  allowed;  in  case  of  a  going  or  producing  business,  cost  of 
drilling  nonproductive  wells  may  be  deducted  from  gross  income  as  operating 
expense.     (T.  D.  2690;  art.  170.) 

Returns. 

Individual  or  corporation  owning  and  operating  oil  or  gas  properties  required  to 
attach  to  each  return  a  statement  showing  certain  specified  data;  if  operator  is 
lessee,  that  fact  should  be  stated,  and  to  return  made  by  such  lessee  there  should 
be  attached  a  statement  showing  certain  specified  matters.     (T.  D.  2690;  art.  170.) 

GASOLINE. 

Substitute. 

Formula  3  for  the  complete  denaturation  of  alcohol  made  of  refuse  material  for 
use  as  a  motor  spirit  or  gasoline  substitute  in  Hawaii  authorized  for  use  by  any 
qualified  denaturer.     (T.  D.  2528;  Oct.  3,  1917.) 

GAUGERS. 

Assignment  to  distilleries  and  wineries. 

Regulations  with  reference  to  assignment  to  bonded  wineries  of  gaugers  and  of 
Btorekeeper-gaugers  as  gaugers;  compensation  and  traveling  expenses;  duties; 
proprietors  required  to  furnish  Sallenm-Dujardin  ebullioscopes  for  use  of  gaugers, 
and  sweet-mne  sets  may  be  used  by  revenue  agents,  deputy  collectors,  and  others, 
for  verifying  and  testing  alcoholic  content  of  wines.     (T.  D.  2380;  Oct.  10,  1916.) 

General  storekeeper-ganger  wnll  be  designated,  assigned,  and  compensated  and 
will  perform  service  as  provided  by  Regulations  Nos.  7  and  2  and  T.  D.  2408,  with 
the  reservation  that  in  the  discretion  of  the  collector  of  internal  revenue  or  of  the 
commissioner,  any  distillery,  general  or  special  bonded  warehouse  may  be  placed  in 
charge  of  an  officer  thus  designated  whenever  withdrawal  of  spirits  is  inconsiderable 


286  GAUGING  RODS — GIFTS. 

Assignment  to  distilleries  and  wineries — Coutiuued. 
or  whenever  the  collector  or  the  commissioner  deems  such  course  to  be  for  the  best 
interest  of  the  Government.     (T.  D.  2444;  Feb.  9,  1917.) 

Instructions  with  reference  to  assignment  to  distilleries  of  storekeeper-gangers  in 
place  of  storekeepers  and  gaugers;  bonds;  hours  of  work;  duties;  compensation. 
(T.  D.  243S;  January  29,  1917.     T.  D.  2456;  Mar.  IG,  1917.) 

Instructions  with  reference  to  assignment  of  gaugers  to  fruit-brandy  distilleries 
producing  100  gallons  per  day;  storekeeper-gangers  assigned,  when;  recommenda- 
tions for  assignments  on  Form  241;  compensation;  hours  of  labor;  duties  as  to 
records,  reading  meters,  etc.  (T.  D.  2491;  Mav  21,  1917.  T.  D.  2514;  Julv  24, 
1917.) 

Rate  of  pay  of  officers  assigned  in  dual  capacity  of  storekeeper-gangers  to  dis- 
tillery warehouses  at  distilleries  having  registered  capacity  of  more  than  20  bushels 
and  to  special  bonded  and  general  bonded  warehouses  fixed  at  $4  per  day,  this  rate 
to  be  applicable  in  case  of  distilleiy  warehouse  wliether  distillery  is  being  operated 
or  is  under  suspension,  and  as  to  all  warehouses  ii-respective  of  quantity  of  spirits 
stored  therein;  when,  however,  quantity  of  spirits  in  warehouse  is  5,000  gallons,  or 
less,  rate  of  pay  will  be  fixed  at  ^i  per  day  for  such  days  only  as  officer  is  required 
to  \"isit  warehouse  for  necessarv  purposes:  this  rate  of  pav  to  be  effective  on  and  after 
February  1,  1920.     (T.  D.  2980;  Feb.  11,  1920. ) 

GAUGING   RODS. 

Distilled  spirits. 

Instruction  aat-IIi  reference  to  change  in  price  of  standard  gauging  rod  or  any  jiart 
thereof,  and  as  to  making  applications  and  sending  remittances  therefor.  (T.  D. 
2617;  Dec.  13,  1917.) 

Notice  of  increase  in  i>rlce  of  Alexander's  improved  wantage  rod  and  instruction 
as  to  method  of  procuring  and  using  same.     (T.  D.  2640;  Jan.  28,  1918.) 

GIFTS. 

Definition. 

To  constitute  a  valid  gift,  there  must  be  an  absolute  transfer  of  property  from 
donor  to  donee,  taking  effect  immediately  and  fully  executed  by  delivery  of  prop- 
erty- of  donor  and  acceptance  thereof  by  donee;  it  is  essential  that  transactions  should 
be  fullv  executed  by  deliverv  of  propertv  to  donee  or  to  some  person  for  him. 
(T.  D.  2529;  Oct.  4,  1917.) 

Estate  tax. 

Thirty-day  notice  (Form  705)  must  be  filed  within  30  days  after  death  of  decedent 
whose  estate  is  taxable,  by  donees  who  have  received  within  two  years  prior  to 
decedent's  death  any  gift  of  material  value  from  decedent,  or  who  have  received 
at  any  time  whatever  gifts  made  bv  decedent  in  contemplation  of,  or  intended  to 
take  legal  effect  at,  death.     (T.  D.  2454;  Feb.  28,  1917.) 

Where  decedent  exercises  general  power  of  appointment  as  donee  under  will  of 
prior  decedent,  property  so  passing  is  portion  of  gi-oss  estate  of  decedent  appointor; 
when  property  is  transferred  by  special  or  limited  power  of  appointment,  question 
of  taxability  will  depend  upon  terms  of  instrument  l^y  which  donee  of  the  power 
acts,  and  facts  in  any  such  case  should  be  reported  fullv  to  commissioner.  (T.  D. 
2477;  Apr.  7,  1917.) 

Every  gift  or  transfer  of  material  value  made  or  effected  by  decedent  within  two 
years  prior  to  clay  of  death  must  be  shown  under  item  two  in  executing  Form  706; 
evidence  showing  whether  gift  or  transfer  was  made  in  contemplation  of  death  may 
be  submitted  with  the  return,  and  question  of  taxability  \vill  be  ruled  upon  before 
assessment  is  confirmed :  every  gift  or  transfer  made  in  contemplation  of  or  intended 
to  take  effect  after  death  must  he  returned.     (T.  D.  2513;  July  16,  1917.) 

Excess  profits  tax. 

Contributions  or  gifts  for  religious,  charitable,  etc.,  purposes  allowed  as  deduc- 
tion for  purposes  of  income  tax  under  paragraph  ninth  of  subdivision  (a")  of  section 
5  of  the  act  of  September  8, 1916,  as  amended,  may,  subject  to  limitations  therein 
contained,  be  deducted  in  computing  net  income  of  trade  or  business  only  when 
shown  to  satisfaction  of  Commissioner  of  Internal  Revenue  that  such  contribu- 
tions or  gifts  are  made  by  trade  or  business  and  not  by  individual  in  his  personal 
capacity.     (T.  D.  2694;  art.  37.) 


GIN.  287 

Income  taxes — Exemptions. 

^'alue  of  propeity  acquired  by  gift  shall  not  be  included  as  income,  but  income 
from  such  property  pliall  be  reported.     (T.  D.  2690;  art.  5.) 

Gross  income. 

Fair  market  price  or  value  of  stock  acquired  by  gixt  subsequent  to  March  1,  1913, 
is  basis  for  computing  gain  derived  or  loss  sustained  by  sale  thereof;  if  acquired 
by  gift  prior  to  March  1,  1913,  fair  market  price  or  value  as  to  that  date  is  the  basis 
for  computation.     (T.  D.  2090;  art.  4.) 

^\^lere  to  enable  corporation  to  secure  v,'orking  capital  or  for  any  other  purpot^o 
stockholders  donate  or  return  to  corporation  to  be  resold  by  it  certain  shares  of 
stock  of  company  previously  issued  to  them,  resale  will  be  considered  a  capital 
transaction  and  proceeds  will  be  treated  as  capital  and  will  not  constitute  income 
to  the  corporation.     (T.  D.  2690;  art.  99.) 

Net  income. 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made  in  good 
faith  and  as  additional  compensation  for  services  actually  rendered;  if,  when  added 
to  salaries,  they  do  not  exceed  reasonal^le  compensation  for  services,  they  will  be 
regarded  as  part  of  the  wage  or  hire  and  therefore  an  ordinary  and  necessary'  expense 
of  operation  and  maintenance  and  as  such  will  be  deductible.     (T.  D.  2690;  art.  8.) 

Donations  made  for  purposes  connected  with  operation  of  property  when  limited 
to  charitable  institutions,  hospitals,  or  educational  institution.s,  conducted  for 
benefit  of  employees  or  their  dependents,  may  be  deducted  as  ordinaiy  and  neces- 
sary expense;  such  deduction  should,  however,  be  reduced  by  any  amount  repaid 
to  corporation  by  the  employees.     (T.  D.  2690;  art.  134.; 

Donations  which  legitimately  represent  consideration  for  benefit  flowing  directly 
to  corporation  as  incident  of  business  may  be  deducted.     (T.  D.  2690;  art.  134.) 

Donations  made  to  employees  and  others,  and  which  do  not  have  in  them  the 
element  of  compensation,  are  considered  gratuities  and  are  not  allowable  deduc- 
tions from  gross  income  as  expenses  of  o];>eration  or  maintenance  or  under  anv  other 
item.     (T.  D.  20-90;  art.  135.) 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made  in 
good  faith  and  as  additional  compensation  for  ser\ices  actually  rendered  by  em- 
ployees; ii,  when  added  to  stipulated  salaries,  they  do  not  exceed  a  reasonaJjlo 
compensation  for  services  rendered,  they  will  be  regarded  as  a  pait  of  the  wage  or 
hire  of  the  employee  and  are  deductible  as  an  ordinary  and  necsseary  expen.se  of 
oi^eration  and  maintenance.     (T.  D.  2690;  art.  138.) 

Corporations,  partnerships,  or  individuals  paying  officers  or  business  employees 
portion  or  all  of  their  salaries  and  v>-age3  during  the  war  period  in  which  they  are  in 
the  service  of  the  United  States  may  deduct  amounts  so  paid  as  ordinary  and  neces- 
sary expenses  of  doing  business.     (T.  D.  2660:  Mar.  1,  1918.) 

Returns. 

In  connection  with  claim  for  deduction  of  contributions  or  gifts  on  returns  of 
income  there  shall  be  stated  name  and  address  of  each  organization  to  which  gift 
was  made,  and  the  date  and  amount  of  the  gift  in  each  case;  where  gift  is  other  than 
money,  basis  for  calculation  of  A-alue  shall  be  fair  market  value  of  property  subject 
to  gift  at  time  of  gift.     (T.  D.  2690;  art.  8.) 

Internal  revenue  officers. 

Collection  of  money  from  officers  and  employees  of  Treasury  Department  in 
field  ser\-ice  for  giving  of  personal  gifts  to  officers  and  employees  holding  office, 
or  to  incoming  or  retiring  officials,  prohibited;  decision  as  to  whether  subscription 
Lists  may  be  circulated  for  worthy  national  institutions  rendering  ser\-ice  to  military 
and  naval  forces  of  Government,  such  as  Red  Cross,  rests  with  head  of  each  office 
in  field  service.     (T.  D.  2862;  June  12,  1919.) 

Wines. 

Wines  given  away  by  dealers  are  nevertheless  subject  to  tax  under  the  act  of 
September  8,  1910.     (T.  D.  2387;  Oct.  30,  1916.) 

GIN. 

See  "Distilled  Spirits." 


288  GINGER — GOOD   WILL, 

GINGER. 

Jamaica  ginger — Nonbeverage  alcohol. 

See  "Alcohol." 

GINGER    ALE    AND   BRANDY. 

Beverages. 

See  "BeA'erages.V 

GOLF, 

Balls  and  clubs — Excise  taxes. 

The  tax  imposed  by  section  600  (f)  of  the  act  of  October  3, 1917,  is  3  per  cent  of  the 
price  for  which  golf  balls  are  sold  by  the  manufacturer.     (T.  D.  2719;  art.  XVII.) 

Tax  imposed  by  section  600  (f)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  the 
price  for  which  golf  clubs  are  sold  by  the  manufacturer;  heads  and  shafts  of  golf 
clubs  are  not  taxed  until  combined  and  sold  as  complete  clubs.  (T.  D.  2719;  Art. 
XVII.) 

Clubs — Dues. 

Golf  clubs  are  included  within  the  term  "athletic  and  sporting' '  clubs,  as  used  in 
eection  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as  duea 
or  membership  fees  to  any  athletic  or  sporting  club.     (T.  D,  2681;  Mar.  26,  1918.) 

Golf  club  dues  for  which  the  member  receives  as  one  of  the  priA-ileges  of  member- 
ship a  season  ticket  for  a  municipal  golf  course  are  subject  to  tax  -without  deducting 
part  paid  by  club  to  city  for  the  season  ticket.     (T.  I).  2782;  Dec.  24,  1918.) 

Links — Admissions. 

Where  an  admission  charge  in  form  is  made,  but  in  fact  is  merely  paym.ent  for 
privilege  of  using  certain  equipment,  such  as  golf  links,  admission  is  incidental  to 
privilege  of  using  such  equipment,  and  tax  imposed  by  section  700  of  act  of  October 
3,  1917,  does  not  apply.     (T.  D.  2681;  Mar.  26,  1918.) 

GOOD  WILL. 
Definition. 

Good  will  is  an  intangible  asset  whose  value,  separate  and  apart  from  business 
with  which  it  is  connected,  is  not  capable  of  determination;  it  does  not  represent  a 
value  attaching  to  physical  property.     (T.  D.  2690;  art.  8.) 

Good  will  represents  value  attached  to  business  over  and  above  value  of  physical 
xv^'operty.     (T.  D.  269d;  art.  167.) 

Ex.'^ess  profits  tax — Invested  capital. 

The  term  "other  intangible  property,"  as  used  in  section  207  of  the  act  of  October 
3,  1917,  construed  to  mean  property  of  character  similar  to  good  will,  trade-marks, 
and  other  specific  kinds  of  property  enumerated  in  same  clause.  (T.  D.  2694;  art. 
47.) 

If  good  will,  trade-marks,  trade  brands,  franchises  of  a  corporation  or  partnership, 
or  other  intangible  property  has  been  purchased  with  stock  or  shares  issued  prior  to 
March  3,  1917,  amount  that  may  be  included  in  ijivested  capital  must  not  exceed 
20  per  cent  of  par  value  of  total  stock  or  shares  outstanding  on  that  date,  nor  actual 
value  of  asset  at  date  acquired,  nor  par  value  of  stock  issued  in  payment  for  the  asset. 
(T.  D.  2694;  art.  57.) 

Rules  governing  cases  where  stock  or  shares  (or  stock  or  shares  and  bonds  or  other 
obligations)  have,  prior  to  March  3,  1917,  been  issued  for  a  mixed  aggregate  of 
tangible  property,  patents,  and  copyrights,  and  good  will  or  other  intangible  prop- 
erty, stated.     (T.  D.  2694;  art.  59.) 

Good  will  and  other  similar  intangible  assets  purchased  with  cash  or  tangible 
property  must  be  taken  at  value  not  in  excess  of  the  cash  or  actual  cash  value  of 
the  tangible  property  specifically  paid  therefor.     (T.  D.  2694;   art.  60.) 

Subject  to  limitations  stated  invested  capital  of  individual  is  measured  by  total 
of  actual  cash  paid  into  trade  or  business,  tangible  property  paid  into  trade  or  busi- 
ness, patents,  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  tangible  property      (T.  D.  2694;  art.  66.) 

Patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises,  and 
other  similar  intangible  assets  may  be  included  in  invested  capital  at  value  not  to 


GOVEENMENTAL  EXEMPTIONS — GRAPES.  289 

Excess  profits  tax — Invested  capital — rontinufd. 
exceed  actual  cash  paid  therefor,  or  actual  cash  value  at  time  of  payment  of  tangible 
])roperty  paid  therefor,  but  only  if  bona  fide  payment  was  made  therefor  specifically 
as  such  in  cash  or  tangible  i)roperty.     (T.  D.  2(J91;  art.  08.) 

Income  taxes — Gross  income. 

Stock  dividends  declared  from' earnings  or  profits  accrued  prior  to  Marcli  1,  1!)13, 
or  from  surplus  creited  by  revaluation  of  capital  assets,  or  from  placing  value  upon 
trade-marks,  good  will,  etc.,  do  not  represent  distribution  of  earnings  or  profits  sub- 
ject to  tax  in  hands  of  shareholder;  when  stock  received  in  payment  of  such  divi- 
dend, or  stock  in  respect  of  which  any  such  dividend  was  paid,  is  sold,  cost  of  each 
share  of  stock,  whether  new  or  old,  for  purpose  of  ascertaining  gain  or  loss  from  sale, 
is  quotient  of  cost  of  old  stock,  if  acquired  on  or  after  March  ],  1913,  or  its  fair 
market  price  or  value  as  of  that  date  if  acquired  prior  thereto,  divided  by  the  num- 
ber of  old  and  new  shares  added  together,  and  profit  so  ascertained  is  income  sub- 
ject to  both  normal  and  additional  tax,  to  be  accounted  for  in  shareholder's  return 
for  year  in  which  sale  is  made.     (T.  D.  2734;  June  17,  1918.) 

Net  income. 

For  purpose  of  income  tax  good  will  is  capable  of  neither  appreciation  nor  deprecia- 
tion, and  amount  claimed  to  represent  its  decline  in  value  is  not  an  allowable  deduc- 
tion in  computing  lax  liability  of  an  indi\idual  or  corporation.     (T.  D.  2690;  art.  8.) 

Noclaim  for  depreciation  on  account  of  good  will  can  be  allowed;  any  loss  resulting 
from  or  on  account  of  investment  in  good  will  can  be  determined  only  when  prop- 
erty or  business  to  which  good  will  attaches  is  sold  or  disposed  of,  in  which  case  profit 
or  loss  will  be  determined  upon  basis  of  value  of  assets  including  good  will  if  acquired 
prior  to  March  1,  1913,  or  their  cost  if  acquired  subsequent  to  that  date.  (T.  D. 
2690;  art.  167.) 

If  good  will  shall  have  been  purchased  at  a  determined  price  and  shall  be  later  sold 
at  a  price  lees  than  such  cost,  or  less  than  determined  fair  market  value  as  of  March  1, 
1913,  if  acquired  prior  to  that  date,  amount  by  which  selling  price  is  less  than  cost  or 
value,  as  case  may  be,  will  be  loss  deductible  "from  gross  income  of  year  in  which  such 
asset  was  sold.     (T.  D.  2690;  art.  168.) 

GOVERNMENTAL  EXEMPTIONS. 

Carriers,  facilities  furnished  by. 
See  "Transportation  Tax." 

Telephone,  etc.,  messages. 

See  "Telegraphs  and  Telephones." 

GBAIN. 

Distilled  spirits. 

See  "Distilled  Spirits." 

Income  tax — Grain-growing  corporation. 

Corporations  engaged  in  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other 
products  of  this  character,  as  means  of  livelihood  and  for  purpose  of  gain,  is  an  agri- 
cultural or  horticultural  society  only  in  the  sense  that  its  name  indicates  the  kind  of 
business  in  which  it  is  engaged,  and,  as  such,  is  not  exempt  from  taxation.  (T.  D. 
2690;   art.  74.; 

GBAPES. 

Brandy. 

Distillers  of  brandy  made  from  grape  cheese,  sweetened  as  proA-ided  in  the  act  of 
September  8,  1916,  are  exempted  from  s  ime  provisions  of  law  from  which  distillers 
of  brandy  from  other  fruits,  wine,  and  fruit  pomace  residuum  have  been  exempted, 
asset  forth  in  Regulations  No.  7,  i-evised  July  10, 1914;  seven  pounds  of  unsweetened 
grape  cheese  deemed  a  gallon;  records;  notice  on  Form  27V  and  new  bond  on  Form 
30i;  survev;  records  and  returns;  samples  of  sugar  solution  and  of  mash.  (T.  D. 
2373;  Sept'.  28,  1916.) 

Only  brandy  pioduced  from  grapes  may  be  fermented  and  distilled  for  fortifying 
Bweet  wines,  after  September  8,  1917.     (T.  D.  2o20;  Aug.  30,  1917.) 

70420°— 21 19 


290  GROSS   INOOTiIE — GTJARAXTY   INSURANCE. 

Brandy — Continued. 

Fermenting  and  distilling  of  materials  for  production  of  beverage  brandy  after 
September  8,  1917,  prohibited;  brandy  produced  from  grapes  may  be  distilled  for 
fortiiying  sweet  wines  under  acts  of  September  8,  1916,  and  August  10,  1917;  brandy 
mav  be  produced  from  materials  fermented  after  September  8,  1917,  for  other  than 
beverage  purposes.     (T.  D.  2559;   Oct.  2G,  1917.     T.  D.  27S8;  Feb.  G,  1919.) 

Cheese — Beverage  spirits. 

Grape  cheese  may  not  be  used  in  producing  beverage  spirits.  (T.  D.  2520;  Aug. 
30,  1917.    T.  D.  2523;  Sept.  11,  1917.    T.  D':  2559;  Oct.  26,  1917.) 

Juice. 

So-called  sherry  material  and  grape  juice  containing  one-half  of  1  per  cent  or  more 
of  alcohol  classed  as  wine  and  subject  to  tax  as  such.     (T.  D.  2387;   Oct.  30,  1916.) 

It  is  permissible  to  crush  grapes  on  unbonded  premises,  provided  juice  of  grapes 
is  removed  from  premises  while  whoUj"  uiifei-mented;  persons  receiving  such  grape 
juice,  if  allowing  same  to  ferment,  must  qualify  as  wine  makers.  (T.  D.  2387; 
Oct.  30,  1916.) 

Spirits — Fortification  of  sweat  wines. 

Brandy  made  from  grape  cheese,  sweetened  as  pro\ided  in  the  act  of  September 
8,  191-3,  can  not  be  used  in  fortification  of  pure  sweet  wine  under  provisions  of  tlic 
act  of  October  1,  1890,  as  amended.     (T.  D.  2373;  Sept.  28,  1916.) 

Regulation  of  October  26,  1917,  prohibiting  manufacture  of  distilled  spirits  for 
beverage  purposes  after  September  8,  1917,  does  not  apply  to  production  of  grape 
spirits  solelv  for  use  in  fortification  of  sweet  wines  under  act  of  September  8,  1916. 
(T.  D.  2559;  Oct.  26.  1917.) 

GBOSS   INCOME. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 
Definition. 

Gross  income,  with  reference  to  income  tax  imposed  upon  corporations,  embracca 
not  only  operationg  revenues,  but  also  income,  gains,  or  profits  from  all  other  sources, 
such  as  rentals,  royalties,  interest,  and  dividends  from  stock  owned  in  other  corpora- 
tions; also  profits  made  in  other  corporations;  also  profits  made  from  sale  of  assets, 
investments,  etc.     (T.  D.  2690;  art.  88.) 

"Gross  income,"  as  used  in  Fiegulations  No.  30.  relating  to  mxuiition  manufac- 
turer's tax,  mean  <rross  receipts  from  sale  or  disposition  of  munitions  or  parts  thereof 
enumerated  in  section  301,  Title  III.  act  of  September  8,  1916.  (T.  D.  2384:  art. 
10.) 

GUAM. 
Export  of  wines. 

Domestic  wines  may  be  exported  to  foreign  countries  or  may  bo  shipped  to  Porto 
Pvico,  the  Philippine  Islands,  and  to  the  Panama  Canal  Zone,  free  of  tax;  like 
exemption,  however,  does  not  apply  to  shipments  to  the  island  of  Guam.  (T.  D. 
2387;  Oct.  30,  1916.) 

GUAKAInTTY. 
Income  tax — Net  income. 

Banking  corporations  which  are  reqaired  to  maintain  a  "Depositors'  guaranty 
fund  "  may  deduct  amount  set  apart  each  year  to  this  fund,  provided  that  such  fund, 
when  set  aside  and  carried  to  credit  of  State  banking  fund  or  of  duly  authorized 
State  officer,  ceases  to  be  asset  of  bank  but  may  be  withdrawn  upon  demand  by  such 
board  or  State  ofiicer  to  meet  needs  of  these  officers,  as  required  by  State  laws,  in 
reimbursing  depositors  in  insolvent  banks,  and  provided  fiu-ther  that  no  portion  of 
amount  is  returnable  to  assets  of  banking  corpoi'ation ;  if  amount  is  simply  set  up  on 
books  of  bank  as  reserve  to  meet  contingent  liabilitj,"  and  remains  asset  of  bank,  it 
will  not  be  deductible  except  as  it  is  actually  paid  out  as  required  by  law  and  upon 
demand  of  proper  State  officers.     (T.  D.  2690;  art.  146.) 

GUA-RANTY   INSURANCE. 
See  "Insurance." 


GUARDIAN  AND  WARD HAWAII,  291 

GUARDIAN    AND   WARD. 

Income  taxes— Exemptions. 

Fiduciaries  acting  for  minorrf  or  incompotent  persons  are  permitted  to  take  per- 
sonal exemption  as  to  income  derived  from  property  of  which  they  have  charge  ia 
favor  of  each  ward  or  beneficiary.     (T.  D.  2G90;  art.  14.) 

— —  Returns.  , 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returna  iic- 
cording  to  marital  status  of  beneficiaries,  and  in  cases  arising  under  section  2  (b) 
of  the  act  of  September-  8,  191G,  as  amended,  when  income  of  estate  or  trust,  as  an 
entity,  is  81,000  or  over,  return  to  be  made  on  Form  1040  or  1040A;  fiduciaries  must 
make  returns  on  I'orm  1041  whenever  interest  of  beneficiary  in  net  income  of  estate 
or  trust  is  $1,000  or  over  for  an  unmarried  beneficiary,  and  whenevei'  interest  of 
married  iDeneficiary  is  $2,000  or  over.     (T.  I).  2G90-  art.  27.) 

Committee  of  property  of  incompetent  person  held  to  be  fiduciary  for  ]xurpi3se  of 
income  tax  and  required  to  make  return  on  Form  1040,  revised,  for  incompetent, 
Avlienever  amoimt  of  income  is  sufficient  to  require  same.     (T.  D.  2690;  art.  29.) 

Income  reseived  by  minor  child  from  sources  other  than  parent  should  be  includod 
by  parent  in  his  return;  fact  that  such  income  is  not  appro]>riated  by  parent  is  imma- 
terial ;  where  income  is  irom  separate  estate  and  parent  has  been  appointed  guar- 
dian, and  conditions  are  such  that  income  so  received  is  to  be  held  for  use  of  child, 
it  shall  not  be  included  in  parent's  return,  but  shall  be  accounted  for  otherwise  for 
purposes  of  tax,  in  manner  and  form  as  called  for  by  facts  of  particular  c^ase. 
(T.  D.  2690;  art.  29.) 

Copy  of  income  return  may  be  furnished  by  Commissioner  to  person  who  made 
retiu'n  or  to  his  duly  constituted  attorney,  or  if  entity  is  in  hands  of  guardian  to  siicli 
guardian  upon  Anitten  application  for  same,  accompanied  by  satisfactorj'  e\i:donce 
that  applicant  comes  within  this  p'ovision.     (T.  D.  2962;  Jan.  7,  1920.)" 

HAIL   INSURANCE. 
See  "Insurance." 

HARRISON  NARCOTIC  LAW. 

See  '  'Narcotics. " 

HAWAII. 

Excise  taxes. 

Taxes  imposed  by  sections  313,  315.  and  600  of  act  of  October  3,  1917,  apply  to 
aiticles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Ten'itory  or  else- 
Avhere  in  the  United  States  than  in  a  State,  and  to  articles  sold  in  commerce  bc- 
tweenUnited  States  and  any  of  its  islands  or  other  possessions,  except  the  West 
Indian  Islands  acquired  from  Denmark.     (T.  D.  2739;  June  24,   1918.) 

Gasoline  substitute. 

Formula  3  for  the  complete  denaturation  of  alcohol  made  of  refuse  material  foi' 
use  as  a  motor  spirit  or  gasoline  substitute  in  Hawaii  authorized  for  use  by  anv 
qualified  denaturcr.     (T.  D.  2-528;  Oct.  3,  1917.) 

Public  utilities. 

See  '  'Transportation  T-ax. " 

Stamp  taxes. 

The  stamp  tax  imposed  lay  subdixdsion  (b)  of  Schedule  A  of  the  act  of  October  3, 

1917,  attaches  to  time  draft^s  covering  articles  shipped  from  a  State  of  the  United 
State?  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone.,  an;'.,, 
although  time  drafls  covering  shipments  to  the  Virgin  Islands,  the  Philip;)iiio 
Islands,  and  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  eoA-eiing  article.-i 
shipped  to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or  Poito 
Rico  must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified. 
(T.  D.  -2782;  Dec.  24,  1918.1 

General  nde  that  time  drafts  are  subject  to  .stamp  tax  imposed  by  act  of  October  3, 
1917,  when  delivered  within  territorial  jurisdiction  of  Ignited  States,  and  not  other- 
■wise,  is  applicable  to  time  drafts  used  between  the  tejritorial  jurisdiction  cf  tlie 
United  States  (inchiding  the  Stat&3,  the  District  of  Cohimoia,  the  Territon,'  of 


292  HEAD  OF  FAMILY HOLDING  GOMPANIES. 

Stamp  taxes — roiitinue<l. 
Hawaii,  and  the  Territor>'  of  Alaska"),  and  the  Canal  Zone,  Philippine  Islands,  the 
Alrgin  Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.     (T.  D.  2795; 
Feb.  26,  1919.) 

HEAD  OF  FAMILY. 

Definition. 

Head  of  family  is  person  who  a-tually  snpports  and  maintains  one  or  more  indi- 
viduals who  are  closely  connected  with  him  by  blood  relationship,  relationship  by 
marriage,  or  by  adoption,  and  whose  right  to  exercise  family  control  and  provide 
for  those  dependent  individuals  is  based  upon  some  moral  or  legal  obligation.  (T. 
I).  2(J90;  art.  14.) 

Income  taxes — Exemptions. 

Resident  aliens  claiming  exemption  because  of  families  or  wives  residing  abroad, 
are  not  heads  of  families  or  married  men  or  women  with  wives  or  husbands  living 
with  them,  within  the  meaning  of  the  income  tax  law,  and  they  are  in  no  case 
pntitled  to  more  than  their  individual  exemptions  of  $3,000  undor  the  act  of  Sep- 
tember 8,  1916.  and  $1,000  under  the  act  of  October  3,  1917.  (T.  D.  2692;  Apr.  8, 
1918.) 

A  head  of  a  family  is  a  person  who  actually  supports  and  maintains  one  or  more 
individuals  who  are  closely  connected  with  him  by  blood  relationship,  relation- 
ship by  marriage,  or  by  adoption,  in  one  household;  in  absence  of  continuous 
actual  residence  together,  whether  or  not  a  person  with  dependents  is  head  of  a 
family  within  the  meaning  of  the  statuts  must  depend  on  the  character  of  the  sepa- 
ration; if  a  child  or  other  dependent  is  away  only  temporarily  at  school  or  on  a 
visit,  the  common  home  being  still  maintained,  the  additional  exemption  applies; 
if,  however,  the  dependent  continuously  makes  his  home  elsewhere,  his  benefactor 
is  not  the  head  of  a  family,  irrespective  of  the  question  of  support.  (T.  D.  2692; 
Apr.  8,  1918.     See  T.  D.  2427;  Dec.  26,  1916.) 

— —  Filing  certificate  of  ownership. 

Owners  of  bonds  of  domestic  and  resident  corporations  shall,  when  presenting 
interest  coupons  for  payment,  file  certificate  of  ownership  for  each  issue  of  bonds 
showing  name  and  address  of  debtor  corporation,  name  and  address  of  owner  of 
bonds,  whether  pavee  is  married  or  head  of  a  family,  and  amount  of  interest.  (T.  D. 
2690;  art.  43.) 

Wines. 

Wines  produced  by  a  single  person,  unless  he  is  the  head  of  a  family,  are  not 
exempt  from  tax  under  section  402  (b)  of  act  September  8.  1916,  as  being  for  family 
use.     (T.  D.  2765;  Oct.  21.  1918.) 

Wines  made  by  a  partnership  or  those  produced  by  a  winery  owned  and  operated 
by  several  heads'  of  families  jointlv  are  not  exempt  from  tax  under  section  402  (b) 
of  act  September  8,  1916,  as  being *for  family  use.     (T.  D.  2765;  Oct.  21,  1918.) 

HELD  OUT  OR  RECOMMENDED. 
Definition. 

"Held  out  or  recommended,' '  as  used  in  section  600  (h)  of  the  act  of  October  3, 
1917,  includes  representation  by  any  means,  personal  canvass  and  statements  on 
the  labels,  in  pamphlets,  or  advertisements,  or  otherwise;  a  holding  out  or  recom- 
mendation intended  for  physicians  only  is  a  holding  out  to  the  public.  (T.  D.  2719; 
Art.  XXI.) 

HOLDING  COMPANIES. 

See  "Subsidiaiy  Corporations." 

Capital  stock  tax. 

Corporation  or  association  organized  for  exclusive  purpose  of  holding  title  to 
property,  collecting  income  therefrom,  and  tiu'ning  over  entire  amount  thereof, 
less  expenses,  to  an  organization  which  itself  is  exempt  from  tax,  is  exempt  from 
tax  imposed  by  section  407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19, 
1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

A  "holding  company,' '  organized  in  the  United  States  for  the  purpose  of  acquir- 
ing and  holding  capital  stock  of  subsidiary  companies,  and  actually  engaged  in 
holding  such  stock,  voting  thereon,  receixing  dividends  thereon,  and  distributing 


HOLDING    COMPANIES.  293 

Capital  stock  tax — Continurd. 

inonpy  anioiiu  ilF  own  sliarchi'lderp,  is  ongagod  in  businoss  within  the  mcaninp;  of 
act  of  September  8,  191ti,  and  is  subject  to  special  excise  tax  imposed  under  section 
407,  and  this  applies  to  all  holding  companies  organized  in  the  United  States  for 
profit,  even  thougfi  the  subsidiary  companies  operate  exclusively  in  foreign  coun- 
tries; holding  companies  rerpiired  to  tile  returns  on  Form  707,  and  will  be  held 
strictly  liable  to  ijenalties  imi)osed  for  failure  to  make  returns  within  prescribed 
time.  '  (T.  1).  2429;  Jan.  4,  1917.) 

So-called  subsidiary  corjxirations,  all  or  part  of  stock  of  which  is  owned  by  another 
corporatiiiu,  must  render  returns  in  same  manner  as  other  corporations;  no  deduc- 
tion is  allowed  in  return  of  a  holding  c(ir])uratii>n  for  tax  paid  by  subsidiary.  (T. 
1)   250;};  June  25,  1917.     T.  D.  2750,  art.  24;  ^\ug.  9,  1918.) 

Income  taxes — Additional  tax. 

Taxal)le  income  includes  share  to  which  individual  would  be  entitled  of  gains 
and  profits,  if  divided  or  distributed,  whether  divided  or  distributed  or  not,  of  all 
corporations,  joint-stock  companies  or  associations,  or  insurance  companies,  however 
created  or  organized,  formed  or  fraudulently  availed  of  to  prevent  imposition  of 
such  tax,  by  permitting  such  gains  or  profits  to  accumulate  iuf^tead  of  being  divided 
or  distributed;  fact  that  such  corporation,  etc.,  is  mere  holding  company,  or  that 
accunuilalion  beyond  reasonable  needs  is  permitted,  shall  be  prima  facie  e^idence 
of  fraudulent  purpose  to  escape  tax,  but  fact  that  gains  and  profits  are  in  any  case 
permitted  to  accumulate  and  become  surplus  shall  not  be  construed  as  evidence 
of  purpose  to  escape  tax,  unless  Secretary  of  Treasury  shall  certify  that,  in  his 
opinion,  such  accumulation  is  unreasonable  for  purpose  of  business;  statement  of 
gains  and  profits,  etc.,  required  when  requested  by  Commissioner  of  Internal 
Revenue.     (T.  D.  2690;  art.  19.) 

-• —  Gross  income. 

Where  holding  coni]iany  actually  takes  up  each  month  on  its  books  and  credits 
surplus  and  profits  and  loss  with  its  proportionate  share  of  earnings  of  underh"ing 
companies,  holding  company  required  to  include  in  gross  income  amounts  thus 
taken  up,  regardless  of  fact  that  same  may  not  haA-e  been  paid  to  or  received  by  it 
in  cash;  fact  that  underlying  companies  credit  holding  company  with  amount  of 
earnings  to  which  it  is  entitled  on  basis  of  stock  it  holds,  together  with  fact  that 
holding  company  takes  up  on  its  books  amount  thus  credited,  renders  it  incumbent 
upon  holding  company  to  return  these  amounts  as  income.     (T.  D.  2G90;  art.  115.) 

Where  subsidiary  or  other  corporation  sells  or  transfers  assets  to  parent  or  other 
corporation,  accejiting  in  exchange  therefor  stock  or  bonds  of  purchasing  corpora- 
tion, question  of  gain  or  loss  will  be  determined  upon  basis  of  difference  between 
cost  or  market  value  of  assets  sold  and  actual  value  of  stock  or  bonds  given  in  ex- 
change therefor;  any  gain  or  loss  thus  ascertained  as  resulting  from  such  transac- 
tion will  be  added  to  or  deducted  from  entire  gross  income,  as  case  may  be,  of  sell- 
ing corporation  in  year  in  which  capital  assets  were  sold.     ((T.  D.  2G90;  art.  119.) 

Where  a  holding  company  owns  all  of  the  stock  of  its  subsidiary  corporations, 
except  the  qualifying  shares  of  the  directors,  and  the  subsidiary  corporations, 
together  with  the  holding  company,  constitutes  a  single  enterprise,  the  accumulated 
earnings  and  surplus  of  the  subsidiary  corporations  \ised  by  them  as  capital  prior 
to  January  ],  1913,  does  not  become  taxable  income  of  the  holding  company  when 
formally  transferred  to  it  as  dividends;  T.  D.  2542  reversed.  (T.  D.  2783;"jan.  7, 
1919.)  ' 

— —  Returns. 

Where  one  corporation  operating  for  itself  is  controlled  by  another  through  the 
ownership  of  a  majority  of  all  of  its  stock,  controlling  corj>oration  is  merely  a  stock- 
holder, and  subsidiary  company  must  make  separate  and  distinct  return,  accounting 
for  all  income  received  during  each  taxable  year,  and  holding  company  will  return 
as  income  any  dividends  or  earnings  received  from  operating  company.  (T.  D.  2G90; 
art.  125.) 

Where  net  income  of  subsidiary  corporation  upon  which  tax  lias  been  levied  and 
is  payable  is  turned  over  to  parent  company,  liolder  of  its  stock,  amount  so  turned 
over  will  be  held  to  be  dividends,  or  amounts  paid  to  it  out  of  net  earnings  and  must 
be  returned  by  parent  company  for  purpose  of  2  per  cent  tax  imposed  by  the  act  of 
(September  8,  1916,  but  for  purpose  of  war  income  tax  imposed  by  Title  II  of  act  of 
October  3,  1917,  net  income  of  ])arent  company  may  be  reduced  by  amount  of  di\i- 
dends  so  received.     (T.  D.  2690;  art.  207.) 


294  HOLIDAYS HORTIC  ULTUEE, 

Inccme  taxes — Continued. 
RetuTiis — Contiuued. 

Fact  that  bracch  corporation  is  organized  in  any  State  to  meet  peculiar  condi- 
tions tliere  existing  and  v.liich  make  it  impracticable  for  jiarent  company  as  such  to 
do  business  in  such  State,  although  such  subsidiaiy  may  be  to  all  intents  and  pur- 
poses a  mere  branch  oi  the  parent  company,  does  not  relieve  it  from  necessity  of 
making  return  for  each  year;  if  such  branch  corporation  actually  transacts  business 
from  which  income  arises,  accrues,  and  is  received  by  it,  such  corporation  must  make 
detailed  return,  as  if  it  were  in  no  way  related  to  any  other  corporation,  setting  forth 
full  amount  of  income  which  it  receives  or  which  accrues  to  it,  together  with  author- 
ized deductions  therefrom,  and  upon  any  net  income  thus  disclosed,  tax  will  be 
assessed  and  required  to  be  paid.     (T.  D'.  2690;  art.  207.)     ■ 

Subsidiary  corporations  existing  in  name  only  or  as  mere  agents  or  integral  parts 
of  parent  company  will  be  required  to  make  returns  of  aimual  net  inconae.  and  shall 
indorse  thereon  statement  that  it  is  a  subsidiaa'v  or  integral  part  of  the  parent  com- 
pany (naming  it )  and  that  for  its  own  account  it  has  no  income  from  any  source  what- 
ever, that  it  makes  no  disbursements,  and  that  all  business  done  in  its  name  is  done 
for  account  of  and  as  business  of  parent  corporation  and  will  be  accounted  for  in 
return  of  such  parent  corporation.     (T.  D.  2690;  art.  208.) 

Subsidiaiy  corjiorations  which  actually  transact  business  in  their  own  names 
receive  income  for  their  own  account,  incur  and  pay  expenses  incident  to  ]>roduction 
of  income,  keep  separate  books  of  accoimt,  and,  as  separate  entities,  exercise  ail  the 
powers  and  functions  authorized  by  their  chaiters,  will  l^e  required  to  pay  income 
tax  on  net  income  received  by  them  from  all  sources,  regardless  of  fact  that  such 
net  income  is  paid  or  turned  over  to  a  parent  or  holding  company,  by  whom  it  must 
also  be  returned  ior  piirpose  of  tax  imposed  by  section  10  of  the  act  of  September  8, 
1916;  in  latter  case  both  parent  and  subsidiarv  companies  must  make  eeparato 
returns.     (T.  D.  2690;  art.  208.) 

HOLIDAYS. 

Income  taxes — Statures. 

V.Tien  last  due  date  for  fding  return  falls  on  Sunday  or  a  legal  holiday  the  last 
due  date  will  be  held  to  be  day  following  such  Sundaj-  or  legal  holiday,  and  return 
should  be  made  not  later  than  sucli  following  day,  or,  if  placed  in  the  mails,  it  should 
be  posted  in  ample  time  to  Teach  collector's  oSice,  under  ordinary  handling  of  the 
mails,  on  or  before  date  on  wliich  return  is  required  to  he  filed.  (T.  D.  2690;  art. 
219.) 

HOMEOPATHIC  ATTENTJATIOWS. 

Nonbeverag*e  alcohol. 

See  "Alcohol." 

HORTICULTURE . 

Horticultural  organizations — -Capital  stock  tax. 

Provision  exempting  from  tax  agricultural  and  horticultural  organizations  applies 
only  to  thos.=^  corporations  that  are  engaged  in  such  actiA'itics  merely  iw  general 
welfare  and  l>enelit  of  the  pulolic,  conducting  such  enterprises  as  agi'icultm'al  or 
hoi'iicultural  fairs  or  exhibitions:  corporation  engaged  in  general  farming,  raising 
cattle,  or  other  agi-icultural  business  for  jrrofit  is  liable  to  the  tax.  (T.  D.  2417; 
rvec.  16,  1916.     T.'  D.  2750,  art.  12:  Aug.  9,  1918.) 

Horticultural  organizations  are  specificallv  exempt  from  tax  imposed  by  section 
407  of  the  act  of  September  8,  1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2750.  art. 
12:  Aug,  9,  1918.) 

Income  taxes — Exemptions. 

Horticultural  organizations  are  exempt  irom  tax  without  condition;  collector, 
being  satisfied  that  organization  comes  within  exempted  class,  is  authorized  to 
eliminate  it  from  his  list  and  relieve  it  from  necessity  of  jnaking  retmns.  (T.  D. 
2690;  art.  6S.) 

Horticultural  organizations  do  not  include  corporations  engaged  in  growing 
horticultural  products  or  raising  live  stock  or  similar  product.s  for  profit,  but  include 
only  those  organisations  whicli,  having  no  net  income  inuring  to  benefit  of  members, 
axe  educational  or  instructive  in  character,  and  which  have  for  their  purpose  the 
betteiTnent  of  conditions  of  those  engaged  in  these  pursuits,  improvement  of  growing 
■of  their  products,  and  encouragement  and  promotion  of  industries  to  higher  degree 
of  efficiency;  iiicluded  in  this  class  as  exempt  are  count}-  fairs  and  like  associations 


HOSPITALS— HUSBAND   AND   WIFE.  295 

Horticultural  organizations — Continued . 

— - —  Income  taxes   -Exemptions — Conlinued. 
of  a  quasi-j)ublic  eliaracler;  societies  or  associations  holding  race  meets  from  which 
})rofits  inure  or  may  inure  to  members  or  stockholders  are  not  exempt.     (T.  D.  2()!)0.; 
art.  73.) 

('orporation  engaged  in  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other 
products  of  this  character,  as  means  of  livelihood  and  for  jnn-pose  of  gain,  is  an  agri- 
cultural or  horticultural  society  only  in  the  sense  that  its  name  indicates  the  kind  of 
business  in  which  it  is  engaged  and  as  such  is  not  exempt  from  taxation.  (T.  D. 
2690;  art.  74.) 

Income  taxes— Deduction  of  development  expenses. 

Amounts  expended  in  development  of  orchards  prior  to  time  when  productive 
stage  is  reached  constitute  investments  of  capital.     (T.  D.  2690;  art.  4.) 

HOSPITALS. 

Income  taxes— Deduction  of  donations. 

Donations  made  for  purposes  connected  with  operation  of  property  when  limited 
to  charitable  institutions,  hospitals,  or  educational  institutions,  conducted  for 
benefit  of  employees  or  their  dependents,  may  be  deducted  as  ordinary  and  neces- 
sary expense;  such  deduction  should,  however,  be  reduced  by  any  amount  repaid 
to  corporation  by  the  employees.     (T.  D.  2690;  art.  134.) 

Withdi-awal  of  alcohol  for  use  in. 
See  "Alcohol." 

HOTELS. 
Cabarets. 

See  "'AdraiHsions." 
Occupational  tax — Pool  or  billiard  tables. 

Occupation  tax  imposed  bv  act  of  September  8,  1916,  is  applicable  to  pool  or  bil- 
liard tables  and  bowling  alleys  in  hotels.     (T.  D.  2462;  Feb.  16,  1917. ^ 

Passengers'  accommodations. 

The  word  "'transportation,"  as  used  in  Title  V  of  the  act  of  October  3,  1917,  does 
not  include  passengers'  meals  or  hotel  accommodations.  (T.  D.  2676;  Mar.  18. 1918.) 
Tax  imposed  by  .subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  apjilies  to 
each  and  every  service  and  facility,  except  .passengers'  meals  and  hotel  accommo- 
dations, rendered  by  or  on  behalf  of  carriers  in  connection  with  transportation  of 
persons,  wliere  transportation  in  connection  with  which  service  or  facility  is  ren- 
dered is  subject  to  tax.     (T.  D.  2076;  Mar.  18,  1918.) 

HUNTING  CLUBS. 
Dues. 

See  "Dues." 

HUSBAND   AND   WIFE. 

Estate  tax — Community  property. 

Thirty-day  notice  (Form  705)  must  be  iiled,  within  30  days  after  death  of  dece- 
dent whose  estate  is  taxable,  by  sur^^.ving  husband  or  wife,  as  case  may  be,  for  one- 
half  the  value,  at  decedent's  death,  of  community  property.  (T.  D.  2454;  Feb. 
28,  1917.) 

If  property  conveyed  to  husband  and  wife  is  taken  by  each  in  entii-ety  and  in  such 
manner  that  each  was  owner  of  all,  and  upon  death  of  eitlier  no  new  interest  or  title 
vested  in  survivor,  one-half  of  property  thus  jointly  owned  should  be  returned  as 
portion  of  gross  estate  of  decedent  hus})and  or  wife  as  case  might  be;  wherever 
public  records  show  property  in  name  of  decedent,  presumption  is  that  it  was  sole 
property  of  decedent,  and  burden  of  showing  that  surviving  spouse  owned  any 
interest  therein  is  upon  such  spouse.     (T.  D.  2450;  Feb.  14,  1917.) 

Highest  selling  price  of  stocks  and  bonds  on  day  of  death  fixed  as  value  to  be  re- 
turned, or,  if  no  sale,  then  highest  bid  price:  if  stocks  or  bonds  are  not  listed  on  the 
market  the  executor  may  set  up  value  tliat  he  deems  true  value  as  of  day  of  dece- 
dent's death;  if  bulk  of  estate  is  community  property  its  value  should  not  be  shov.^n 
under  item  4  of  Form  706,  but  decedent's  legal  share  should  be  returned  under  the 
several  items.     (T.  D.  2513;  July  10,  1917.) 


296  HUSBAND   AND   WIFE. 

Estate  tax — Continuod. 

Household  goods. 

Household  goods  and  other  chattels  used  by  husband  and  wife  in  marriage  relation 
are  presumed  to  be  property  of  husband,  and,  if  widow  of  deceased  claims  same  as 
her  separate  property,  she  has  burden  of  establishing  claim,  failure  to  do  w^hich 
necessitates  return  of  such  goods  as  portion  of  deceased's  gross  estate.  (T.  D.  2529; 
Oct.  4,  1917.) 

Excess  profits  tax. 

Married  woman  who  is  sole  trader  or  is  entitled  to  any  taxable  income  to  her  sole 
and  separate  use  may  make  separate  return  in  same  manner  as  any  other  individual. 
(T.  D.  2694;  art.  70.) 

Income  taxes — Alimony. 

Alimony  or  allowance  based  on  separation  agreement  is  not  income  to  recipient 
thereof,  nor  is  it  an  allowable  deduction  for  the  person  paying  same.  (T.  D.  2690; 
art.  4.) 

— —  Exemptions. 

Where  husband  or  wife  having  taxable  income  dies  within  calendar  year,  and 
full  exemption  for  year  is  used  by  personal  representative  in  making  return,  if  sur- 
vivor is  also  required  to  make  return  at  close  of  year  for  income  received  within  that 
year,  the  full  personal  exemption,  according  to  marital  status  of  survivor  at  close  of 
year,  may  be  claimed  in  return  of  income.     (T.  I).  2690;  art.  14.) 

Resident  aliens  claiming  exemption  because  of  families  or  wives  residing  abroad, 
are  not  heads  of  families  or  married  men  or  women  with  M'ives  or  husbands  living  with 
them,  within  the  meaning  of  the  income  tax  law,  and  they  are  in  no  case  entitled  to 
more  than  their  individual  exemptions  of  $3,000,  under  the  act  of  September  8, 
1916,  and  $1,000  under  the  act  of  October  3,  1917.     (T.  I).  2692;  Apr.  8,  1918.) 

In  the  case  of  a  married  man  or  a  married  woman  the  joint  exemption  replaces  the 
individual  exemptions  only  if  his  wife  lives  with  him  or  her  husband  lives  with  her 
in  absence  of  continuous  actual  residence  together,  whether  or  not  a  man  or  woman 
has  a  wife  or  husband  living  with  him  or  her  must  depend  on  the  character  of  the 
separation;  if  merely  occasionally  and -temporarily  a  wife  is  away  on  a  visit  or  a 
husband  is  away  on  business,  the  joint  home  being  maintained,  the  additional 
exemption  applies,  and  the  unavoidable  absence  of  a  wife  or  husband  at  a  sana- 
torium or  asylum  on  account  of  illness  does  not  preclude  claiming  the  exemption; 
if,  however,  the  hu.sband  voluntarily  and  continuously  makes  his  home  at  one  place, 
and  the  wife  hers  at  another,  they  are  not  living  together  for  the  purpose  of  the 
statute,  irrespective  of  their  personal  relations.     (T.  D.  2692;  Apr.  8,  1918.) 

• Information  at  source. 

Owners  of  bonds  of  domestic  and  resident  corporations  shall,  when  presenting 
interest  coupons  for  payment,  file  certificate  of  ownership  for  each  issue  of  bonds 
showing  name  and  address  of  debtor  corporation,  name  and  address  of  owner  of  bonds, 
whether  pavee  is  married  or  head  of  a  family,  and  amount  of  interest.  (T.  D.  2690; 
art.  43.) 

• Returns. 

Exemption  allowed  husband  and  wife  living  together  may  be  taken  by  one  or 
divided  between  them  in  such  ratio  as  they  may  determine.  '  (T.  D.  2690;  art.  26.) 

\\Tiere  husband  and  wife  file  separate  returns,  one  being  filed  in  time  and  other 
delinquent,  such  returns  are  not  supplejnental  of  each  other  and  delinquency  must 
be  answered  for  by  one  in  connection  with  whose  return  it  occurred.  (T.  D.  2690; 
art.  26.) 

Unless  wife  has  separate  estate  requiring  her  to  file  separate  return,  or  to  join  with 
her  h\isband  in  return  which  shall  set  forth  her  income  separately,  husband  should 
include  in  return  income  accruing  to  wife  for  services  rendered  by  her,  sale  of  pro- 
duct of  her  labor;  actual  proceeds  coming  into  wafe's  possession  during  tax 
year  constitute  income  to  be  included,  and  not  amount  estimated  upon  acceptance 
prior  to  payment  for  articles  sold.     (T.  D.  2690;  art.  26.) 

Fiduciaries  acting  for  minors  or  other  incompetents,  required  to  make  returns 
according  to  marital  status  of  beneficiary;  whenever  interest  of  beneficiary  in  net 
income  of  estate  or  trust  is  $1,000  or  over,  for  an  unmarried  beneficiary,  or  in  case  of 
married  beneficiary,  whenever  interest  is  $2,000  or  over,  fiduciaries  are  required  to 
make  return.     (T.  U.  2690;  art.  27.) 


ILLNESS — IMPORTS.  297 

Income  taxes — rontiniicd. 

Returns — Continiicd. 

Joint  return  of  lni«han'l  and  wife  shall  \>s  open  to  in^jpection  1)y  ofTicers  and 
employees  of  Treat^ury  Department  whose  olTicial  duties  require  such  inspection, 
and  by  the  Solicitor  of  Internal  Revenue:  and  by  either  spouse  for  whom  return 
was  made  or  his  or  her  duly  constituted  attorney,  upon  satisfactory  evidence  of  such 
relationship  being  furnished.     (T.  D.  liOCi;  Jan.  7,  1920.) 

ILLNESS. 
Capital  stock  tax — Returns. 

Where  failure  to  file  return  is  due  to  sickness,  collector  may  allow  further  time, 
not  exceeding  'M  davs,  for  making  and  filing  return  as  he  deems  proper.  (T.  D. 
2750,  art.  21,  Appendixes  A,  B;.Aug.  9,  1918.) 

Income  tax  returns  —Agents. 

Return  may  be  made  by  an  agent  when  by  reason  of  illness,  absence,  or  nonresi- 
dence  person  liable  for  return  is  unable  to  make  same,  agent  assuming  responsibility 
(if  making  return  and  incurring  penalties  provided  for  intentional  false  or  fraudu- 
lent return.     (T.  D.  2G90;  art.  22.) 

- —  Extension  of  time. 

Commissioner  of  Internal  Revenue  may,  in  his  discretion,  upon  apj)lication  there- 
for and  upon  satisfactory  showing,  grant  reasonable  extension  of  time  for  filing 
returns  by  persons  residing  or  traveling  abroad  v.'ho  are  unable  to  file  on  or  before 
March  1  of  each  year;  in  case  of  sickness  of  citi.7,ens  and  residents  extension  not 
exceeding  30  days  may  be  granted  by  collector.     (T.  D.  2690;  art.  22.) 

Where  corporation  fails  or  neglects  to  file  return  within  prescribed  time,  and 
such  neglect  is  due  to  sickness  or  absence,  collector  may  grant  extension  of  time 
within  which  to  file  return,  which  extension  must  not  exceed  30  days  from  normal 
due  date;  application  for  extension  must  he  made  prior  to  expiration  of  period  for 
which  extension  is  desired.     (T.  D.  2690;  art.  222.) 

Sickness  of  one  or  more  officers  at  time  return  is  required  to  be  filed  will  not  be 
accepted  as  reasonable  cause  for  failure  to  file  return  within  prescribed  time,  un- 
less it  is  satisfactorily  shown  that  there  were  no  other  principal  officers  available 
and  sufficiently  informed  as  to  affairs  of  corporation  to  make  and  verify  return. 
(T.  D.  2690;  art.  223.) 

IMMEDIATE   OR   PROMPT   DELIVERY. 
Definition. 

The  term  "immediate  or  prompt  deliA-ery,"'  as  used  in  Regulation  No.  40,  part  2, 
providing  that  no  tax  is  imposed  on  cash  sales  of  products  or  merchandise  for  imme- 
diate or  prompt  delivery,  which,  in  good  faith,  are  actually  intended  to  be  deliv- 
ered, means  delivery  at  once  or  as  soon  as  practicable,  and  in  any  event  within 
twenty  days  of  the  date  of  sale  or  agreement.     [T.  D.  2608;  Nov.  30,  1917.) 

IMPORTS. 
Carriers'  charges. 

Tax  imposed  under  section  500  of  act  of  October  3,  1917,  applies  to  charges  which 
accrue  on  property  imported  into  United  States  from  port  of  entry  to  destination 
within  United  States,  but  tax  does  not  apply  to  any  payment  of  charges  on  prop- 
erty moving  on  a  through  bill  of  lading  from  a  point  in  Canada  or  Mexico  to  a  point 
in  the  United  States;  such  tax  shall  be  collected  as  and  when  transportation  charges 
are  collected,  if  such  charges  be  collected  within  United  States,  and  upon  delivery 
of  consignment,  if  charges  be  prepaid  outside  the  United  States  and  not  paid  at 
port  of  entry.     (T.  D.  2676;  Mar.  18,  1918.) 

Cigars — Retail  price. 

Importer  of  cigars  required  to  file  affidavit  with  collector  of  customs  setting  forth 
necessary  information  with  reference  to  retail  price  of  cigars  when  sold  singly,  and 
the  importer  will  be  held  responsible  for  proper  tax  payment  of  3uch  cigars.  (T.  D. 
2569;  Oct.  17,  1917.) 

Cigarette  papers  and  tubes. 

When  cigarette  paper  made  up  into  packages,  books,  or  sets,  or  cigarette  tubes 
are  imported,  the  customs  consumption  entry  or  withdrawal  for  consumption  entry 
shall  be  prepared  in  triplicate  and  show  in  detail  number  of  packages,  etc.,  con- 


298  iMPOiiTS. 

Cigarette  papers  and  tubes — Continued, 
taining  stated  number  of  papers  each;  two  copies  of  customs  entries  to  be  filed  with 
collector;  tax  to  be  paid  to  collector  at  time  entries  are  filed  with  him;  collector 
to  make  certain  entries  on  copy  of  customs  entry;  report  in  duplicate  to  be  made 
by  collector  of  customs  to  collector  of  internal  revenue  of  quantity  imported. 
(T.  D.2552;  Oct.  22,  1917.) 

Taxes  imposed  by  section  404  of  act  of  October  3,  1917,  effective  on  November  2, 
1917,  upon  withdrawal  of  packages,  books,  sets,  or  tubes,  from  customhouse  for 
consumption  or  use.     (T.  D.  2552;  Oct.  22,  1917.) 

Excise  taxes. 

See  ''Excise  Taxes." 

Income  taxes — Deduction  of  import  duties.  - 

Import  or  tariff  duties  levied  by  Congress  and  paid  to  proper  customs  officers  are 
deductible  as  taxes  imj^osed  under  authority  of  United  States,  provided  they  are 
not  added  to  and  made  a  part  of  the  cost  of  articles  of  merchandise  with  respect  to 
wliich  they  are  paid,  in  which  case  they  wdll  be  reflected  in  cost  of  merchandise 
and  can  not  be  separately  deducted.     (T.  D.  2690;  art.  195.) 

Playing  cards. 

Manufacturers  and  imjiorters  of  playing  cards  required  to  render  sworn  inventory, 
in  duplicate,  on  or  before  October  31,  1917,  showing  number  of  packs  of  cards  and 
number  of  stamps;  on  October  31, 1917,  or  10  days  thereafter,  return  covering  period 
October  4  to  31  required,  which  return  must  be  rendered  for  each  subsequent  month 
on  last  day  thereof,  or  on  or  before  10th  day  of  succeeding  month,  until  supply  of 
stamps  at  old  rate  is  exhausted;  verification  of  inventories  and  returns.  (T.  D. 
2538;  Oct.  10,  1917.) 

Additional  tax  upon  playing  cards  imposed  under  subdivision  13  of  Schedule  A, 
a.ct  of  October  3,  1917,  became  effective  on  and  after  October  4,  1917,  but  this  addi- 
tional tax  attaches  only  to  playing  cards  manufactured  or  imported  and  sold  or 
removed  for  sale  on  and  after  that  date,  and  is  to  be  paid  by  the  manufacturers  or 
importers;  such  tax  does  not  apply  to  tax-paid  stocks  in  hands  of  wholesale  or 
retail  dealers,  who  may  sell  all  cards  tax  paid  at  2  cents  under  act  of  August  28, 
1894,  which  thev  had  on  hand  on  October  4,  1917,  without  incun-ing  liability  to 
additional  tax.   7T.  D.  2543;  Oct.  19,  1917.) 

Porto  Rico — Denatured  alcohol. 

Where  alcohol  of  not  less  than  ISC  proof  is  brought  from  Porto  Rico  for  denatura- 
tion,  same  may  be  transferred  to  any  central  denaturing  bonded  warehouse  free  of 
tax,  upon  filing  stated  bond,  which  is  to  be  given  in  duplicate  by  wareliouso  pro- 
prietor, with  sureties  satisfactory  to  collector  and  in  penal  sum  of  not  less  than 
triple  the  amount  of  tax,  and  in  no  case  less  than  $5,000,  one  copy  of  bond  to  be 
retained  by  collector,  and  one  copy,  with  his  approval  indorsed  thereon,  to  be  for- 
warded to  Commissioner  of  Internal  Revenue;  instructions  as  to  application  for 
transfer  of  alcohol;  alcohol  transferred  will,  upon  arrival  .bo  carefully  inspected 
and  reported,  on  monthly  statement  (Form  575);  such  alcohol  will  be  denatured 
and  accounted  for  in  same  manner  as  other  alcohol  received  for  like  purpose.  (T.  D. 
2575;  Nov.  5,  1917.)  This  decision  apislies  to  alcohol  produced  in  Porto  Rico  on 
or  after  October  4,  1917,  only;  decision  further  modified  so  as  to  permit  giving  of 
bond  in  penal  sum  of  not  less  than  actual  amount  of  tax  at  rate  of  $2.20  per  proof 
gallon,  and  in  no  case  less  than  .$5,000,  except  that  in  case  of  alcohol  withdrawn  by 
scientific  or  educational  institutions  under  section  3297,  Revised  Statutes,  bond 
shall  be  for  penal  sum  of  not  less  than  double  amount  of  tax  at  rate  of  $3.50  per 
gallon.     (T.  D.  2641;  Jan.  28,  1918.) 

Stamp  tax  on  time  drafts. 

The  stamp  tax  imposed  by  subdivision  fb)  of  Schedule  A  of  the  act  of  October .3, 
1917,  attaches  to  time  drafts  covering  ai'ticles  shipped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone,  and, 
although  time  drafts  covering  shipments  to  the  ^'ii-gin  Islands,  the  Pliilippine  Is- 
lands, andPorto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles  shipped 
to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or  Porto  Rico 
must  be  stamped  upon  coming  into'the  United  States;  T.  D.  2739  modified.  (T.  D. 
2782;  Dec.  24,  1918.) 


IMPORTER INCOME.  299 

Wines. 

Impoi'tcd  winc3  transferred  in  bond  from  part  of  entry  to  another  port  will  be 
tax  paid  on  removal  from  bond  at  last-named  port.     (T.  D.  2387;  Oct.  30,  1916.) 

Imported  or  dome.stic  still  wines  on  wliich  tax  has  been  paid,  but  Avhich  when 
subsequently  bottled  become  carl)onated  by  secondary'  fermentation,  are  subject 
to  tax  as  sparkling  wines;  where  sucli  change  in  wine  is  not  produced  by  addition 
of  sugar  for  purpose  of  starting  secondary  fermentation  and  is  merely  incidental  to 
bottling,  dealer  in  such  case  not  regarded  as  producer;  to  avoid  doiible  taxation, 
additional  tax  foimd  to  be  due  may  be  paid  by  affixing  sucli  wines  vv-ith  label  show- 
ing wines  to  have  been  bottled  without  treatment.     (T.  D.  23S7;  Oct.  30,  1916.) 

Bonds  securing  payment  of  internal-revenue  tax  will  not  be  reciuired  for  im- 
ported wines,  as  such  wines  remain  in  custody  of  customs  officers  until  such  tax  is 
paid.     (T.  D.  2387;  Oct.  30,  1916.) 

Tax  on  imported  wines  being  payable  on  removal  of  wines  Irom  customhouse, 
such  wines  can  not  be  transferred  to  bonded  premises  established  under  the  wine 
act.     (T.  D.  23S7;  Oct.  30,  1916.) 

Impoi'ted  wines  when  removed  from  customhouse  must  be  tax  paid  bv  stamp. 
(T.  D.  2387;  Oct.  30,  1916.) 

No  allowance  can  be  made  where  shortage  is  discovered  on  imported  wine  after 
being  tax  paid ;  if  shortage  is  discovez'ed  before  removal  from  customhouse  tax  need 
be  paid  only  on  quantity  removed.     (T.  D.  2387;  Oct.  30,  1916.) 

Importer  of  wines  or  his  agent  permitted  as  matter  of  convenience  to  affix  re- 
quired stamps  to  custom  entry  instead  of  stamping  packages  or  cases  containing 
such  wines,  upon  the  compliance  with  stated  instructions;  where  importer  prefers 
to  stamp  each  package  or  case  ho  mav  do  so.  (T.  D.  2391;  Nov.  6,  1916.  T.  D, 
2414;  Dec.  11,  1916.) 

EVrPOHTEH. 
Definition. 

An  ''importer,"  within  Regulations  ]\'o.  44,  relating  to  war  exercise  taxes,  is  a 
person  who  causes  an  article  to  be  brought  into  the  Linited  States  from  a  foreign 
country;  a  retailer  may  be  also  an  importer.     (T.  D.  2719;  Art.  II.) 

IMPROVEMENTS. 

Income  taxes — Deductions. 

Cost  of  erecting  permanent  Ijuildings  or  of  making  permanent  improvements  on 
ground  leased  by  company  is  an  additional  rental  and!^may  be  deducted,  provided 
such  impi'ovements,  under  terms  of  lease,  revert  to  owner  of  ground  at  expira- 
tion of  lease;  in  such  case  cost  will  be  prorated  according  to  number  of  years  con- 
stituting term  of  lease  and  annual  deduction  will  be  aliquot  part  of  such  cost.  (T.  D. 
26.90;  art.  140.) 

Expenditures  for  incidental  repairs  which  do  not  add  to  value  nor  appreciably 
prolong  life  of  property  are  deductible  as  expenses  by  insurance  companies  other 
tlian  mutuals,  but  including  mutual  life  and  mutual  marine,  but  expenditures  for 
new  buildings,  permanent  improvements,  or  betterments,  which  increase  value 
of  property,  or  for  restoring  or  replacing  property,  are  not  deductible;  such  expendi- 
tures are  properly  chargeable  to  capital  account,  to  be  extinguished  through  annual 
depreciation  allowance.     (T.  D.  2690;  art.  240.) 

When  improvements  become  part  of  real  estate,  difference  between  cost  thereof 
and  allowable  depreciation  during  lease  term  is  a  gain  or  profit  to  lessor  at  end  of 
lease  term,  and  must  be  accounted  for  as  income  at  that  time.     (T.  D.  2690;  art.  4.) 

INCOME. 
Definition. 

"Income"  means  what  has  come  in  or  receipts.  (T.  D.  24.51 ;  Feb.  20, 1017.  Ct. 
Dec.) 

The  word  "income,"  as  used  in  the  corporation  excise  tax  act  of  1909,  imports 
something  entirely  distinct  from  principal  or  capital  either  as  a  subject  of  taxa- 
tion or  as  a  measure  of  the  tax,  conveying  rather  the  idea  of  gain  or  increa.'?e  arising 
from  current  aeti^aties.     (T.  D.  2723;"  June  4,  1918.     Ct.  Dec.) 


300  INCOME    TAXES    (  COBPOEATIONS) . 

INCOME  TAXES  (CORPOUATIONS). 

Abatement  claims. 
See  "rlainip." 

Acts  published. 

liicdme  tax  a<t  of  S(-pt(>ml)pr  8,  191fi,  published.  (T.  P.  23G0;  Sept.  11,  1916.) 
Same  act,  as  amended  by  art  of  October  3,  1917,  and  war  income  tax  act  of  October 
.'v  1917,  published,  (T.  D.  2549;  Oct.  20.  1917.  Note  correction  following  T.  D. 
2571.) 

Assessment  of  tax. 

I'nder  section  14  of  the  inf^ome-tax  act,  commippioner  is  without  authoritj-  to  make 
formal  assessment  of  income  tax  unless  liability  therefor  has  been  discovered  within 
three  years  from  date  when  return  is  due;  this  limitation  does  not,  however,  limit 
right  of  Government  to  (  laim  and  collect  by  suit  or  otherwif-e  any  additional  tax 
foir.id  due  for  period  antedatinji;  three-year  limitation.     (T.  D.  2(590;  art.  233.) 

Thoii<j;h  (io^'ernment  may  recover  unpaid  taxes  by  suit,  it  is  desirable  that  col- 
ler-tion  be  made  as  result  of  formal  assessment,  and  in  order  that  this  may  be  done, 
corporations  owing  additional  taxes  for  any  period  antedatinjr  the  three-year  limi- 
tation should  tile  amended  returns,  together  with  statement  formally  waiving  such 
limitation  and  consenting  to  assessment;  in  executing  such  amended  returns  or 
waivers,  corporations  forfeit  none  of  their  rights  under  the  law,  and  no  penalty  is 
incurred  which  might  not  otherwise  be  enforced  by  suit.     (T.  D.  2690;  art.  233.) 

Claims  for  refund  or  abatement. 
See  "Claims."' 

Collection  and  payment — Abatenaent  of  tax. 

it  is  duty  of  collector  to  use  same  diligence  to  collect  tax  after  it  has  been  abated  as 
un<-ollectibIe,  or  as  in  suit,  as  before  abatement;  such  abatement  does  not  impair 
claim  of  Government  against  taxpayer.     (T.  D.  2690;  art.  249.) 

Action  to  collect. 

{before  distributing  assets  dissolving  corporation  should  reserve  funds  sufficient 
to  pay  an\-  income  tax  assessable  against  it;  otherwise  tax  may  be  collected  by  suit 
against  stockholders.     (T.  D.  2690;  art.  205.) 

There  is  no  limitation  upon  right  of  Government  to  sue  for  and  recover  unpaid 
taxes;  not  essential  that  assessment  be  made,  or,  if  made,  that  it  be  made  within 
epecified  time;  if  liability  to  original  or  to  additional  tax  exists  or  has  been  dis- 
covered, amounts  thereof  may  be  recovered  by  suit,  regardless  of  fact  that  no  assess- 
ment has  been  made,  and  regardless  of  date  of  its  discovery  or  period  for  which  tax 
is  due.     (T.  D.  2690;  art.  233.) 

• Advance  payment. 

Lijstructions  with  reference  to  time  for  making  advance  j^ayments  in  installmenta 
or  in  whole,  of  income  and  excess-prolits  taxes  under  section  1009  of  act  of  October 
3,  1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to  tax- 
payer; refund  of  excess  payment;  entries  to  be  made  on  Specified  Forms;  interest 
table.  (T.D.  2622;  Dec.  26,  1917.  T.  D.  2674;  Mar.  18, 1918.  T.  D.  2695;  Apr.  11, 
1918.) 

■ Certificates  of  indebtedness. 

Collectors  directed  to  receive  United  States  certificates  of  ind(?btedness,  maturing 
June  25,  1918,  at  par  and  accrued  interest,  in  payment  of  income  and  excess-profits 
taxes,  when  payable  at  or  before  maturity  of  certificates;  amount  of  such  certifi- 
cates must  not  exceed  amount  of  taxes  due;  deposits  of  suc-h  certificates  to  be  made 
in  Federal  reserve  banks  of  districts  in  which  collectors'  offices  are  located ;  insurance, 
where  amounts  are  transmitted  by  registered  mail;  until  certificates  of  deposits  are 
received  from  banks  amounts  must  be  carried  as  "cash  on  hand";  schedule  showing 
amount  of  accrued  interest  payable  per  certificate  of  each  issue  on  anv  date  from 
January  2  to  June  25,  1918.     (T.  D,  2639;  Jan.  28,  1918.) 

Schedule  showing  exact  amount  of  accrued  interest  payable  on  any  day  from 
rebriiary  15,  1918,  to  June  25,  1918.     (T.  D.  2656;  Feb.  15,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indel)tedness,  dated 
March  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment 


INCOME    TAXES     ( CORPOHATIONS) .  301 

CoDettion  and  payment Continiitd. 

Certificates  of  indebtedness — ('oiitinuod. 

of  income  and  oxccss^-profits  f  ax<'p  whon  payable  at  or  before  maturity  of  rertificates; 
fichednle  nliowing  exact  am(>unt  of  accrued  interest  payable  on  any  day  from  March 
15,  to  June  25,  1918.     (T.  1).  2(i80;  Mar.  23,  1918.) 

OollectorR  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
April  15,  1918,  maturing  June  25.  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess-profits  taxes  when  payable  at  or  before  maturity  of  certifi- 
cates; schedule  showing  exact  amount  of  accrued  interest  on  any  day  from  April  15 
to  June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
May  15,  1918.  and  maturing  June  25,  1918,  at  par  and  accrued  interest  in  payment 
of  income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedules  showing  the  exact  amount  of  accrued  interest  payable  on  any  day  from 
May  15  to  June  2d,  1918.     (T.  D.  2718;  May  28,  1918.) 

Collectors  directed  to  receive  at  par  United  States  Treasury  certificates  of  indebt- 
edness of  Tax  Series  of  1919,  dated  August  20,  1918.  and  matm-ing  July  15.  1(119, 
and  of  Series  T,  dated  November  7,  1918.  and  maturing  March  15.  1919.  in  payment 
of  income  and  profits  taxes  when  jiajal>le  at  or  before  maturity  of  certificates;  de- 
posits of  certificates  must  be  made  with  Federal  reserve  banks  of  districts  in  which 
respective  collectors'  offices  are  located  and  must  be  forwarded  by  registered  mail; 
ui>til  certificates  of  deposit  are  received  from  V)anks,  amounts  must  be  carried  aa 
cash  on  hand;  schedules  of  certificates  required  to  be  kept  by  collectors;  deposit 
of  certificates  in  banks  by  taxpayers  i)ermitted  under  stated  conditions.  (T.  D. 
2778;  Dec.  11,  1918.) 

Unmatured  coupons  attached  to  certificates  of  indebtedness  of  Tax  Series  of  1919, 
dated  August  20.  1918.  and  maturing  July  15,  1919.  and  of  Series  T.  dated  November 
7,  1918.  and  maturing  March  15.  1919,  must  be  stamped  'Paid'";  coupons  maturing 
on  or  before  date  tax  is  due  must  be  detached  by  taxpayer  and  collected,  but  all 
other  coupons  must  be  attached  to  certificate  and  forwarded  to  Federal  reserve  banks; 
accrued  interest  to  date  income  or  profits  taxes  are  due  not  co^'ered  by  coupons 
attached  will  be  remitted  to  taxpayer;  collectors  must  not  pay  interest  on  such  cer- 
tificates nor  accept  them  for  an  amount  other  or  greater  than  their  face  value.  (T. 
D.2778;  Dec.  11,  1918.) 

Nonresident  alien  corporation. 

Where  actual  owner  of  stock  of  domestic  corporation  or  resident  alien  corporation 
is  a  nonresident  alien  corporation,  return  will  be  made  regardless  of  the  amount  of 
dividend  and  the  normal  income  tax  will  be  paid,  and  when  net  income  exceeda 
$5,000  said  custodian  shall  also  pay  the  additional  tax  on  such  income.  (T.  D.  2690; 
art.  32.) 

Payment  by  check — Bad  checks. 

Taxpayers  whose  checks  ha-.-e  been  returned  uncollected  by  depositary  bank 
should  be  immediately  notified  to  make  checks  good;  if  taxpayer  fails  to  so  so,  col- 
lector should  proceed  to  collect  taxes  by  usual  methods,  as  though  no  check  had  been 
given.     (T.  D.  2666;  Mar.  8,  1918.) 

In  cases  where  checks  have  been  returned  uncollected  by  depositary  banks,  if 
recapitulation  of  assessment  list  for  the  month  has  not  yet  been  sent  to  the  Commis- 
sioner, original  entry  of  payment  should  be  canceled,  and  at  the  same  time  there 
should  be  noted  in  the  "Remarks"  column  "Check  returned  unpaid;  transferred 
to  p.  — ;  1 — ;"  with  the  date,  and  the  item  should  be  reentered  in  the  unpaid  sec- 
tion of  the  list,  with  the  notation  "Transferred  from  p.  — ,  1 — ."  There  should  be 
submitted  in  support  of  the  new  entry  a  copy  of  the  collector's  letter  to  the  taxpayer 
with  regard  to  the  nonpayment  of  the  check;  if  monthly  recapittilation  has  gone 
forward,  note  should  be  made  in  the  "  Remarks"  column,  opposite  the  original  entry. 
"Check  returned  unpaid,"  with  the  date.     (T.  D.  2666;  Mar.  8,  1918.) 

Where  check  for  which  certificate  of  deposit  to  credit  of  Treasurer  of  the  United 
States  has  been  issued  is  returned  to  depositary  bank  unpaid,  collector  will  be 
propniply  notified  and  check  held  for  few  days,  during  which  time  collector  shotild 
make  effort  to  recover  amount  from  taxpayer;  if  amount  is  recovered,  collector 
should  immediately  turn  it  over  to  depositary  in  exchange  for  bad  check,  which 
should  be  returned  to  the  drawer,  but  if  amotmt  is  not  reco\'ered  within  reasonalile 
time,  depositary  will  rettu'n  check  with  letter  of  transmittal  and  ask  receipt  from 
collector,  which  receipt  shoidd  be  given  in  duplicate,  and  depositary  will  charge 
amount  to  Treasurer's  account  in  next  daily  transcript.     (T.  D.  2660;  ilar.  8.  1918.) 


302  INCOME  TAXES  ( COKPORATIONS). 

Cciloction  and  payraent — Coutinued. 

— —  Payment  by  cheek — Bad  cheeks — Continued. 

WTiere  cheek  de}X>sited  in  collection  account  is  returned  unpaid,  and  no  certifi- 
cate of  deposit  on  Form  15  co^•ering  the  amount  thereof  has  been  issued,  amount  of 
check  will  be  charged  l)y  de]:)ositar>'  to  the  collection  account,  after  being  held  in  a 
suspense  account  for  a  few  davs  while  an  effort  is  made  to  recover  amount  from  tax- 
payer.    (T.  D.  2666;  Mar.  8,  1918.) 

Collection  at  par. 

All  checks  in  payment  of  income  taxes  must  be  collectible  at  par  (without  any 
deduction);  taxpayers  who  are  not  sure  that  their  checks  will  be  paid  at  par  should 
be  ad\ised  to  ■write  beneath  the  amount  '"without  deduction  for  exchange,"  or  "witli 
exchange;"  collector  not  required  to  examine  all  checks  to  see  whether  they  are 
collectible  at  par;  if  bank  on  which  check  is  drawn  refuses  to  pay  it  at  par,  it  will  bo 
returned  through  depositan-  bank,  and  should  be  treated  in  same  manner  as  a  bad 
check.     (T.  D.  2666;   Mar.  8,  1918.) 

Monthly  and  quarterly  atseounts. 

Instructions  with  reference  to  preparation  of  monthly  and  cjuarterly  accounts  in 
cases  where  checks  have  been  returner!  uncollected  by  <lepo3itarv  bank.     (T.  D. 

266G;   Mar.  8,  1918.) 

Out-of-town  check. 

All  out-of-town  checks  for  which  depositary  bank  is  unwilling  to  issue  immediate 
certificate  of  deposit  to  credit  of  Treasurer  of  United  States,  should  be  deposited 
separately  in  collection  account,  as  provided  in  T.  D.  2627;  colle-ction  account  will 
be  charged  and  Treasiu'er's  general  account  credited  bv  issuance  of  certificate  of 
deposit  on  Form  15.     (T.  D.\'666;   Mar.  8,  1918.) 

Posting  records. 

Instructions  with  reference  to  posting  records  1  and  9  in  cases  where  checks 
have  been  returned  uncollected  by  depositary  brmk.     (T.  D.  2666;  March  8,  1818.) 

— Uncertified  checks. 

If  uncertified  check,  accepted  by  collectors,  is  not  paid,  person  by  whom  it  has 
been  tendered  remains  liable  for  tax;  such  uncertified  checks  as  depositaiy  bank  is 
willing  to  accept  should  be  included  in  certificate  of  deposit  issued  to  collector;  aU 
other  certificates  will  be  carried  by  collector  as  '  ■  cash  on  hand  ' ;  date  on  which  col- 
lector receives  check  considered  date  on  wliich  pajTnent  is  made  unless  check  is 
returned  dishonored;  such  uncertified  checks  as  bank  is  not  -v^illing  to  accept  for 
immediate  credit  maj-  be  deposited  for  collection,  and  when  collection  is  ma-de  pro- 
ceeds should  be  immediately  deposited  with  other  collections  for  the  day,  collector 
charging  his  account ' '  cash  on  hand, ' '  and  crediting  taxpaver  from  whom  check  was 
received.     (T.  D.  2627;   Dec.  28,  1917.) 

— —  Penalties  for  nonpayinent. 

Upon  failure  to  pay  tax  when  due  and  for  10  days  after  notice  and  demand,  penalty 
of  5  per  cent  of  amount  of  tax  unpaid  and  interest  at  rate  of  1  per  cent  per  month 
until  paid  shall  be  added  to  amount  of  tax,  and  to  amount  assessable  on  basis  of  net 
income  there  shall  be  added  50  per  cent  in  case  of  refusal  or  neglect  to  make  return, 
and  100  per  cent  in  case  of  false  or  fraudulent  return,  and  coip oration  so  offending 
shall  be  liable  to  specific  penalty  not  exceeding  $10,009.     (T.  D.  2699;  art.  231.;) 

If  tax  assessed  on  undistributed  net  income  by  section  10  (b)  of  the  act  of  Septem- 
ber 8,  1916,  as  amended,  is  not  paid  within  10  days  after  date  of  notice  and  demand 
therefor,  collector  must  collect  said  tax  with  penalty  of  5  per  cent  additional  upon 
amount  thereof  and  interest  at  rate  of  1  per  cent  a  month.  (T.  D.  273G;  June  1"^. 
1918.) 

Status  of  tax. 

Tax  due  on  income  hasstatus  of  a  debt  due  to  the  United  States;  persons  receiving 
propertv  charged  with  such  indebtedness  must  answer  for  the  debt.  (T.  D.  2690; 
art.  39.) 

A  tax  is  not  a  debt  and  the  Go^■ernmeut  is  not  a  creditor  in  a  strict  sense.  The 
obligation  is  of  a  higher  nature  than  a  debt.     (T.  D.  3043;  July  2,  1920.     Ct.  Dec.) 

Distiibuteos  without  consideration  of  corporate  assets,  as  Btockholdexs  in  case  of 
dissolution,  are  liable  to  extent  of  the  distribution  for  corporii,te  tax  under  the  trust- 
fund  doctrine.     (T.  D.  3013;  July  2,  1920.     Ct.  Dec; 


INCOME  TAXES  (COKPOKATIONS) .  3Q3 

Collection  and  payment — C'onlinucd. 

Time  of  payment. 

Whore  ofScc  ol"  insurance  compaaiy  t,n  which  collector  addressed  liotice  and  de- 
mand, on  Form  17,  is  situated  so  fai*  from  collector's  office  that  normal  conditions 
reader  it  imposaible  for  payment  to  reach  collector  within  10  days  of  mailing  of  notice 
and  demand  collector  requested  to  enter  on  Form  17  as  date  on  whicli  tax  becomes 
due  and  payable,  as  near  as  possible,  date  lOdayssubsequenttotime  thatpajineats 
should  be  received  in  orilinary  course  of  mails,  and  whereit  appears  that  full  amount 
of  tax  was  placed  in  maUs  witkin  10-day  period,  or  in  case  notice  is  not  delivered  iu 
due  time  by  reason  of  delav  in  mail,  and  satiefactorv  evidence  of  that  fact  is  fur- 
nished, penalty  and  interest  will  not  l)e  collected.     (T.  D.  2679;   Mar.  23.  1918.) 

Where  returns  are  ntade  on  basi.s  of  calendar  year  corporations  against  which 
taxes  are  assessed  shall  be  notified  of  the  amount  thereof  on  or  before  June  1  of  each 
successive  year,  and  taxes  sliall  be  paid  on  or  before  June  15  of  year  in  which  assess- 
ment is  made;  corporation  making  returns  on  basis  of  fiscal  year  other  than  cal- 
endar year  shall  be  notified  of  amount  assessed  against  it  on  or  before  last  day  of 
OO-day  period  next  following  date  wb-^n  return  was  due,  and  taxes  shall  be  paid 
within  105  days  from  due  date  of  the  return.     (T.  1).  2690:  art.  230.) 

Wliere  additimial  asses.sment  s  are  made  as  result  of  examination  or  audit  of  returat 
taxpayer  shall,  immediately  followdng  making  of  assessment,  be  notified  of  amounu 
thereof,  and  such  taxes  shall  be  paid  within  10  davs  from  date  of  such  notice.  (T.I). 
2690;  art.  230.) 

Extension. 

Any  extension  granted  by  collector  or  commi.'jsiouer  of  time  v>dthin  which  to  filo 
returns  will  not  be  construed  to  correspondingly  extend  the  time  for  payment  of  tax; 
if  for  any  reason  return  shoidd  not  be  made  until  time  fixed  by  law  for  payment  of 
tax  has  passed,  tax  assessed  on  basis  of  such  return  shall  be  paid  upon  notice  antl 
demand.     (T.  D.  2C90;  art.  230.) 

Voluntary  payment  xvhen  past  due. 

It  corporatio]!  against  which  additional  tax  liabilityis discovered  formally  accepts 
findings  of  examining  officer  and  agrees  to  volimtaidly  pay  additional  tax  and  does  so 
pav  additional  tax,  amended  retai'ns  or  waivers  will  not  be  required.  (T.  D.  2090; 
art.  234.) 

Constitutional  provisions. 

The  sixteenth  amendment  to  the  Constitution  of  the  United  States  does  not  extend 
the  taxing  power  to  new  or  excepted  subjects,  but  merely  removes  all  occasion  which 
othei'wise  might  exist  for  an  apportionment  among  the  States  of  taxes  laid  on  in- 
come, whether  it  be  derived  from  one  source  or  another.  (T.  D.  2726;  June  4,  191S. 
Ot.  Dec.) 

Under  the  sixteenth  amendment  to  the  Constitution,  Congi-ess  has  power  to  tax  as 
income  without  apportionment,  everything  that  became  income  in  the  ordinary 
sen.se  of  the  word  after  the  adoption  of  the  amendment.  (T.  D.  2731 ;  June  11,  1918. 
Ot.  Dec.) 

Deduct!  oils. 

See  "Net  income,''  post. 

Deiznitions — "  Common-law  parfcnersliips." 

Common-law  partnerships  are  not  associations  within  the  meaning  of  the  income- 
tax  law.     (T.  D.  2690;  art.  63.) 

'  'Corpoi'ati6n. " 

"Corporation"  or  "coi-porations, "  as  used  in  Regulations  No.  33,  construed  to 
include  all  corporations,  joint-stock:  companies  and  associations,  and  all  insurance 
companies  coming  within  the  terms  of  the  law,  as  well  as  all  bu.siness  trusts  organ- 
ized ca'  created  to  engage  in  commercial  or  industrial  enterprises,  capital  of  which 
is  evidenced  by  certificates  or  shares  of  interest  issued  or  issuable  to  members  on 
the  basis  of  whicli  profits  are  distributed  or  distributable.     (T.  D.  2690;  art.  57.) 

'  'Joint-stock  companies  or  associations.  " 

Term  "joint-stock  company  or  association,"  as  used  in  Regulations  No.  33, 
includes  associations,  common-law  trusts,  or  organizations  by  whatever  name  known 
which  caiTy  on  or  do  business  in  an  organized  capacity,  net  income  of  which,  if  any, 


304  INCOME    TAXES    ( COEPORATIOXS). 

Definitions — ('ontimipd. 

"Joint-stock  companies  or  associations" — Conlinuod. 

is  distributed  or  distributable  amon?  members  or  nhareholders  on  basis  of  capital 
stoik  which  each  holds,  or,  where  there  i«  no  capital  stock,  on  ba^is  of  proportion, 
ehare  or  capital  which  ea-h  has,  or  has  invested,  in  business  or  property  of  organi- 
zation.    (T.  D.  2690;  art.  58.) 

• "Limited  partnerships." 

Limited  partnership  is  partnership  having  one  or  more  special  partners  who  may 
ehare  in  protits  of  lirm  but  whose  liability  for  debts  of  company  is  limited  to  amount 
of  capital  invested  by  such  special  partner  or  partners.     (T.  1».  2690;  art.  62.) 

Limited  partnerships  of  the  Pennsylvania  type,  which  offer  opportunity  for 
limiting  liability  of  all  the  members,  provide  for  transferability  of  partnership 
shares,  and  capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are 
corporations  or  joint-stock  companies;  limited  partnerships  of  New  York  type, 
which  can  not  limit  liability  of  general  partners,  although  special  partners  enjoy 
limited  liability  so  long  as  they  observe  statutory  conditions,  and  which  are  dissolved 
by  death  or  attempted  transfer  of  interest  of  general  partner,  and  which  can  not  take 
real  estate  or  sue  in  partnership  name,  are  partnerships;  in  doubtful  cases  limited 
partnerships  will  be  treated  as  corporations  unless  they  submit  satisfactory  proof 
that  they  are  not  in  effect  so  organized.     (T.  D.  2711;  May  9,  1918.) 

"Political  subdivision." 

Term  "political  subdivision, "  as  used  in  article  83  of  Regulations  No.  33,  relating 
to  exemption  of  incomes  from  interest  upon  obligations,  denotes  every  division  of  the 
State  made  by  proper  authorities  thereof  acting  within  their  constitutional  powers 
for  purpose  of  carrying  out  portions  of  these  functions  of  State  which  by  long  usage 
and  inherent  necessities  of  government  have  always  been  regarded  as  public;  the 
term  includes  special  assessment  districts  so  created,  such  as  road,  water,  sewer, 
gas,  light,  reclamation,  drainage,  irrigation,  levee,  school,  harbor,  port  improve- 
ment, and  similar  districts  and  divisions  of  State.     (T.  D.  2715;  May  20,  1918.) 

"Taxable  year"  or  ''taxable  period." 

The  term.s  "taxable  year"  or  "taxable  period.  "  as  and  when  used  in  Regulations 
No.  33,  mean  the  calendar  or  duly  established  fiscal  year  or  period  for  which  the 
return  is  made  or  is  required  to  be  made.     (T.  D.  2690;  art.  59.) 

■ "Title." 

The  term  "this  title.' '  as  used  in  Regulations  No.  33,  means  Title  I  of  the  act  of 
September  8,  1916,  as  amended  by  the  act  of  October  3,  1917.     (T.  D.  2690;  art.  59.) 

Exemptions  of  corporations— Agricultural  organizations. 

Agricultural  organizations  are  exempt  from  tax  without  condition;  collector, 
being  satisfied  tliat  organization  comes  within  exempted  class,  is  authorized  to 
eliminate  it  from  his  list  and  relieve  it  from  necessity  of  making  returns.  (^T.  D. 
2690;  art.  68.) 

Agricultural  organizations  do  not  include  corporations  engaged  in  growing  agri- 
cultural products  or  raising  live  stock  or  similar  products  for  profit,  but  include  only 
those  organizations  which,  having  no  net  income  inuring  to  benefit  of  members, 
are  educational  or  instructive  in  character,  and  which  have  for  their  purpose  the 
betterment  of  conditions  of  those  engaged  in  these  pursuits,  improvement  of  grow- 
ing of  their  products,  and  encouragement  and  promotion  of  industries  to  higher 
degree  of  efficiency;  included  in  this  class  as  exempt  are  county  fairs  and  like 
associations  of  a  quasi-public  character;  societies  or  associations  holding  race  meets 
from  which  profits  inure  or  may  inure  to  members  or  stockholders  are  not  exempt. 
(T.  I).  2690;  art.  73.) 

Corporation  engaged  in  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other 
products  of  this  character,  as  means  of  livelihood  and  for  purpose  of  gain,  is  an 
agricultural  or  horticultural  society  only  in  the  sense  that  its  name  indicates  the 
kind  of  business  in  which  it  is  engaged,  and,  as  such,  is  not  exempt  from  taxation. 
(T.  D.  2690;  art.  74.) 

■ Boards  of  trade. 

Boards  of  trade  are  not,  as  such,  exempt  from  tax;  exemption  is  conditionalon 
filing  with  collector  affidavit  setting  out  character  and  purpose  of  organization,  and 
showing  that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or 
indi\-idual,  and  that  such  income  is  used  exclusively  to  promote  purposes  for  which 
organized  as  indicated  in  particular  paragraph  under  which  exemption  is  claimed. 
(T.  D.  2690;  art.  67.) 


INCOME   TAXES    (CORPORATIONS).  305 

Exemptions  of  corporations — ContiiUK  d. 
Building  and  loan  associations. 

DoniC'stic;  building  and  loan  asHo.ciation  exempt  is  one  ors^anizod  under  and  pur- 
suant to  laws  of  United  Stages  or  of  some  State  or  Territory  thereof,  and  which  is 
actually  <'arrying  on  for  benefit  of  its  members  a  building  and  loan  association  busi- 
ness in  accordance  with  such  laws;  fact  that  association  issues  fully  paid  or  prepaid 
Hhares,  calling  for  K{)ecified  rate  of  interest  or  dividends,  will  not  disqualify  it  for 
exemption;  exemption  is  without  qualification  other  than  that  association  is  a 
domestic  building  and  loan  association;  if  cori)oralion  by  any  other  name  is  carry- 
ing on  an  exclusive  building  and  loan  business,  before  it  is  entitled  to  exemption 
it  must  show  to  satisfa'tion  of  Commissioner  of  Internal  Revenue  that  it  is  in  fact 
a  building  and  loan  association.     (T.  I).  2690;  art.  70.) 

Domestic  building  and  loan  associations  are  exempt  from  tax  without  condition; 
collector,  being  satisfied  that  organization  comes  within  exempted  class,  is  author- 
ized to  eliminate  it  from  his  list  and  relieve  it  from  necessity  of  making  returns. 
(T.  D.  2690;  art.  68.) 

Business  leagues. 

Business  leagues  are  not.  as  such,  exempt  from  tax;  exemption  is  conditional  on 
filing  with  collector  aflida\it  setting  out  character  and  purpose  of  organization,  and 
showing  that  no  i)art  of  any  income  inures  to  benefit  of  any  private  stockholder 
or  individual,  and  that  such  income  is  used  exclusively  to  promote  purposes  for 
which  organized,  as  indicated  in  particular  paragraph  under  which  exemption  is 
claimed.     (T.  D.  2690;  art.  67.J 

Cemetery  companies. 

Cemetery  companies  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional 
on  filing  with  collector  affidavit  setting  out  character  and  purpose  of  organization, 
and  showing  that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder 
or  individual,  and  that  such  income  is  used  exclusi\ely  to  promote  purposes  for 
Avhich  organized,  as  indicated  in  particular  paragraph  under  Mhich  exemption  is 
claimed.     (T.  D.  2690;  art.  67.) 

Cemetery  company  having  capital  stock  represented  by  shares,  or  which  is  opera- 
ted for  profit  or  for  benefit  of  others  than  its  members,  or  has  a  reserve  set  aside  out 
of  profits,  i.s  not  exempt.     (T.  D.  2690;  art.  71.) 

Chambers  of  commerce. 

Chambers  of  commerce  are  not,  as  such,  exempt  from  tax;  exemption  is  condi- 
tional on  filing  with  collector  aflSdavit  setting  out  character  and  purpose  of  organi- 
zation, and  showing  that  no  part  of  any  income  inures  to  benefit  of  any  private 
stockholder  or  individual,  and  that  such  income  is  used  exclusi\"ely  to  promote 
purposes  for  which  organized,  as  indicated  in  particular  paragraph  "under  which 
exemption  is  claimed.     (T,  D.  2690;  art.  67.) 

Charitable  organizations. 

Corporations  of  associations  organized  and  operated  exclusively  for  charitable 
l)urposes  are  not,  as  such,  exemptlrom  tax:  exemption  is  condititinal  on  filing  with 
collector  affidavit  setting  out  character  and  purpose  of  organization,  and  showing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual, 
and  that  such  income  is  used  exclusively  to  promote  purposes  for  which  organized, 
as  indicated  in  i>arti<.nilar  parasraph  under  which  exemption  is  claimed.  (T.  D. 
2690;  art.  67.) 

■ Civic  leagues. 

Civic  leagues  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on 
filing  with  collector  affidavit  setting  out  character  and  purpose  of  organization,  and 
showing  that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or 
individual,  and  tiiat  such  income  is  used  exclusi\ely  to  promote  purposes  for  which 
organized,  as  indicated  in  particular  paragraph  under  which  exemption  is  claimed. 
(T.  D.  2690;  art.  67.) 

• Claim. 

In  order  that  fraternal  beneficiary  societies,  mutual  insurance  companies,  etc., 
may  be  exempted,  it  is  not  sufficient  that  they  merely  claim  exemption,  but  it 
must  be  shown  by  a.ffidavit  or  otherwise  to  satisfaction  of  Commissioner  of  Internal 
Revenue  that  conditions  set  forth  in  exempting  provisions  have  been  fully  met. 
(T.  D.  2690;  art.  239.) 

7U42U°— 21 20 


306  INCOME    TAXES    (  CO.EPOEATIOJSTS)  , 

Exemptions  of  corporations— Continued. 

Clubs. 

Clubs  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on  filing  with 
collector  affidavit  setting  out  character  and  purpose  of  organization,  and  showing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual, 
and  that  such  income  is  used  exclusively  to  promote  purposes  for  which  organized 
as  indicated  in  particular  paragraph  under  which  exemption  is  claimed.  (T.  D. 
2G90;  art.  67.) 

Conditional. 

Corporations  or  associations  organized  and  operated  exclusively  for  religious,  chari- 
table, etc.,  purposes,  business  leagues,  chambers  of  commerce,  civic  leagues,  etc., 
are  not,  as  such,  exempt  from  the  requirements  of  Title  I  of  the  act  of  September  8, 

1916,  as  amended  by  the  act  of  October  3,  1917;  their  exemption  is  conditional  upon 
their  filing  with  collector  affidavits  setting  out  character  and  purpose  of  organizations, 
antl  showing  that  lao  part  of  any  income  inures  to  benefit  of  any  private  stockholder 
or  individual,  and  that  such  income  is  used  exclusively  to  promote  purposes  for 
v/hich  organized  as  indicated  in  particular  paragraphs  under  which  exemption  is 
claimed.     (T.  D.  2690;  art.  67.) 

In  every  instance  wherein  exemption  is  conditional  upon  ground  that  no  i)art  of 
net  income  received  by  corporations  inures  to  benefit  of  private  stockholder  or  indi- 
vidual, such  organization,  to  be  classed  a?  exempt,  must  show  to  satisfaction  of  col- 
lector or  Commissioner  of  Internal  Revenue,  the  character  and  purpose  of  the  organ- 
ization, source  from  which  all  its  income  is  derived ,  what  dis2:)osition  is  made  of  such 
income,  and  whether  or  not  any  of  it  is  credited  to  surplus  or  inures  or  may  inure  to 
benefit  of  any  private  stockholder  or  individual.     (T.  D.  2690;  art.  78.) 

Collectors  of  internal  revenue  required  to  keep  list  of  all  corporations  whose 
exemption  is  conditional,  to  end  that  they  may  occasionally  inquire  into  their 
status  and  ascertain  whether  oi-  not  they  are  violating  conditions  upon  which  their 
exemption  is  predicated.     (T.  D.  2690;  art.  80.) 

Exemption  from  filing  returns  and  paying  income  tax  of  corporations  or  associa- 
tions organized  exclusively  for  religious,  charitable,  scientific,  or  educational  pur- 
pose.s,  business  leagues,  chambers  of  commerce,  boards  of  ti'ade,  ci\ic  leagues,  ceme- 
tery companies,  and  pleasure  and  recreation  clubs,  is  conditional  upon  such  organi- 
zations filing  affidavits  showing  character  and  jiurpose  of  organization,  source  of 
income  and  disposition  of  same,  whether  or  not  any  of  its  income  is  credited  to  sur- 
plus or  inures  to  benefit  oi  any  private  stockholder  or  indiA'idual,  to  which  affidavit 
should  be  attached  copy  oi  charter  or  articles  of  incorporation  and  by-laws;  where 
collector  is  in  doubt  as  to  taxable  status  of  organization,  upon  receipt  of  affidavit, 
etc.,  he  will  refer  affidavit  and  ax'companying  papers  to  Commissioner  of  Internal 
Revenue  for  decision;  if  it  is  held  that  corporation  itself  is  exempt  from  income  and 
excess  profits  taxes  it  is  not,  however,  exempt  from  the  mthholding  requirements 
nor  from  furnishing  information  in  accordance  with  provisions  of  act  of  October  o, 

1917.  (T.  D.  2693;  Apr.  8,  1918.) 

Cooperative  organizations. 

<_'ooperative  associations,  in  order  to  come  within  the  exemption  provided  in  para- 
graph eleventh  of  section  11  of  the  act  of  September  8,  1916,  as  amended,  must  es- 
tablish to  satisfaction  of  collector  or  Commissioner  of  Internal  Revenue  fact  that, 
for  their  own  account,  they  have  no  net  income,  business  being  to  market  products 
ol  their  members,  and  that  entire  proceeds  of  such  marketing,'  less  necessary 
selling  expenses,  are  turned  back  or  paid  to  members  on  basis  of  quantity 
of  produce  furnished  by  them — quality  and  grade  being  considered — as 
purcliase  piice  of  such  produce;  if  such  associations  purchase  for  cash 
articles  of  produce  with  view  to  selling  for  gain,  it  will  be  held  that  such  association.) 
ar.»  organized  for  profit  and  they  wilfbe  held  taxable.     (T.  D.  2690;  art.  75.) 

( 'ooporative  societies,  associations  or  corporations  which  make  periodical  refund 
to  members  or  to  prospective  members  or  to  |)atrons  generally,  in  proportion  to  pur- 
chases made  by  recipient,  are  not  within  any  of  the  exceptions  or  exemptions  of 
act  of  September  8, 1916  as  amended  by  act  October  3,  1917,  and  are  subject  to  its 
provisions.     (T.  D.  2737;  June  19,  1918.) 

• Dairy  associations. 

Cooperative  daii-y  companies  or  associations,  not  having  capital  stock  and  engaged 
in  collecting  milk  and  disposing  of  same  or  products  thereof,  and  distributing  pro- 
ceeds of  business,  less  necessary  operating  expenses,  among  their  patrons,  upon 
basis  of  quantity  of  butter  fat  in  milk  furnished  by  such  patrons,  are  exempt  from 


INCOME  TAXES  (COEPORATIONS) .  307 

Exemptions  of  corporations— Conlinucd. 

Dairy  associations — Continued. 

tax;  if  company  purchases  milk  at  stipulated  price  and  disposes  of  same,  or  its 
products,  at  a  profit,  and  such  profit  inures  to  benefit  of  company  or  its  memLers, 
on  any  basis  other  than  butter-fat  content  of  milk  furnished,  such  company  will  corae 
within  requirements  of  law  and  will  be  subject  to  tax.     (T.  D.  2690;  art.  7G.) 

Educational  organizations. 

Corporations  or  associations  organized  and  operated  exclusively  for  educational 
purposes  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on  filing  with 
collector  af1ida\T.t  setting  out  character  and  purpose  of  organization,  and  shov.ing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual , 
and  that  such  income  is  used  exclusively  to  promote  purposes  for  which  organized 
as  indicated  in  particular  paragraph  under  which  exemption  is  claimed.  (T.  I>. 
2690;  art.  67.) 

■ Farmers'  associations. 

Farmers',  fruit  growers',  or  like  association,  organized  and  operated  as  a  sales 
agent  to  market  products  of  its  members,  in  order  to  come  v/ithin  the  exemj)tion 
pro\-ided  in  paragraph  "eleventh"  of  section  11  of  the  act  of  September  K,  1916,  as 
amended,  must  establish  to  satisfaction  of  collector  or  Commissioner  of  Internal 
Revenue  fact  that,  for  their  own  account,  they  have  no  net  income,  and  that  entire 
proceeds  of  marketing  products  of  their  members,  less  necessary  selling  expenses, 
are  turned  back  or  paid  to  members  on  basis  of  quantity  of  produce  furnished  by 
them — qualitv  and  grade  being  considered — as  purchase  price  of  such  produce. 
(T.  D.  2690;  art.  75.) 

Federal  land  banks. 

Federal  land  banks  are  exempted  from  tax  without  condition;  collector,  being 
satisfied  that  organization  comes  within  exempted  class,  is  authorized  to  eliminate 
it  from  his  list  and  relieve  it  from  necessity  of  making  returns.     (T.  D,  2690;  art.  68.) 

. Fraternal  societies. 

Fraternal  beneficiary  society,  order  or  association  operating  under  lodge  system 
or  for  exclusive  benefit  of  members  of  a  fi'atemity  itself  operating  under  lodge  sys- 
tem is  exempt  from  tax,  without  condition;  collector,  being  satisfied  that  organiza- 
tion comes  within  exempted  class,  is  authorized  to  eliminate  it  from  his  list  and 
relieve  it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

Fraternal  life  insurance  has  been  exempted  from  all  income  taxation  because,  as 
originally  de\T.sed,  it  had  in  it  only  the  element  of  protection.  The  premiums  paid 
by  the  member  were  supposed  to  be  sufficient,  and  only  sufficient,  to  pay  the  losses 
which  fell  within  the  current  year.     (T.  D.  3046;  .July  19,  1920.     Ct.  Dec.) 

Congress  exempted  cei'tain  cooperative  enterprises  from  all  income  taxation,  but, 
Avith  the  exception  of  fraternal  beneficiary  societies,  it  imposed  in  express  terms 
such  taxation  upon  ''every  insurance  companJ^"  (T.  D.  3046;  July  19,  1920. 
Ct.  Dec.) 

- —  Horticultural  org-anizations. 

Horticultural  organizations  are  exempt  from  tax  witlio.it  condition;  collector, 
being  satisfied  that  organization  comes  within  exempted  class,  is  authorized  to 
eliminate  it  from  his  list  and  relieve  it  from  necessity  of  making  returns.  (T.  D. 
2690;  art.  68.) 

Horticultural  organizations  do  not  include  coiporations  engaged  in  growing  horl  i- 
cultural  products  or  raising  live  stock  or  similar  products  for  profit,  but  include 
only  those  organizations  which,  ha\'ing  no  net  income  inuring  to  benefit  of  mem- 
bers, are  educational  or  instructive  in  character,  and  which  have  for  their  purpose 
the  betterment  of  conditions  of  those  engaged  in  these  pursuits,  improvement  of 
growing  of  their  products,  and  encouragement  and  promotion  of  industries  to  higher 
degree  of  efhciency ;  included  in  this  class  as  exempt  are  county  fairs  and  like  asso- 
ciations of  a  quasi-public  character;  societies  or  associations  holding  race  meets 
from  which  profits  inure  or  mav  inure  to  member.-!  or  stockholders  are  not  exempt. 
(T.  D.  2690;  art.  73.) 

Corporation  engaged  in  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other 
products  of  this  character,  as  means  of  livelihood  and  for  purpose  of  gain,  is  an  agri- 
cultural or  horticultural  society  only  in  the  sense  that  its  name  indicates  the  kind 
of  business  in  which  it  is  engaged,  and,  as  such,  is  not  exempt  from  taxation. 
(T.  D.  2690;  art.  74.) 


308  INCOME   TAXES    (CORPORATIONS). 

Exemptions  of  corporations — Continued. 

■ Joint-stock  land  banks. 

Joint-stock  land  banks  are  exempt  from  tax  Avithout  condition  as  to  income  speci- 
fied in  the  law;  collector,  being  satisfied  that  organization  comes  within  exempted 
class,  is  authorized  to  eliminate  it  from  his  list  and  relieve  it  from  necessity  of  mak- 
ing returns.     (T.  D.  2690;  art.  68.) 

Labor  organizations. 

Labor  organizations  are  exempt  from  tax  Avithout  condition;  collector,  being 
satisfi(?d  that  organization  comes  within  exempted  class,  is  authorized  to  eliminate 
it  from  his  list  and  relieve  it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

Lists. 

Collectors  of  internal  revenue  required  to  keep  list  of  all  corporations  whose  exemp- 
tion is  conditional,  to  end  that  they  may  occasionally  incjuire  into  their  status  and 
ascertain  whether  or  not  they  are  violating  conditions  upon  which  their  exemption 
is  predicated.     (T,  D.  2690;  art.  80.) 

Lodges. 

A  society  or  association  "operating  under  the  lodge  system"  is  one  organized 
under  a  charter  or  dispensation  with  properly  appointed  or  elected  officers,  with  an 
adopted  ritual  or  ceremonial,  holding  meetings  at  stated  intervals;  an  order,  society, 
or  association  coming  within  this  definition  is  exempt  from  requirements  of  income 
tax  law.     (T.  D.  2690;  art.  77.) 

Society  or  association  "operating  under  the  lodge  system,"  which  is  exempted 
under  the  provisions  of  the  income  tax  act,  is  considered  to  be  one  organized  under  a 
charter  with  properly  appointed  or  elected  officers  with  an  adopted  ritual  or  cere- 
monial, holding  meetings  at  stated  intervals,  and  supported  Vjy  clues,  fees,  or  assess- 
ments.    (T.  D.  2690;  art.  239.) 

— —  Mutual  insurance  companies,  etc. 

Organizations  mentioned  in  paragraph  "Tenth"  of  section  11,  act  of  September  8, 
1916,  as  amended,  are  specifically  exempt,  provided  that  their  entire  income  con- 
sists solely  of  assessments,  dues,  and  fees  collected  from  members  for  sole  purpose  of 
meeting  expenses  incurred  in  pursuance  of  purpose  for  which  organized;  if  any 
such  organizations  have  income  from  any  source  other  than  assessments,  dues  and 
fees  suc-li  income  will  be  held  subject  to  tax,  and  organizations  receiving  same  must 
make  returns  and  pay  any  tax  thereby  shown  to  be  due.     (T.  D.  2690;  art.  69.) 

Mutual  savings  banks  not  having  capital  stock  represented  by  shares  are  exempt 
from  tax  without  condition;  collector,  being  satisfied  that  organization  comes  within 
exempted  class,  is  authorized  to  eliminate  it  from  his  list  and  relieve  it  from  neces- 
sity of  making  returns.     (T.  D.  2690;  art.  68.) 

A  corporation,  organized  to  insure  its  members,  limited  to  jewelers  and  dealers 
in  goods  ordinarily  carried  in  the  jewelry  trade,  against  loss  or  damage  1)y  fire,  theft, 
larratry,  em1  cz'^lement,  and  transportation,  which  requires  each  member  to  deposit 
in  advance  a  definite  sum  sufficient  to  cover  estimated  losses  and  expenses  for  the 
ensuing  year,  the  balance  of  such  deposits  being  returned  to  members,  is  a  mutual 
lire  insurance  company  and  subject  to  the  taxes  imposed  by  the  act  of  October  3, 
19J3.     (T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

National  farm  loan  associations. 

National  farm  loan  associations  organized  pursuant  to  act  of  July  17,  1916,  are 
exempt  from  tax  without  condition;  collector,  being  satisfied  that  organization 
comes  within  exempted  class,  is  authorizerl  to  eliminate  it  from  his  list  and  relieve 
it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

Pleasure  and  recreation  clubs. 

Pleasure  and  recreation  clubs  are  not,  as  such,  exempt  from  tax;  exemption  is 
conditional  on  filing  with  collector  affidavit  setting  out  character  and  purpose  of 
organization  and  showing  that  no  part  of  any  income  inures  to  benefit  of  any  private 
stockholder  or  individual  and  that  such  income  is  used  exclusively  to  promote  pur- 
poses for  which  organized  as  indicated  in  particular  jjaragraph  uuder  which  exemp- 
tion is  claimed.     (T.  D.  2690;  art.  67.) 

^~ —  Public  utilities. 

Public  utilities  whose  income  inures  to  benefit  of  any  State,  Territory,  or  political 
subdivision  thereof  are  exempt  from  tax  without  condition;  collector,  being  satisfied 
that  organization  comes  within  exempted  class,  is  authorized  to  eliminate  it  from 
his  list  aad  relieve  it  from  necessity  of  making  returns.     (T.  D.  2  690;  art.  68.) 


INCOME    TAXES    (CORPORATIONS).  309 

Exemptions  of  corporations — Continued. 
Religious  organizations. 

Corporations  or  associations  organized  and  operated  exclusively  for  religious  pur- 
poses are  not,  as  such,  exempt  from  tax;  exe  nption  is  conditional  on  filint;  with 
collector  affidavit  setting  out  character  and  purpose  of  organization,  and  showing 
tliat  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual, 
and  that  such  income  is  used  exclusively  to  promote  purposes  for  which  orgaiiizecl 
as  indicated  in  particular  paragraph  under  which  exemi)lion  is  claimed.  (T.  J). 
2im;  art.  67.) 

■ Scientific  organizations. 

Corporations  or  associations  organized  and  operated  exclusively  for  scientific 
purjxises  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on  filing  with 
collector  affidavit  setting  out  character  and  purpose  of  organ i>;ation,  and  showing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual, 
and  that  such  income  is  used  exclusively  to  pomote  purposes  for  which  organized  as 
indicated  in  p.articular  paragraph  under  which  exemption  is  claimed.  (T.  D.  2090; 
art.  07.) 

Social  clubs. 

Social  clubs  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on  fding 
with  collector  affidavit  setting  out  character  and  purpose  of  organization,  and  showing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual, 
and  (hat  such  iiicome  is  used  exclusively  to  promote  purposes  for  which  organized 
as  indicated  in  particular  paragraph  under  which  exemption  is  claimed.  (T.  D. 
2690;  art.  67.) 

Social  clubs  organized  and  operated  exclusively  for  pleasure,  recreation,  and 
other  nonprofitable  purposes  are  exempt  from  tax,  provided  no  part  of  any  net 
income  inures  to'  benefit  of  any  private  stockholder  or  individual;  this  exemption 
reaches  practically  all  social  and  recreation  clubs  supported  by  membership  fees, 
dues,  and  assessments;  if  a  club,  by  reason  of  compreliensiA^e  powers  granted  in  its 
charter,  engages  in  any  business  for  profit,  it  will  be  held  that  such  club  is  not  a  social 
club,  it  thus  becoming  a  business  or  commercial  enterprise  and  any  profit  realized 
is  subject  to  tax.     (T.  D.  2690;  art.  72.) 

TTnconditional. 

Among  corporations  exempt  from  tax,  without  condition,  are  labor,  agricultural, 
and  horticultual  organizations,  mutual  saA'ings  banks  not  having  capital  stock 
repres3nted  by  shares,  fraternal  beneficiary  societies  or  associations  operating  under 
lodge  system  or  for  exclusive  bene.*it  of  members  of  fraternity  itself  o])erating  under 
lodge  system,  domestic  building  and  loan  associations,  Federal  land  banks,  and 
national  farm  loan  associations,  organized  pursuant  to  the  act  of  July  17,  1916, 
joint-stock  land  banks  as  to  income  specified  in  the  law,  and  public  utilities  whose 
income  inures  to  benefit  of  any  State,  Territory,  or  political  subdivision  thereof; 
corporations  exempt  under  act  of  September  8, 1916,  are  also  exempt  from  tax  under 
Title  I  of  the  act  of  October  3,  1917.     (T.  D.  2690;  art.  68.) 

Exemptions   of  income — Federal  reserve  bank  dividends. 

Exemption  provided  for  in  l'>deral  reserve  statute,  section  3,  of  the  act  of  October 
22,  1914,  attaches  to  and  follows  income  derived  from  dividends  on  stock  of  Federal 
reserve  banks  into  hands  of  stockholders,  that  is  to  say,  dividends  received  on 
stock  of  such  banks,  are  exemi)t  from  taxes  imposed  by  acts  of  September  8,  1916, 
as  amended,  and  of  October  3.  1917;  this  ruling  does  not  contemplate  that  diAddends 
paid  by  member  banks  are  exempt  from  the  2  per  cent  tax,  but  sucJi  dividends,  in  so 
far  as  they  may  be  received  by  other  corporations,  may  be  treated  as  a  credit  against 
net  incoine  in  computing  the  war  income  tax  imposed  by  Title  I  of  the  act  of  Octo- 
ber 3,  1917.     (T.  D.  2690;  art.  86.) 

Fiscal  year  ending  during  1916. 

The  provision  of  section  25  of  the  income  tax  act  is  intended  to  exclude  from 
taxable  income  under  Title  I  of  the  act,  any  income  received  after  Jauury  1,  1916, 
which,  in  returns  for  periods  jjrior  to  that  date,  has  been  accounted  for  on  an  accrual 
basis,  and  on  which  tax  has  been  assessed  and  paid;  that  is  to  say.  any  incoine 
returned  upon  which  tax  imposed  by  act  of  October  3,  1913,  bad  been  assessed 
though  actually  received  subsequent  to  .January  1,  1916,  is  not  subject  to  the  tax 
imposed  by  Title  I.     (T.  D.  2690;  art.  235.) 


310  INCOME   TAXES    (CORPORATIONS). 

Exemptions  of  income — Continued. 
Foreign  Governments. 

Section  30  of  the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3, 
1917,  does  not  exempt  from  tax  any  income  collected  by  foreign  Governments  from 
investments  in  the  United  States  in  stocks,  bonds,  or  other  domestic  securities, 
v/hich  are  not  bona  fide  ownei  by  but  are  loaned  to  such  foreign  Government. 

(T.D.  2699;  art.  87.) 

Insarance  companies. 

All  interest  received  on  obligations  of  United  States  or  its  possessions  or  on  obli- 
gations of  a  State,  or  any  political  subdivision  thereof,  should  be  eliminated  in 
ascertaining  gross  income;  accrued  interest  on  bonds  pTircliased  must  not  be  included 
in  amount  eliminated  irom  gi'oss  income;  in  casa  of  obligations  of  United  States 
issued  after  September  1,  1917,  income  therefrom  is  exempt  from  tax  only  to  extent 
provided  in  the  act  authorizing  their  issue,  and  income  from  such  obligations  re- 
ceived by  insurance  companies  is  exempt  from  2  per  cent  and  4  per  cent  tax. 
(T.  D.  2699;  art.  239.) 

Political  subdivisions. 

Interest  upon  obligations  of  State  or  au}-  political  subdivision  thereof  is  exempt; 
obligations  issued  for  public  purpose  by  or  on  behalf  of  State  or  duly  organized 
political  subdivision  acting  by  constituted  authorities  duly  empowered  to  issue 
such  obligations  are  obligations  of  a  State  or  political  subdivision  thereof.  (T.  D. 
2715;  May  20,  1918.) 

Term  '  "political  subdivision, ' '  as  useil  in  article  83  of  Regulations  No.  33,  relating 
to  exemption  of  incomes  from  interest  upon  obligations,  denotes  c\'eicy  division  of 
the  State  made  by  proper  authorities  thereof  acting  within  their  constitutional 
powers  for  purpose  of  carrying  out  portions  of  those  functions  of  State  which  by  long 
usage  and  inherent  necessities  of  Government  have  always  been  regarded  as  public; 
the  term  includes  special  assessment  districts  so  created,  such  as  road,  water,  sewer, 
gas,  light,  reclamation,  drainage,  irrigation,  levee,  school,  harbor,  port  improve- 
ment, and  similar  districts  anddivisions  of  State.     (T.  D.  2715;  May  20,  1918.) 

State  obligations. 

Interest  upon  obligations  of  State  or  any  political  subdivision  thereof  is  exempt; 
obligations  issued  for  public  purpose  by  or  in  behalf  of  State  or  duly  organized 
political  subdivision  acting  by  constituted  authorities  duly  empowered  to  issue 
such  obligations  are  obligations  of  a  State  or  political  subdivision  thereof.  (T.  D. 
2715;  May  20,  1918.) 

Time  of  accrual  of  income. 

It  is  evident  purpose  of  act  of  October  3,  1913,  to  refrain  from  taxing  income  that 
accrued  prior  to  March  1,  1913,  and  to  exclude  from  consideration  in  making  compu- 
tation of  taxable  income  for  given  year  any  income  that  accrued  in  the  preceding 
taxable  year.     (T.  D.  2730;  June  11,  1918.     Ct.  Dec.) 

— —  Undistributed  net  income. 

See  "Net  income Undistributed  net  income,"  j^ost. 

Corporations,  joint-stock  companies  and  associations,  and  insurance  companies 
Vv-hich  are  exempt  under  the  provisions  of  section  11  (a)  of  the  act  of  September  8, 
1916,  from  tax  upon  total  net  income  are  not  taxable  upon  undistributed  net  income 
under  section  10  (b).    (T.  D.  2736;  June  IS,  1918.) 

United  States  obligations. 

Section  1200  of  the  act  of  October  3,  1917,  ao  amends  section  4  of  the  act  of  Septem- 
ber 8, 1916,  as  to  exempt  interest  on  obligations  of  United  States  issued  after  Septt^m- 
ber  1,  1917,  only  if  and  to  extent  provided  in  act  authorizing  their  issue;  income 
from  bonds  and  certificates  issued  imder  the  act  of  September  24,  1917,  is  exempt 
from  war  income  tax  of  4  per  cent  imposed  upon  net  income  of  corporations  bj^ 
section  4  of  Title  I  of  the  act  of  October  3,  1917,  and  the  2  per  cent  tax  imposed 
bv  section  10  of  Title  I  of  the  act  of  September  8,  1916,  as  amended.  (T.  D.  2699; 
aft.  85.) 

\Mien  income  of  partnership  is  taxable  to  individual  partners,  as  under  present 
income-tax  law,  each  partner  is  treated  as  owner  of  proportionate  part  of  Libei-ty 
loan  lx)nd3  held  by  partnership  and  entitled  to  exemption  on  account  of  saicli 
ownership  as  if  such  partner  owned  such  proportionate  part  of  bonds  dirocth'. 
(T.  D.  2762;  Oct.  18,  1918.) 

\Mien  income  of  partnership  is  taxable  to  partnership  as  such,  as  under  present 
excess-profits  tax  law,  partnership  is  treated  as  owner  of  Lil.ierty  loan  bonds  held 


INCOME   TAXES    (COKPOKATIONS) .  311 

Exemptions  of  income — f'onliuued. 

United  States  obligations — Continued. 

by  it  and  entitled  to  exemption  from  taxes  assessed  upon  income  of  partnership  as 
such.     (T.  D.  2762;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  upon  individual  partner  on  share  of  partnei"ship 
income  such  partner,  if  partner  at  time  of  original  subscription  by  partnership 
for  bonds  of  Fourth  Liberty  Loan,  is  treated  as  original  subscriber  for  proportionate 
part  of  such  bonds  and  is  entitled  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues,  as  if  he  had  subscribed  dire ?tlv  for  such  proportionate  part.  (T.  D. 
27G2;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  to  partnership  upon  partnership  income. as  a  whole, 
such  partnership  is  original  subscriber  and  entitled  to  collateral  exemption  of 
interest  on  Lil)erLV  lionds  of  previous  issues  on  accoimt  of  such  original  subscription, 
for  bonds  of  Fourth  Liberty  Loan.     (T.  D.  2762:  Oct.  18,  1918.) 

Corporation  and  not  stockholders  is  regarded  as  owner  of  Lil)erty  loan  bonds 
held  by  a  corporation  and  entitled  to  exemption  on  account  of  such  ownership; 
when  bonds  of  Fourth  Livcrty  Loan  are  subscribed  for  ]:)y  corporation  it,  and  not 
stockholders,  is  original  subscriber  and  entitled  to  collateral  exemption  of  interest 
on  bonds  of  previous  issues  on  account  of  such  original  sul)s;'ription.  (T.  D.  2762; 
Oct.  18,  1918.) 

Circular,  issued  under  date  of  April  23,  1919,  with  reference  to  tax  exemptions 
of  Liberty  bonds  and  Victory  notes,  published  for  information  of  internal-revenue 
officers  and  others  concerned.     (T.  D.  2836;  May  7,  1919.) 

For  purposes  of  additional  tax  exemption  for  Liberty  bonds  granted  by  section 
2  (b)  of  the  Victory  Liberty  loan  act,  approved  March  3,  1919,  Victory'  notes  of 
either  series  issued  upon  conversion  of  \'ictory  notes  of  the  other  series  which  were 
originally  subscribed  for  by  any  taxpayer  will  be  deemed  to  have  been  originally 
subscribed  for  by  such  taxpayer.     (T.  D.  2857;  June  7,  1919.) 

Interest  accrued  on  4^-  per  cent  Victory  notes  at  date  of  conversion  by  taxpayer 
into  3|  per  cent  Victory  notes  will,  for  purposes  of  computing  net  income,  "be 
deemed  to  be  interest  on  4|  per  cent  Victory  notes,  and  will  be  entitled  only  to 
exemptions  from  taxation  to  which  interest  on  4f  per  cent  Victory  notes  is  entitled; 
amounts  received  by  taxpayer  from  United  States  by  way  of  adjustment  of  accrued 
interest  upon  conversion  of  4|  Victory  notes  v,dll  be  deemed  to  be  interest  on  4  2 
per  cent  Victory  notes.     (T.  D.  2865;  June  14,  1919.) 

All  interest  accrued  on  3|  per  cent  Victory  notes  at  date  of  any  conversion  by 
taxpayer  into  4|  per  cent  Victory  notes  will,  for  purposes  of  computing  net  income, 
be  deemed  to  be  interest  upon  3J  per  cent  Victory  notes,  and  will  be  entitled  to 
exemptions  from  taxation  to  which  interest  upon  3J  per  cent  Victory  notes  is  en- 
titled.    (T.  D.  2865;  June  14,  1919.) 

Foreign  corporations — Source  within  United  States. 

Not  necessary  that  foreign  corporation  shall  be  engaged  in  business  in  this  country 
or  that  it  have  office,  branch  or  agency  in  United  States,  in  order  to  be  subject  to  tax 
imposed  by  the  act  of  October  S,  1917;  liability  attaches  with  respect  to  income, 
source  of  which  is  in  United  States,  "source"  being  used  here  as  meaning  place  of 
origin  of  the  income.     (T.  D.  2690;  art.  66.) 

Taxable  income. 

Under  section  10  of  Title  I  of  the  act  of  September  8,  1916,  as  amended,  tax  of  2 
per  cent  shall  be  lo\-ied,  assessed,  collected,  and  paid  annually  upon  total  net  in- 
come received  in  preceding  calendar  year  from  all  sources  within  the  LTnited  States 
by  every  corporation,  joint-stock  company  or  association,  or  insurance  company, 
organized,  authorized,  or  existing  under  laws  of  any  foreio:n  country.  (T.  D.  2!>')^V 
art.  64.) 

— —  War  tax. 

Additional  tax  of  4  per  cent  on  net  income  imposed  by  the  act  of  October  o, 
1917,  shall  apply  to  foreign  corporations  in  same  manner  as  in  case  of  domestic 
corporations,  except  that  it  shall  apply  only  to  income  received  from  sources  within 
ITnited  States.     (T.  D.  2690;  art.  65.)' 

Gross  income — Accretions. 

Any  accretions  to  reserve  set  aside  out  of  profits  of  cemetery  company  as  a  "main- 
tenance fund"  will  be  held  to  be  income,  and,  as  such,  must  be  returned  by  the 
corporation.     (T.  D.  2690;  art.  71.) 


312  INCOME  TAXES  (CORPORATIONS). 

Gross  income — rontinued. 
Bad  debts  recovered. 

Bad  debts  or  accounts  charged  off  because  of  fact  that  they  were  determined  to  be 
worthless,  and  subsequently  recovered,  constitute  income  for  year  in  which  recov- 
ered, regardless  of  date  when  amounts  were  charged  off;  neither  date  at  which  debt 
was  charged  off  nor  fact  that  it  was  or  was  not  deducted  from  gross  income  in  return 
made  will  in  anv  way  affect  its  character  as  income  of  year  in  which  recovered. 
(T.  D.  2690;  art.'llO.) 

Banks,  etc. 

Gross  income  of  banks  and  other  financial  institutions  consists  of  the  total  revenue 
received  within  the  year  for  which  return  is  made  from  operation  of  business,  in- 
cluding income,  gains,  or  prolits,  from  sale  of  capital  assets  and  from  all  other  sources 
in  cases  where  securities  or  other  assets,  real,  personal,  or  mixed,  acquired  prior 
to  March  1,  1913,  are  disposed  of  during  year,  gain  or  loss  thereon  will  be  based  upon 
dilference  between  price  at  which  disposed  of  and  fair  market  price  or  value  of  such 
assets  as  of  March  1,  1913,  or  difference  between  price  at  which  disposed  of  and  the 
cost  if  acquired  subsequent  to  that  date.     (T.  D.  2690;  art.  90.) 

■ Cessation  of  business. 

Fact  that  corporation  has  ceased  to  engage  in  business  for  which  it  was  originally 
organized  will  not  relieve  it  from  liability  to  income  tax;  if  it  has  or  may  have  in- 
come directly  or  indirectly  from  any  source  it  must  make  return,  account  for  all 
such  income,  and  pay  any  tax  assessable  on  such  income.     (T.  D.  2690;  art.  102.) 

■ Contracting  corporations. 

Contracting  corporations  which  have  numerous  uncompleted  contracts,  which 
in  some  cases  run  for  period  of  several  years,  will  ascertain  gi'oss  income  on  basis 
of  completed  work — that  is,  on  jobs  which  have  been  finally  completed,  and  any  and 
all  moneys  received  in  payment  for  completed  jobs  will  be  returned  as  income  for 
year  in  which  work  was  completed.     (T.  D.  2690;  art.  121.) 

In  the  case  of  corporations  engaged  in  contracting  operations  and  which  have 
numerous  uncompleted  contracts,  which  in  some  cases  run  for  periods  of  years, 
percentage  of  profit  from  contract  may  be  estimated  on  basis  of  percentage  of  com- 
pletion and  payments  made  thereon,  in  which  case  income  to  be  returned  each  year 
during  performance  of  contract  will  be  computed  upon  basis  of  expenses  incurred  on 
such  contract  during  the  year;  all  under  or  over  statements  of  income  to  be  adjusted 
upon  completion  of  contract  and  return  made  accordingly;  where  contracts  are 
fully  performed  in  one  year,  income  resulting  from  performance  shall  be  returned  for 
year  in  which  actually  earned  and  determined.     (T.  D.  2690;  art.  121.) 

Damages  recovered. 

When  corporation  as  result  of  suit  or  otherwise  secures  payment  for  damages  which 
it  may  have  sustained,  and  amount  of  such  payment  is  in  excess  of  an  amount  neces- 
sary to  make  good  the  damage  or  damaged  property,  amount  of  such  excess  shall  be 
considered  and  returned  as  income  for  year  in  which  received;  if  entire  or  estimated 
amount  of  damage  shall  have  been  previously  charged  off  and  deducted  from  gross 
income,  then  amount  recovered  shall  be  returned  as  income;  if  amount  recovered 
is  less  than  damage  sustained,  or  less  than  amount  necessary  to  make  good  the 
damage,  difference  between  actual  amount  of  damage  sustained  and  amount  re- 
covered will  be  deductible  as  a  loss.     (T.  D.  2690;  art.  94.) 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  uses,  or  prop- 
erty which  has  been  lost  or  destroyed  in  whole  or  in  part  through  war  hazards,  excess 
of  amount  received  by  owner  as  compensation  for  property  over  value  thereof  on 
March  1,  1913,  or  over  ite  cost  if  it  was  acquired  after  that  date,  except  so  far  as 
actually  used  for  replacement  of  property  in  kind,  is  subject  to  income  and  war 
income  taxes.     (T.  D.  2706;  Apr.  25,  1918.) 

• Replacement  fund. 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  uses 
or  lost  or  destroyed  through  war  hazards  may  be  to  use  entire  amount  received  as 
compensation  for  replacement  in  kind  of  such  property,  such  replacement  may  not 
be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case  tax- 
payer may  establish  "replacement  fund,  "  in  which  entire  amount  of  compensation 
shall  be  held,  and  pending  disposition  thereof,  accounting  for  gain  or  loss  may  be 
deferred  for  reasonable  time,  to  be  determined  by  Commissioner  of  Internal  Rev- 
enue.    (T.  D.  2706;  Apr.  25,  1918.) 


INCOME   TAXES    (COKPORATIONS) .  313 

Gross  income — rontimud. 

Damages  recovered — rontimied. 

— —  Replacement  fund — Continued. 

Where  ])iopeity  requisitioned,  lost,  or  damaged  constitutes  all  or  part  of  security 
under  mortj^age  or  trust  indenture,  amount  carried  to  replacement  fund  may,  sub- 
ject to  ap})roval  of  Commissioner,  be  amount  of  compensation  received,  less  amount, 
if  any,  which  becomes  payable  out  of  such  compensation  under  terms  of  such  instru- 
ment or  obligations  thereby  seeiu-ed;  in  such  case  taxpayer  should  a]>ply  to  com- 
missioner for  permission  to  establish  such  fund,  reciting  in  his  application  all  facts 
relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  possible  to 
replace  or  restore  property;  taxpayer  required  to  furnish  bond  with  security  or 
make  deposit;  when  replacement  or  restoration  is  made,  new  or  restored  property 
shall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  that  at  which  the 
requisitioned,  damaged,  or  destroyed  property  was  carried,  except  and  to  extent 
that  such  new  or  restorei-l  proi)erty  has  an  increased  productive  capacity.  (T.  D. 
2706;  Apr.  25,  1918.) 

Forms  of  application  for  permission  to  establish  rei)laeement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733;  June  17,  1918.) 

Only  active  depositaries  of  pul>lic  moneys  and  surety  companies  holding  certifi- 
cates of  authority  from  Secretary  of  Treasury  as  acceptable  sureties  on  Federal  bonds 
•will  be  approved  as  sureties  or  depositaries  under  Schedules  B  and  C  of  Form  1114, 
prescribed  by  T.  D.  2733,  on  application  for  establishment  of  replacement  fund  iu 
case  of  propertv  requisitioned  lor  war  uses  or  lost  or  destroyed  in  whole  or  in  part 
through  war  hazards,  as  permitted  by  T.  D.  2706.     (T.  D.  2755;  Aug.  26,  1918.) 

— —  Definition, 

Gross  income  embraces  not  only  operating  revenues  but  also  income,  gains,  or 
protits  from  all  other  sources,  such  as  rentals,  royalties,  interest,  and  dividends 
from  stock  owned  in  other  corporations;  also  profits  made  in  other  corporations; 
also  profits  made  from  sale  of  assets,  investments,  etc.     (T.  D.  2690;  art.  88.) 

■ Discounts. 

WTiere  banks  or  other  corporations  loan  money  by  discoiuiting  bills  or  notes,  one 
of  two  methods  shall  be  used  in  determining  amount  of  discount  to  be  reported  as 
income,  namely,  (1)  if  bank  or  corporation  makes  practice  of  crediting  discount 
directly  to  "discount  account"  or  to  profit  and  loss,  total  amount  thus  credited 
during  year  shall  be  considered  income,  regardless  of  fact  that  portion  may  repre- 
sent discount  paid  in  advance ;  ( 2 )  if  bank  or  corporation  fol lows  practice  of  crediting 
discount  to  "unearned  discount  account,"  and  later,  as  discount  becomes  earned, 
debits  unearned  account  and  credits  "earned  discount  account"  with  amount  so 
earned,  total  amount  credited  to  "earned  discount  account"  during  year  shall  be 
considered  income.     (T.  D.  2690;  art.  ll-l.) 

Dividends. 

Gross  income  from  sources  within  United  States,  as  applied  to  foreign  corpora- 
tions, includes  income  derived  from  dividends  on  capital  stock  or  from  net  earnings 
of  resident  corporations,  joint-stock  companies  or  associations,  or  insurance  com- 
panies, subject  to  tax  under  Title  I  of  the  act  of  September  8,  1916,  as  amended  by 
the  act  of  October  3,  1917.     (T.  D.  2690;  art.  89.) 

Corporation  must  include  in  income  dividends  on  stock  and  interest  on  bonds  or 
other  interest-bearing  obligations  received  from  other  corporations;  such  dividends 
are,  however,  not  subject  to  war  income  tax  of  4  per  cent.     (T.  D.  2690;  art.  105.) 

Term  "dividends"  held  to  mean  any  distribution  made  or  ordered  to  be  made 
by  a  corporation,  joint-stock  company  or  association,  or  insurance  company,  out  of 
'  its  earnings  or  profits  accrued  since  March  1,  1913,  and  payable  to  its  shareholders 
whether  in  cash  or  in  stock  of  the  corporation,  joint-stock  company  or  association, 
or  insurance  company,  which  stock  dividend  shall  be  considered  income,  to  amount 
of  earnings  or  profits  so  distributed.     (T.  D.  2690;  art.  106.) 

Any  distribution  made  to  shareholders  in  the  year  1917  or  subsequent  years 
(except  any  distribution  of  dividends  made  prior  to  August  6,  1917,  out  of  earnings 
or  profits  accrued  prior  to  Mar.  1,  1913)  shall  be  deemed  to  be  made  from  most 
recently-acciimulated  undivided  or  .surplus  profits,  and  shall  constitute  income  of 
distributee  for  year  in  which  received,  and  shall  be  taxed  at  rates  prescribed  by 
law  for  years  in  which  such  sin-plus  or  profits  were  earned  by  distributing  corpora- 
tions. (T.  D.  2690;  art.  107.)  See  aki  T.  D.  2659,  Feb.  28,"  1918,  and  T;  D.  2734, 
June  7,  1918. 


314  INCOME   TAXES    (CORPORATIONS). 

Gross  income — Conlinued. 

Donations  of  capital  stock. 

Where,  to  enable  corporation  to  secure  working  capital,  or  for  any  other  purpose, 
stockholders  donate  or  return  to  corporation  to  be  resold  by  it,  certain  shares  of  stock 
of  company  previously  issued  to  them,  resale  will  be  considered  a  capital  transac- 
tion and  proceeds  will  be  treated  as  capital  and  will  not  constitute  income  to  the 
corporation.     (T.  I).  2690;  art.  99.) 

Excess  value. 

Where  corporation  acquires  property  prior  to  March  1, 1913,  for  mere  nominal  sum 
and  which  had,  as  of  March  1,  1913,  a  ^■alue  greatly  in  excess  of  such  sura,  careful 
estimate  of  fair  market  A'alue  as  of  March  1,  1913,  may  be  set  up  as  capital  invested, 
.  and  if  property  is  thereafter  disposed  of  at  price  in  excess  of  such  market  value,  ex- 
cess will  be  treated  as  income  to  be  accounted  for  in  return  of  annual  net  income  of 
year  in  which  property  is  sold;  value  so  fixed  subject  to  approval  of  Commissioner 
of  Internal  Revenue;  where  property  was  acquired  subsequejit  to  March  1,  1913, 
amount  for  which  later  sold  or  disposed  of  in  excess  of  cost  price  Avill  constitute  iu- 
com.e  for  year  in  which  property  was  disposed  of.     (T.  D.  2690;  art.  112.) 

— —  Exchange  of  property  for  stock. 

Where  property  was  taken  over  in  exchange  for  capital  stock  at  par  \alue  in  excess 
of  fair  market  value  of  property,  and  such  property  later  sold,  necessary  to  ascertain 
as  nearly  as  possible  fair  market  value  of  property  at  time  taken  over  as  of  March  1 , 
1913,  if  acquired  before  that  date,  and  any  excess  over  this  ascertained  fair  market 
value  will  be  held  to  be  profit  or  income  for  vear  in  which  sale  was  made.  (T.  D, 
2690;   art.  111.) 

■ Exchange  of  stock. 

Wliere  corporation  acquires  from  stockholders  stock  of  another  corporation,  giving 
in  exchange  therefor  its  own  stock,  transaction  is  one  by  which  corporation  acquiring 
stock  becomes  sole  stockholder  of  other  corporation,  and  no  income  accrues  to  cor- 
poration whose  stock  is  thus  acquired;  neither  will  any  income  accrue  to  this  cor- 
poration if  later  the  holding  corporation  should  cause  assets  of  underl>T.ng  company 
to  be  transferred  to  it  for  mere  nominal  consideration.     (T.  D.  2690;  art.  124.) 

■ — —  Farming  corporations. 

Corporations  engaged  in  operating  plantations,  ranches,  stock  farms,  poultry  farms, 
and  lands  used  for  raising  fruit,  truck,  etc.,  including  orchards  of  all  kinds,  shall 
make  their  returns  on  the  basis  of  the  products  actually  marketed  and  sold  during 
the  year,  whether  such  products  were  produced  or  purchased,  and  resold.  (T.  D. 
2690;  art.  123.     See  T.  D.  2665;  -Mar.  8,  1918.) 

• Installment  sales  of  property. 

Where  corporation  sells  property  on  installment  plan,  title  passing  at  time  of  sale, 
gain  to  be  returned  as  income  for  year  in  which  sale  was  made,  will  be  excess  of  con- 
tract price  over  fair  market  price  or  value  as  of  March  1,  1913,  if  property  was  ac- 
quired prior  to  that  date,  or  of  contract  price  over  cost  if  acquired  subsequent  to  that 
date.     (T.  D.  2690;  art.  116.) 

Corporation  selling  merchandise  in  installment  basis,  title  passing  to  vendee  at 
time  of  sale,  will  treat  such  contracts  as  accounts  receivable  and  as  sales  during  the 
year  at  their  face  value,  accounting  for  as  income  the  difference  between  the  cost  and 
sales  price.     (T.  D.  2390;   art.  120.) 

In  all  cases  where  inventories  are  taken  for  purpose  of  ascertaining  gain  or  loss  re- 
sulting from  business  of  the  year,  inventories  must  be  taken  in  accordance  with  in- 
srructions  to  be  included  in  special  regulations  furnished  upon  application  to  col- 
lector of  internal  revenue.     (T.  D.  2690;  art.  120.) 

In  sale  or  contract  for  sale  of  personal  property  on  installment  plan,  whether  or  not 
title  remains  in  vendor  until  property  is  fully  paid  for,  income  to  be  returned  by 
vendor  will  be  that  proportion  of  each  installment  which  gross  profit  to  be  realized 
when  property  is  paid  for  bears  to  gross  contract  price;  if,  for  any  reason,  vendee 
defaults  and  vendor  repossesses  property,  entire  amount  received  on  installment 
pajTnents,  less  profit  originally  rfeturned,  will  be  income  to  vendor  to  be  so  returned, 
for  year  in  wliich  property  was  repossessed.     (T.  D.  2707;   Apr.  25,  1918.) 

" Insurance  companies. 

Gross  income  consists  of  total  revenue  derived  from  operation  of  business,  in- 
cluding income,  gains,  or  profits  from  all  other  sources  within  calendar  year  for  which 
return  is  made,  except  as  modified  by  special  provisions  of  law  which  apply  to  in- 


INCOME   TAXES    ( GORP-OKATIONS ) .  315 

Gross  income — Continued. 

Insurance  companies — Continued. 

surance  oompanics;  gross  income  will  include  not  premiums,  in\08tmeut  income, 
income  from  sale  of  capital  assets,  all  gains,  profits,  and  income  as  reported  to  State 
insurance  departments,  except  items  specifically  exempted  in  the  act  as  construed 
by  Regulations  No.  33.     (T.  D.  2690;  art.  239.) 

All  policy  premiums,  on  which  net  addition  to  reserve  is  computed,  must  be  in- 
cluded in  gross  income  of  insurance  companies  other  than  mutuals,  Vjut  including 
mutual  life  and  mutual  marine;  net  addition  may  be  based  upon  highest  authorized 
reserve  by  statutes  of  any  .State  in  which  company  does  business;  when  reserve  at 
end  of  year  is  less  than  at  beginning,  there  is  a  "released  reserve,"  and  amount  so 
relea-ed  must  be  included  in  gross  income;  in  case  of  as.se.ssment  insurance  com- 
panies, whether  domestic  or  foreign,  actual  deposits  of  sums  with  State  or  Terri- 
torial o'Hccrs,  pursuant  to  law,  as  additions  to  guaranty  or  reserve  funds,  shall  be 
treated  as  being  payments  required  by  law  to  reserve  funds;  in  case  of  life  insurance 
companies  net  addition  to  "reinsurance  reserve"  and  "reserve  for  supplementary 
contracts, ' '  and  in  case  of  fire,  marine,  accident,  liability,  and  other  insurance  com- 
panies, net  addition  to  "unearned-premium  reserves,"  and  only  such  other  reserves 
as  are  specificallv  required  by  State  statutes  will  be  allowed  as  deductions.  (T.  D. 
2690;  art.  240.)  " 

Life  insurance  companies  may  exclude  from  gross  income  any  part  of  premiums 
received  which  is  paid  back  to  individual  policyholder  within  same  return  year; 
where  dividend  is  in  excess  of  premium  received,  there  can  be  excluded  only 
amount  of  premium  received  from  such  individual  policy  holder  within  same  return 
year.     (T.  D.  2G90;  art.  241.) 

Di vends  provisionally  ascertained,  apportioned,  or  credited  on  deferred  dividend 
policies  can  not  be  excluded  or  deducted  for  reason  that  assured  has  no  vested  or 
enforceable  right  in  them  and  cannot,  at  time  of  ascertainment,  apportionment  or 
credit,  nor  until  maturity  of  policy,  avail  himself  of  such  dividends;  and  in  event 
of  death  of  assured  prior  to  expiration  of  deferi'ed  dixddend  payment,  amount  so 
ascertained,  apportioned,  or  credited,  lapses.     (T.  D.  2690;   art.  241.) 

Life  insurance  companies  may  omit  from  gross  income  such  portion  of  any  actual 
premium  received  from  any  individual  policyholder  as  shall  have  been  paid  back  or 
credited  to  policyholder  or  treated  as  an  abatement  of  his  premium;  amoimt  au- 
thorized to  be  excluded  from  gross  premium  income  on  account  of  any  premium  re- 
funded to  individual  policyholder  is  explicitly  limited  to  an  amount  not  in  excess 
of  actual  premium  paid  by  individual  policvholder  within  tax  vear.  (T.  D.  2690; 
art.  241.) 

Gross  income  of  life  insurance  companies  should  include  surrender  values  applied 
in  any  manner,  consideration  for  supplementary  contracts  involving  life  contingen- 
cies, and  all  other  income,  gains,  ox  profits;  applied  surrender  values  and  considera- 
tion for  supplementary  contract,  not  invohing  life  contingencies  included  in  in- 
come will  be  deducted  as  payments  under  policy  contracts;  but  for  conA^enienc  in 
verifying  returns  these  items  should  appear  in  return  in  both  gross  income  and  de- 
ductions.    (T.  D.  2690;  art.  241.) 

Gross  income  consists  of  total  re\'enue  derived  from  operation  of  business,  but 
excluding  all  income  received  from  premiums,  assessments,  fees,  and  other  amounts 
paid  by  policjdiolders  necessary  to  secure  or  continue  policies  in  force;  where  por- 
tion of  funds  thus  received  is  retained  or  finally  used  for  any  purpose  other  than 
payment  of  losses,  expenses,  or  reinsurance  reserves,  such  portion  is  taxable  and 
must  be  returned  as  income.     (T.  D.  2690;  art.  242.) 

It  is  of  the  essence  of  mutual  insurance  that  excess  in  premium  over  actual  cost 
as  later  ascertained  shall  be  returned  to  the  policyholder.  (T.  D.  3046;  July  19, 
1920.     Ct.  Dec.) 

Section  II  G  (b)  of  the  act  of  October  3,  1913.  excludes  from  gross  income  those 
premium  receipts  which  are  actually  or  in  effect  paid  bv  applving  dividends.  (T. 
D.  3046;  July  19,  1920.     Ct.  Dec.) 

Congress  used  the  words  "shall  not  include"  (Sec.  11  G  (b).  act  October  3,  1913), 
as  applied  to  the  annually  ascertained  overpayments  of  premium  paid  back  or 
credited  to  the  policyholder  because  it  eliminated  them  from  the  aggregate  of 
taxable  premiums  as  being  the  equivalent  of  abatement  of  premiums.  (T.  D. 
3046;  July  19,  1920.     Ct.  Dec.) 

The  noninclusion  clause  in  Section  II  G  (b)  of  act  of  October  3,  1913.  was  framed 
to  define  what  amounts  involved  in  dividends  slioidd  be  "nonincluded"  or  de- 
ducted, and  thus  to  prevent  any  controversy^  arising  over  the  questions  which  had 
been  raised  under  the  act  of  August  5,  1909.     (T.  D.  3046;  July  19,  1920.     Ct.  Dec.) 


316  INCOME   TAXES    ( COEPOKATIONS ) . 

Gross  inccnae — Continued. 

Insurance  companies — Continued. 

Congress  has  acted  with  entire  consistency  in  laying  down  the  rule  by  which  in 
corn])uting  gross  earnings  certain  amounts  only  are  excluded.  The  principle  ap- 
plied is  that  of  basing  the  taxation  on  receipts  of  net  premiums,  instead  of  on  gross 
premiums.  The  amount  equal  to  the  aggregate  of  certain  dividends  is  excluded, 
although  they  are  dividends,  because  by  reason  of  their  application  the  net  pre- 
mium receipts  of  the  tax  year  are  to  that  extent  less.  (T.  D.  3046;  July  19,  1920. 
Ct.  Dec.) 

Fraternal  life  insurance  has  been  exempted  from  all  income  taxation  because, 
as  originally  devised,  it  had  in  it  only  the  element  of  protection.  The  premiums 
paid  bv  the  member  were  supposed  to  be  sufficient,  and  onlv  sufficient,  to  pay  the 
losses  which  fell  within  tlie  current  year.     (T.  D.  3046;  July  19,  1920.     Ct.  Dec.) 

The  dividend  of  a  life  insurance  company  is  made  possible  because  the  amounts 
paid  in  as  premium  have  earned  more  than  it  was  assumed  that  they  would  when 
the  policy  contract  was  made,  or  because  the  expense  of  conducting  the  business 
was  less  than  it  was  then  assumed  it  would  be,  or  because  the  mortality — that  is, 
the  deaths  in  the  class  to  which  the  policyholder  belongs — proved  to  be  lees  than 
had  been  assumed  in  fixing  the  premium  rate.     (T.  D.  3046;  July  19, 1920.    Ct.  Dec.) 

After  a  policy  is  paid  up  the  element  of  investment  predominates  and  Congress 
might  reasonably  regard  the  dividends  substantiallv  as  })rofit  on  the  investment. 
(T.'  D.  3046;  July  19,  1920.     Ct.  Dec.) 

In  the  cas3  of  a  deferred  dividend  policy  the  <livideud  represents  in  part  what 
clearly  could  not  be  regarded  as  a  repayment  of  excess  premium  of  the  policy- 
holder receiving  the  dividend,  for  the  "share  of  the  forfeiture"  which  he  receives 
is  the  shire  of  the  redundancy  in  premium  of  other  policyholders  who  did  not  per- 
sist in  premium  payments  to  the  end  of  the  contract  period.  (T.  D.  3046;  July  19, 
1920.     Ct.  Dec.) 

Congress  exempted  certain  cooperative  enterprises  from  all  income  taxation,  but, 
with  the  exception  of  fraternal  beneficiary  societies,  it  imposed  in  express  terms 
such  taxation  upon  "every  insurance  company."  (T.  D.  3046;  July  19,  1920. 
Ct.  Dec.) 

The  participating  policies  commonly  issued  by  stock  life  insurance  companies 
arc.  both  in  rights  conferred  and  in  financial  results,  substantially  the  same  as  the 
policies  issued  by  purely  mutual  life  insurance  companies.  (T.  D.  3046;  July  19, 
1920.     Ct.  Dec.) 

Under  paragraph  G.  subdivision  (b).  Ssction  II.  act  of  October  3,  1913,  life  in- 
surance company  is  not  entitled  to  exclude  from  total  income  during:  taxable  year, 
for  purpose  of  ascertaining  gross  income,  any  dividends  paid  or  credited  to  policy- 
holders from  whom  it  did  not  receive  any  premium  during  that  year;  as  to  policy- 
holders from  whom  it  did  receive  premiums  it  is  entitled  to  exclude  only  such  part 
of  dividends  paid  as  did  not  exceed  amount  received  from  them,  respectively,  by 
way  of  premiums  during  that  year.     (T.  D.  2899;  July  24,  1919.     Ct.  Dec.) 

The  premium  receipts  of  "every  insurance  company"  by  whatever  name  they 
are  railed  are,  unless  specifically  exempted  by  the  terms  of  the  taxing  statutes  in 
question,  a  part  of  such  company's  gross  income.     (T.  D.  3078;  Oct.  13,  1920,  Ct.  Dec.) 

Premium  depo.sits  made  in  advance  by  members  of  a  mutual  insurance  company 
to  cover  estimated  losses  and  expenses  are,  so  long  as  the  ])ayment  thereof  consti- 
tutes the  consideration  for  contract  of  insurance,  insurance  premiums  constituting 
gross  income  of  the  company.     (T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

Moneys  received  by  way  of  interest  upon  bank  balances  and  from  investment  of 
surh  portion  of  premium  deposits  as  are  not  currently  required  for  the  payment  of 
losses  and  expenses  are  profits  earned  by  an  insui'ance  comj^any  subject  to  tax. 
(T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

• Foreign  companies. 

Insurance  companies  organized,  authorized,  or  existing  under  laws  of  any  foreign 
Government  shall  report  as  gross  income  gross  amount  received  within  year  from  all 
sources  within  United  States  or  its  possessions;  income  from  business  transacted  by 
United  States  branch  or  agency  of  foreign  company  which  relates  to  foreign  country, 
must  be  returned  as  gross  income;  otherwise  articles  of  Regulations  No.  33,  applicable 
to  insurance  companies  in  general,  will  be  followed  as  to  income  and  deductions; 
companies  not  transacting  insurance  business  in  United  States  or  its  possessions,  but 
receiving  income  from  investments  therein,  must  make  returns  of  such  income,  de- 
ducting therefrom  amount  of  such  income  Avithheld  at  source.  (T.  D.  2690;  art. 
244.) 


INCOME    TAXES    ( COEPOEATIONS)  .  317 

Gross  income — rontinucd. 
• Interest. 

Gross  income  from  sourcos  within  United  States,  as  apj^lied  to  foreign  corpora- 
tions, includes  interest  received  on  bonds,  notes,  or  other  interest-bearing  obliga- 
tions of  residents,  corporate  or  otherwise.     (T.  D.  2690;  art.  89.) 

Interest  received  on  all  United  States  bonds  and  certificates  exemjit  from  normal 
income  tax  need  not  be  included  in  gross  income  in  return  made  for  purpose  of  the 
2  per  cent  tax  or  the  4  per  cent  tax,  but  interest  on  bonds  and  certificates  issued 
under  the  act  of  September  2-t,  1917,  in  excess  of  interest  on  .§.5,000  aggregate  prin- 
cipal amount  of  such  bonds  and  certificates  must  be  included  in  net  income  u])oii 
whicli  war  excess-profits  tax  is  computed.     (T.  D.  2690;  art.  100.) 

Corporation  must  include  in  income  dividends  on  stock  and  interest  on  bonds  or 
other  interest-bearing  obligations  received  from  other  corporations;  such  dividends 
are,  howe\er,  not  subject  to  war  income  tax  of  4  per  cent.     (T.  D.  2(i90;  art.  105.) 

Interest  received  on  bonds  lield,  whether  guaranteed  to  be  tax-free  or  not,  must 
be  incluled  in  income  and  must  be  accounted  for  in  return  of  annual  net  income; 
matter  ot  (•om{)lying  with  covenant  of  bond  is  matter  to  be  adjusted  between  debtor 
corporation  and"  the  bondholder.     (T.  D.  2690;  art.  122.) 

- —  Leased  properties. 

Fact  that  corporation  has  conveyed  or  let  its  property  will  not  relieve  it  from 
liability  to  tax;  if  it  has  or  may  have  income  directly  of  indirectly  from  any  source 
it  must  make  return,  account  for  all  such  income,  and  pay  tax  assessable  thereon. 
(T.  D.  2690;  art.  102.) 

Where  corporation  leases  property  in  consideration  that  lessee  pay  in  lieu  of 
rental  an  amount  efjuivalent  to  certain  rate  of  dividend  on  capital  stock  or  interest 
on  outstanding  indebtedness,  togerher  with  fixed  charges,  such  payments  shall  be 
considered  rental  payments  and  shall  be  returned  by  the  lessor  corporation  as 
income,  notwithstanding  fact  that  dividend  and  interest  are  paid  by  lessee  direct 
to  stockholders  and  bondholders  of  lessor.     (T.  D.  2690;  art.  102.) 

Manufacturing  corporations. 

Ciross  income  for  purposes  of  returns  of  manufacturing  companies  shall  consist  of 
total  sales  plus  inventory  at  end  of  year,  less  sum  of  cost  of  goods  or  materials  pur- 
chased during  year  and  inventory  at  beginning  of  year;  to  gross  manufacturing 
income  should  be  added  the  income,  including  dividends,  received  from  other 
corporations  and  gains  or  profits  from  all  sources.     (T.  D.  2690;  art.  91.) 

• Mercantile  corporations. 

Gross  income  of  mercantile  companies,  for  purpose  of  returns,  shall  consist  of  total 
sales  plus  inventory  at  end  of  year,  less  sum  of  cost  of  goods  purchased  during  year 
and  inventory  at  beginning  of  year;  to  amoun*.  of  income  thus  ascertained  should 
be  added  the  income,  gains,  or  profits  derived  from  all  other  sources;  all  sales  made 
during  year,  whether  compensated  far  by  accounts  receivable,  bills  receivable, 
cash,  or  other  property  at  a  determined  cash  value,  must  be  included  in  gross  income 
of  year  in  which  sales  were  made.  (T.  D.  2690;  art.  92.)  Modified  by  T.  D.  2649 
and  T.  D.  2744,  so  that  returns  may  be  made  on  basis  of  inventories  taken  at  cost 
or  market  value,  whichever  is  lower. 

Miscellaneous  corporations. 

(Jross  income  of  miscellaneous  corporations  consists  of  total  revenue  derived 
from  operation  and  management  of  business  and  property  of  corporation  making  re- 
turn, together  with  all  amounts  of  income,  including  the  income,  gains  or  profits 
from  all  other  sources,  including  dividends  received.     (T.  D.  2690;  art. 93.) 

Operating  corporation  controlled  by  stock  ownership. 

If  leased  or  purchased  line  keeps  separate  books  of  account,  or  income  is  or  can 
be  segregated,  or  if  lessee  or  operating  company  pays  it  a  certain  rental,  or  in  lieu  of 
rental  pays  certain  per  cent  of  diA-idends  on  its  stock,  interest  on  its  bonds,  taxes, 
etc.,  lessor  will  return  same  as  its  income,  and  lessee  or  operating  company  will 
make  its  return  as  though  it  were  in  no  way  related  to  leased  line.  (T.  D.'2690; 
art.  125.) 

Railroad  company  operating  leased  or  purchased  lines  as  integral  part  of  its  line 
or  system,  and  keeping  no  separate  books  of  account  as  to  such  leased  or  purchased 
line,  income  from  operation  of  which  can  not  be  segregated,  shall  include  in  its  in- 
come all  receipts  derived  therefrom.  (T.  I).  2690;  art.  125.)  See  T.  1).  2662;  Mar. 
6,  1918. 


318  INCOME   TAXES    (COEPORA.TIONS). 

Gross  income — Conlinued. 

Orchard  development  expenses. 

Amouuts  expended  in  development  of  orchards  prior  to  time  when  productive 
stage  is  reached,  constitute  investments  oi  capital.     (T.  D.  2690;  art.  4.) 

Patents — Sales. 

Corporation  disposing  of  patents  by  sale  should  determine  profit  or  loss  arising 
therefrom  by  computing  difference  between  selling  price  and  the  cost  or  value  as 
of  March  1,1913,  if  acquired  before  that  date;  apparent  profit  or  loss  should  be 
increased  or  decreased,  as  case  may  be,  by  amounts  deducted  since  Ma.rch  1,  1913, 
as  return  of  capital  invested  in  such  patents.     (T.  D.  2G9G;  art.  109.) 

Purchase  of  assets  of  other  corporation. 

Where  one  csrporation  buys  assets  of  another  and  issues  direct  to  selling  com- 
pany its  own  capital  stock  in  payment  for  such  assets,  transaction  will  be  treated 
bys:'llingcompany  assaleof  its  assets,  and  question  as  to  whether  profit  or  loss  results 
Avill  depend  on  whether  or  not  value  of  stock  taken  in  payment  is  in  excess  of  fair 
market  price  or  value  as  of  March  1,  1913,  of  assets  sold,  or  of  their  cost  accordingly 
as  they  were  acquired  by  the  selling  company  prior  or  subsequent  to  that  date;  if 
^"alue  of  stock  is  so  in  excess,  amount  of  excess  will  be  taxable  income  for  year  in 
YN'hich  assets  were  sold;  if  purchasing  carporation  takes  over  all  assets  and  assumes 
liabilities,  amount  so  assumed  will  be  considered  payment  of  purchase  price,  and 
to  extent  that  entire  price  exceeds  cost  or  value,  as  of  March  1,  1913,  as  case  may  1)0, 
of  assets,  income  will  accrue  to  selling  company.     (T.  D.  2G90;  art.  124.) 

Records. 

True  and  accurate  record  of  all  income  received,  as  well  as  ail  disbm-sementy  or 
charges  against  income,  should  be  kept,  in  order  that  it  may  be  identified  and 
verified  by  the  internal-revenue  officer,  if  an  examination  of  the  books  should  be 
deemed  advisable.     (T.  D.  2G90;  art.  88.) 

B-eaitals. 

Gross  income  from  sources  within  United  States,  as  applied  to  foreign  corpora- 
tions, includes  income  from  rentals.     (T.  D.  2690;  art.  89.) 

Royalties. 

Gross  income  from  sources  mthin  United  States,  as  applied  to  foreign  corpora- 
tions, includes  income  from  royalties  from  business  transacted  or  capital  iuA-ested 
in  the  United  States.     (T.  D.  2690;  art.  89.) 

Royalties  received  in  accordance  with  contract  by  which  corporation  has  assigned 
patent  rights  to  manufacture  machines,  etc.,  are  income  and  should  be  so  accounted 
for.     (T.  D.2690;  art.  113.) 

Sale  of  capital  assets,  etc. 

Provision  of  section  10  of  Title  II  of  the  act  of  September  8,  191G,  as  amended  by 
act  of  October  3,  1917,  contemplates  that  all  gain  realized  and  ascertained  as  pro- 
vided in  such  section,  in  cash  or  its  equivalent,  upon  sale  or  disposition  of  capital 
assets,  shall  be  returned  as  gross  income;  in  case  of  property  acquii'ed  subsequent 
to  March  1,  1913,  and  later  sold  or  disposed  of,  difference  between  cost  and  selling 
price  vnll  be  returned  as  income  for  vear  in  which  sale  is  made.  (T.  D.  2690;  art. 
IIG.) 

Where  corporation  sells  property  on  installment  plan,  title  passing  at  time  of  sale, 
gain  to  1>e  returned  as  income  for  year  in  which  sale  was  made,  will  be  excess  of  con- 
tract price  over  fair  market  price  or  value  as  of  March  1,  1913,  if  ])roperty  was  ac- 
quired prior  to  that  date,  or  of  contract  price  over  cost  if  acquired  subsequent  to 
that  date.     (T.  D.  2690;  art.  116.) 

Vvherc  corporation  sells  its  capital  assets  in  whole  or  in  part,  it  will  include  in  its 
gross  income  for  year  in  which  sale  was  made  an  amount  equivalent  to  excess  of  sales 
price  over  fair  market  price  or  value  of  such  assgts  as  of  March  1,  1913,  if  acquired 
prior  to  that  date,  or  over  cost  if  acquired  subsequent  to  that  date;  if  purchase  price 
is  paid  with  stock  issued  by  purchasing  company,  purchase  price  will  be  the 
actual  value  at  time  of  the  stock  issued  in  paj^ment  of  such  assets.  (T.  D.  2690; 
art.  tOI.) 

In  determining  profits  realized  or  loss  sustained  upon  sale  of  capital  assets  by  one 
corporation  to  another,  payment  therefor  being  made  in  stocks  or  bonds  of  pur- 
chaser, profit  or  loss,  as  case  may  be,  from  such  sale  will  be  ascei'taiued  upon  basis 
of    difference    between    cost    of    such    assets  to   the  seller  in  case  they   were 


INCOME   TAXES    (OOEPOKATIONS).  319 

Gross  income — Continued. 

Sale  of  capital  assets,  etc. — Continued. 

acquired  subsequent  to  March  1,  1913,  or  fair  market  value  as  of  Marcli  1,  ini;{,  if 
ac(}uired  prior  to  that  date,  and  fair  cash  value  of  stock  or  bonds  at  time  sale  was 
made.     (T.  D.  2G90;  art.  118.) 

Proceeds  from  sale  of  capital  stock,  whether  in  excess  of  or  less  than  par  value 
of  stock  subscribed  for  and  issued,  constitute  capital  of  the  company;  if  stock  is 
.■-■old  at  premium,  premium  is  not  income;  if  sold  at  discount,  amount  of  discount 
is  not  a  loss  deductible  from  operatin?^  income.     (T.  D.  2690;  art.  97.) 

Stock  trust  certificates. 

Stock  trust  certificates  or  leased  line  certificates,  as  case  may  be,  issued  by  lessee 
for  purpose  of  securing  or  holding  control  of  stock  of  lessor  ai-e  held  to  be  issuofl  in 
lieu  of  certificates  of  capital  stock,  and  they  will  be  treated  as  capital  stock  and 
amounts  received  by  holders  are  dividends  lo  them,  to  be  treated  as  rentals  ))y 
both  lessee  and  lessor  and  constitute  allowable  deduction  in  one  case  and  item  of 
income  in  other,  accordingly  as  they  are  paid  and  received.     (T.  D.  2690;  art.  104.) 

— —  Stockholders'  sale  of  rights. 

Where  corporations,  desiring  to  secure  additional  capital,  propose  (o  issue  and 
sell  further  shares  of  stock,  reserving  to  stockholders  right  to  subscribe  for  a  certain 
luimber  of  shares  of  the  new  stock  issue,  proportioned  to  number  previously  held, 
and  such  stockholders  shall  sell  their  rights,  it  will  be  held  that  proceeds  of  such 
sale  are  in  their  entirety  income  for  y^ar  in  which  rights  arc  sold,  and  shall  be  so 
returned  by  the  stockliolders,  whether  they  be  individuals  or  corporations.  (T.  D. 
2690;  art.  95.) 

Subsidiary  companios. 

Where  holding  company  actually  takes  up  each  month  on  its  books  and  credits 
purplus  and  profit  and  loss  with  its  proportionate  share  of  earnings  of  underlying 
companies,  hokling  company  required  to  include  in  gross  income  amounts  thus 
taken  up,  regardless  of  fact  that  same  may  not  have  been  paid  to  or  received  by  it 
in  cash;  fact  that  underlying  companies  credit  holding  company  with  amount 
of  earnings  to  which  it  is  entitled  on  basis  of  stock  it  holds,  together  with  fact-  that 
holding  company  takes  up  on  its  books  amount  thus  credited,  renders  it  incum- 
bent upon  holding  company  to  return  these  amounts  as  income.  (T.  D.  2690;  art. 
115.) 

Where!  subsidiary  or  other  corporation  sells  or  transfers  assets  to  parent  or  other 
corporation,  accepting  in  exchange  therefor  stock  or  bonds  of  purchasing  corpora- 
tion, question  of  gain  or  loss  will  be  detennined  upon  basis  of  difference  between 
cost  or  market  value  of  assets  sold  and  actual  value  of  stock  or  bonds  given  in  ex- 
change therefor;  any  gain  or  loss  thus  ascertained  as  resulting  fi'om  such  transaction 
will  be  added  to  or  deducted  from  entire  gross  income,  as  case  may  be,  of  selling 
corporation  in  year  in  v/hich  capital  assets  were  sold.     (T.  D.  2690;  art.  119.) 

Where  one  corporation  operating  for  itself  is  controlled  by  another  through  the 
OAvnership  of  a  majority  or  all  of  its  stock,  controlling  corporation  is  merely  a  stock- 
liolder,  and  subsidiary  company  must  make  separate  and  distinct  return,  account- 
ing for  all  income  received  during  each  taxable  year,  and  holding  company  will 
return  as  income  any  dividends  or  earnings  received  from  operating  companv. 
(T.  D.  2690;  art.  125.'   See  T.  D.  2662;  Mar.  6,  1918.) 

Where  coq>oration  is  owner  of  all  stock  in  subsiduary  company  and  the  lessee 
of  all  its  property,  regularly  maintainmg  possession,  contJrol,  and  management  oi  all 
the  subsidiary's  money  and  other  property,  so  that  the  subsidiary  is  a  mere  agent 
of  the  other  (;orporation  and  is  practically  merged  therewith,  dividends  of  the  sul)- 
sidiary  declared  out  of  a  surplus  which  acci'ued  prior  to  March  1,  1913,  arc  not 
taxable  income  of  the  parent  corporation.     (T.  D.  2730;  June  11,  1918.     Ct.  Dec.) 

Wnere  a  holding  conip.iuy  owns  all  of  the  stock  of  its  subsidiary  corporations, 
•except  the  qualifjing  shares  of  the  directors,  and  the  su})sidiary  corporations, 
together  with  the  holding  company,  constitute  a  single  enterprise,  the  accumulated 
earnings  and  surplus  of  the  subsidiary  corporations  used  by  them  as  capital  prior  to 
Januarv  1,  19i;),  do  not  l>ecome  taxable  income  of  the  holding  companv  when  for- 
mally transferred  to  itas dividends;  T.  D.  2542  reversed.     (T.  1).  2783;  Jan.  7, 1919.) 

Tre.asTiry  stock. 

Where  treasury  stock,  defined  to  mean  stock  which  had  been  previously  issued 
by  corporation,  and  which  had  been  repossessed  by  it  through  purchase  or  other- 


320  INCOME  TAXES  (  COEPOEATIONS) . 

Gross  income — Continued. 
. Treasury  stock — Continued. 

wise,  and  then  carried  on  its  books  as  an  asset,  is  resold  at  a  price  in  excess  of  its 
cost  upon  repossession,  such  excess  shall  be  returned  as  income  for  year  in  which 
resold;  unissued  stock  retained  by  corporation  for  future  sale  will  not  be  consid- 
ered treasury  stock,  and  when  sold,  no  part  of  proceeds  will  be  considered  taxable 
income.     (T.  D.  2690;  art.  98.) 

Voluntary  payments  by  stockholders. 

Wliere  corporation  requires  additional  funds  to  conduct  business  and  obtains 
same  through  voluntary  pro  rata  payments  by  stockholders,  and  such  amounts  are 
credited  to  surplus  account  or  to  special  capital  accoimt,  the  amount  so  received 
will  not  be  considered  income,  although,  as  representing  this  additional  fund,  there 
is  no  increase  in  outstanding  shares  of  stock  or  liability  of  corporation;  payments 
will  be  treated  as  an  addition  to  and  as  part  of  operating  capital.  (T.  D.  2(590; 
art.  96.) 

Warrants  of  city,  etc. 

In  cases  wherein  warrants  are  issued  by  a  city  or  other  political  subdivision  of  a 
State  and  are  accepted  by  contractor  in  payment  for  public  work  done,  face  value 
of  such  warrants  must  be  returned  as  income  for  year  in  which  they  are  received; 
if  contractor  does  not  receive  and  cannot  recover  full  face  value  of  such  warrants  he 
may  deduct  from  gross  income  for  year  in  which  w'arrants  are  converted  into  cash 
any  loss  sustained,  which  loss  will  be  measured  by  difference  between  face  value 
of  warrants  returned  as  income  and  amount  actually  received  for  them  in  cash  or 
its  equivalent.     (T.  D.  2690;  art.  108.) 

Imposition  of  tax. 

Under  Parts  II  and  III  of  Title  I  of  the  act  of  September  8,  1916,  as  amended, 
every  corporation,  joint-stock  company  or  association,  or  insurance  company 
organized  in  the  United  States,  no  matter  how  created  or  organized,  except  those 
specifically  exempt  under  section  11  of  such  Title,  shall  be  subject  to  pay  annually 
an  income  tax  of  2  per  cent  upon  the  entire  net  income  received  during  the  preced- 
ing calendar  or  fiscal  year,  as  the  case  may  be.     (T.  D.  2690;  art.  55.) 

— —  Additional  tax. 

Net  income  of  corporations  remaining  imdistributed  for  six  months  after  close  of 
calendar  year  may  be  subject  to  additional  tax.     (T,  D.  2690;  art.  3.) 

Under  Title  I,  of  the  act  of  October  3,  1917,  additional  tax  of  4  per  cent  known  as 
war  income  tax,  is  imposed  on  net  income  of  every  corporation,  joint-stock  com- 
pany or  association,  or  insurance  company  organized  in  the  United  States,  except 
that  for  purpose  of  assessment  of  additional  4  per  cent  tax  net  income  of  such  cor- 
porations shall  be  credited  with  amount  of  dividends  received  from  other  corpora- 
tions subject  to  tax  imder  Title  1  of  the  act  of  September  8, 1916,  as  amended,  and  the 
act  of  October  3,  1917.     (T.  D.  2690;  art.  56.) 

• Associations. 

Organization  under  constitution  of  Avhich  individuals  who  are  beneficially  inter- 
ested in  various  proportions  in  same  property  and  hold  assignable  certificates  rep- 
resenting their  different  interests  therein,  but  who  can  claim  no  part  of  income  of  prop- 
erty as  their  income  as  distinguished  from  income  of  organization,  commit  control 
and  management  of  such  property  for  profit  to  trust'^es  free  -from  their  own  inmie- 
diate  control  or  interference,  except  that  they  may  net  by  majority  in  amount  and 
interest  for  purpose  of  allowing  extra  compensation  to  trustees,  filling  vacancies  in 
ofiice  of  trustees  or  modifying  terms  of  declaration  of  trust,  is  an  '"association"  and 
taxable  as  such  under  Section  IJ  G  (a)  of  the  act  of  October  3,  1913.  (T.  D.  2720; 
June  4,  1918.) 

Dissolved  corporation. 

Corporation  which  was  dissolved  in  1917  prior  to  passage  of  act  of  October  3,  1917, 
is  subject  to  tax  vmder  act  of  September  8, 1916,  as  amended,  and  also  to  war  income 
tax  and  war  excess-profits  tax  imposed  by  act  of  October  3,  1917.  (T.  1).  2690; 
art.  61.) 

— —  Exports. 

The  net  income  from  the  venture  of  exportation  when  completed,  that  is  to  eay, 
after  the  exportation  and  sale  are  actuallv  consummated,  is  subject  to  taxation  under 
the  general  laws.     (T.  D.  2726;  June  4,  1918.) 


INCOME   TAXES    (CORPOEATIONS) .  321 

Imposition  of  tax — Conlinuod. 

Exports — Continued. 

Income  tax  imposed  by  the  act  of  October  3,  1913,  is  not  laid  on  articles  in  course 
of  exportation  or  on  anythinj^  which  inherently  or  Vjy  the  usages  of  commerce  ia 
embraced  in  exportation  or  any  of  its  processes,  but  on  the  contrary  is  a  general 
tax.     (T.  D.  2726;  June  4,  1918.) 

Insurance  companies. 

Ujider  Title  I  of  the  act  of  October  3,  1917,  tax  of  4  per  cent  In  addition  to  tax  of 
2  per  cent  is  imposed  upon  net  incomes  of  foreign  ancl  domestic  corporations  oper- 
ating in  the  United  States  (with  exception  of  Porto  Rico  and  Philippine  Islands), 
determined  in  accordance  with  conditions  prescribed  in  act  of  September  8,  1916, 
except  that  dividends  received  from  other  corporations  subject  to  income  tax  are 
not  subject  to  4  per  cent  war  income  tax.     (T.  D.  2G90;  art.  239.) 

Normal  tax. 

Normal  tax  under  act  of  1916  is  2  per  cent  of  net  income  from  all  sources  and  tax 
under  act  of  1917  is  4  per  cent  on  net  income  from  all  sources,  except  dividends 
from  corporations,  whose  income  is  subject  to  income  tax,  so  that  except  as  to  divi- 
dends (which  as  income  to  corporations  are  subject  to  income  tax  at  rate  of  2  per 
cent  onlv),  combined  normal  tax  on  income  of  coii^orations  is  6  per  cent.  (T.  D. 
2690;  art.  3.) 

Inforraatioii  at  source — Exempt  corporations. 

Payments  made  to  corporations,  associations,  or  insurance  companies  for  the  year 
1917  do  not  require  reports  of  information.     (T.  D.  2670;  Mar.  11,  1918.) 

Organizations  enumerated  in  section  11  ox  the  act  of  September  8,"  1916,  as  amended 
are  not  exempt  from  requirements  with  resi>ect  to  furnishing  information  in  accord- 
ance with  provisions  of  Title  I,  as  amended  by  section  1205  of  Title  XII,  of  the  act 
of  Octobsr  3,  1917.     (T.  D.  2690;  art.  81.) 

Net  income. 

Net  income  upon  which  tax  imposed  by  section  10  of  Title  I  of  the  act  of  September 
8,  1916,  as  amended,  is  levied,  is  that  portion  of  the  gross  income  received  from  all 
sources  (except  from  interest  on  obligations  of  the  United  States  or  its  possessions, 
or  on  obligations  of  a  Slate  or  political  subdivision  thereof)  which  remains  after 
all  authorized  deductions  have  been  taken  into  account.     (T.  D.  2690;  art.  196.) 

Basis. 

•  Dealers  in  merchandise  and  dealers  in  securities  authorized  to  make  returns  on 
basis  of  inventories  taken  at  cost  or  market  price,  whichever  is  lower.  (T.  D.  2609; 
Dec.  19,  1917.)  Pending  decision  by  Supreme  Court  of  United  States  as  to  legality 
of  authorization  of  T.  D.  2609,  returns  made  upon  basis  of  T.  D.  2609  will  be  ten- 
tatively accepted.  (T.  D.  2649;  Jan.  30,  1918.  Affirmed  in  T.  D.  2744;  July  11, 
1918.) 

Dealer  in  securities,  for  purposes  of  T.  D.  2609,  is  a  merchant  of  securities  whether 
an  individual,  partnership,  or  corporation,  with  an  established  place  of  business, 
and  whose  principal  business  is  the  purchase  of  securities  and  their  resale  to  cus- 
tomers; one  who  as  a  merchant  buys  securities  and  sells  them  to  customers  with  a 
view  to  the  gains  and  profits  that  mav  be  derived  therefrom.  (T.  D.  2649;  Jan. 
30,  1918.     See  T.  D.  2744;  July  11,  1918.) 

( 'orporations  engaged  in  live  stock  or  farming  business  which  do  not  keep  books 
of  accoimt  and  ascertain  their  gross  income  by  inventory  should  prepare  their 
returns  of  annual  net  income  on  basis  of  actua,l  receipts  and  disbursements.  (T.  D. 
2665;  Mar.  8,  1918.     See  T.  D.  2665;  Mar.  8,  1918.) 

Corporations  keeping  accounts  in  strict  accord  with  methods  prescribed  by  munic- 
ipal, State,  or  Federal  authorities,  or  in  accord  with  approved  standard  accounting 
practices  consistently  followed  from  year  to  year,  will  be  permitted  to  make  their 
returns  of  annual  net  income  on  basis  of  accounts  so  kept,  providing  such  systems 
of  accounting  clearly  and  correctly  reflect  net  income  of  each  year.  (T.  D.  2690; 
art.  127.) 

Any  system  of  accounting  which  is  not  consistent  with  purpose  and  intent  of  rules 
set  out  in  Title  I  of  the  act  of  September  8,  1916,  as  amended  by  the  act  of  October 
3,  1917,  and  with  the  general  rules  set  out  in  Regulations  No.  33,  for  ascertainment 
of  net  income,  Avill  not  be  accepted  as  correct  basis  for  making  returns.  (T.  D.  2G90; 
art.  128.) 

70420"— 21 21 


322  INCOME  TAXES    (COEPOEATIONS). 

Net  income — Continued. 

Campaign  contributions. 

Contributions  by  coi'poratioas  for  campaign  expenses  are  not  an  ordinary  and 
necessary  expense  in  the  operation  and  maintenance  of  the  business,  and  are  there- 
fore not  "deductibk.     (T.  L>.  2690;  art.  143.) 

Credits. 

Corporation  which  has  filed  return  for  fiscal  year  ended  on  last  day  of  some  month 
during  1917,  or  a  final  return  for  period  ended  during  such  year,  showing  liability 
computed  under  act  of  September  8, 1916,  must  make  amended  return  showing  addi- 
tional net  income  (in  amount  equal  at  least  to  amount  of  income  tax  deducted  in 
original  return);  it  will  take  credit  for  amount  of  excess-profits  tax  for  which  liable; 
if  overpayment  of  income  tax  at  2  per  cent  rate  is  shown,  amount  of  such  overpay- 
ment may  be  credited  against  war  income  tax  of  4  per  cent,  for  which  liable,  to 
ascertain  total  amount  of  tax  due,  but  in  no  case  will  credit  for  overpayment  of 
income  tax  be  taken  against  the  excess-profits  tax  due.     (T.  D.  2663;  Mar.  8,  1918.) 

Exemption  provided  for  in  Federal  reserve  statute,  section  3,  of  the  act  of  October 
22,  1914,  attaches  to  and  follows  income  derived  from  dividends  on  stock  of  Federal 
reserve  banks  into  hands  of  stockholders,  that  is  to  say,  dividend  received  on  stock 
of  such  banks,  are  exempt  from  taxes  imposed  by  acts  of  September  8,  1910,  as 
amended,  and  of  October  3,  1917;  this  ruling  does  not  contemplate  that  dividends 
paid  by  member  banks  are  exempt  from  the  2  per  cent  tax,  but  suck  dividends, 
in  so  far  as  they  may  be  received  by  other  corporations,  may  be  treated  as  a  credit 
against  net  income  in  computing  the  war  income  tax  imposed  by  Title  I  of  the  act 
of  October  3, 1917.     (T.  D.  26^;  art.  86.) 

vMiere  it  is  clearly  established  that  debtor  corporation  has  actually  withheld  and 
paid  to  proper  officers  of  the  United  States  the  tax  on  interest  on  bonds  containing 
tax-free  covenant,  recipient,  having  returned  such  interest  as  income,  may  take 
cre<lit  against  any  tax  to  which  subject  on  the  basis  of  the  return,  for  tax  so  paid  by 
debtor  corporation.     (T.  D.  2690;  art.  122.) 

Net  income  of  corporation,  for  purpose  of  assessment  of  war  income  tax  of  4  per 
cent,  shall  be  credited  with  amount  received  as  dividends  upon  stock  or  from  net 
earnings  of  any  other  corporation  which  is  taxable  upon  its  net  income  under  Title 
I  of  the  act  of  September  8,  1916,  as  amended,  and  which  amount  has  been  included 
in  gross  income.     (T.  D.  2690;  art.  198.) 

Foreign  corporation  may  take  credit  against  tax  assessable  on  basis  of  net  income 
returned  for  any  tax  which  may  have  been  withheld  at  source,  provided  income 
upon  which  tax  was  withheld  is  included  in  return  and  provided  that  name  ol 
withliolding  agent  is  given  in  return.     (T.  D.  2690;  art.  198.) 

Where  corporation  returns  as  income  interest  received  on  bonds,  interest  upoii 
which  debtor  corporation  had  agreed  to  pay  without  deduction  of  income  taxes,  and 
debtor  corporation  actually  pays  income  tax  as3es.sable  on  such  interest  income,  cor- 
poration receixing  such  interest  may  take  credit  against  tax  assessable  on  basis  of 
net  income  returned,  for  amount  of  tax  paid  thereon  by  debtor  corporation;  when  net 
income  has  been  ascertained  within  rules  set  out  in  section  12  (a)  of  the  act  of  Scptem- 
;ber  8,  191G,  as  amended,  it  shall  be  credited  vnth.  amount  of  excess-profits  tax 
assessed  or  to  be  assessed  for  same  year ;  such,  excess-profits  tax  allowance  is  a  credit 
against  the  net  income  for  purpose  of  taxes  imposed  by  both  the  act  of  September 
8, 1916,  and  act  of  October  3, 1917.     (T.  D.  2690;  art.  199.) 

Depletion — Mining  properties. 

WTien  corporation  sete  aside  part  of  its  earnings  to  create  sinking  fund  with  whic-li 
to  retire  indebtedaess,  annual  additions  to  such  fimd  are  not  allowable  deduction 
from  gross  income  as  or  in  lieu  of  depreciation  or  on  any  other  account;  earnings 
thus  set  aside  are  an  asset  and  any  accretion  thereto  must  be  accounted  for  as  incom^o ; 
ruling  will  not,  however,  forbid  deduction  or  reasonable  allowance  for  depletion 
of  natural  deposits  even  though  amount  so  deducted  be  used  in  whole  or  in  part  in 
payment  of  its  indebtedness.     (T.  D.  2690;  art.  166.) 

(Jwnership  of  mine  content  at  time  for-  which  computation  is  made  is  an  essential 
prerequisite  to  an  allowable  deduction  for  depletion  under  section  5  (a)  and  section 
12  (a)  of  Title  I  of  the  act  of  September  8,  1916,  as  amended;  deduction  in  case  of 
lessee  limitetl  to  amount  equal  to  capital  actually  invested  in  lease  without  regard 
to  value  as  of  March  1,  1913*,  or  any  other  date;  the  se^-enth  and  eighth  paragraphs 
of  section  5  (a)  and  the  second  paragraph  of  section  12  (a)  authorize  in  case  of  mine 
owners  two  classes  of  deductions  to  take  care  of  wasting  of  assets,  nauielv,  deprecia- 
tion and  depletion.     (T.  D.  2690;  art.  171.) 

Both  owner  and  lessee  will  keep  accurate  ledger  accounts  to  which  will  be  charged 
capital  invested  in  mine  or  lease  and  in  machinery,  equipment,  etc.,  crediting 


INCOME  TAXES    (CORPORATIONS).  323 

IvTet  income — Continued. 

— —  Depletion — Mining  properties — Continued, 
such  accounts  or  a  depletion  reserve  account  with  amount  claimed  and  allowed  as 
a  deduction  each  year  until,  as  result  of  such  credits,  the  capital  cliar^e  shall  be 
extinguished,  after  which  no  further  deduction  on  this  account  will  lie  allowed. 
(T.  D.  2690;  art.  172.) 

Original  cost  of  mineral  deposit  may  be  taken  as  basis  for  computing  annual  deple- 
tion deductions  if  fair  narket  value  as  of  March  1,  i9K>,  can  not  be  ascertained 
otherwise,  allowance  being  made  for  minerals  which  may  have  been  removed  prior 
to  that  date;  where  property  was  acquired  subsequent  to  that  date,  same  rule  iov 
computing  annual  depletion  deduction  v/il!  apply,  except  that  basis  of  computa- 
tion will  be  actual  cost  rather  than  value  as  of  March  1,  1913.     (T.  D.  2G90;  art.  172.) 

Every  individual  or  corporation  claiming  and  making  deduction  for  depletion 
of  natural  deposits  shall  keep  accurate  ledger  account,  in  wliich  shall  be  charged 
fair  market  value  as  of  March  1,  1913,  or  cost,  if  property  was  acquired  subsequent 
to  that  date,  of  mineral  deposits  involved,  account  to  be  credited  with  amount  oi 
depletion  deduction  claimed  and  allowed  each  year,  or  amount  of  depletion 
shall  be  credited  to  depletion  reserve  account,  to  end  that  when  sum  of  credits 
for  depletion  equals  value  or  cost  of  property,  no  further  deduction  for  depletion 
will  be  allowed;  fair  market  value  or  cost  of  property,  as  case  may  be,  will  be  basis 
for  determining  depletion  deduction  for  all  subsequent  years  during  ownership 
imder  which  value  was  fixed,  and  during  such  ownership  there  may  be  no  revalua- 
tion if  it  should  be  found  that  estimated  quantity  of  deposit  was  understated; 
where  quantity  of  mineral  deposit  prior  to  March  1,  1913,  can  not  be  accurately 
estimated  necessaiy,  if  depletion  deductions  are  to  be  taken,  for  owner  of  deposits, 
with  best  information  available,  to  arrive  at  fair  market  A-aluo  of  property  as  of 
March  1,  1913,  which  value  during  period  of  ownei-ship  shall  be  final;  then  on  basis 
of  most  probable  number  of  units  in  property  per  unit  value  shall  be  determined 
as  basis  for  computing  annual  depletion  allowances;  this  method  and  allowances 
to  be  continued  until,  but  not  beyond,  time  when  value  as  of  March  1^  1913,  shall 
have  been  extinguished.     (T.  I).  2690;  art.  172.) 

Where  property  was  acquired  by  purchase  or  otherwise  (other  than  by  leas-e) 
prior  to  March  1,  1913,  amount  of  invested  capital  which  may  be  extinguished 
through  annual  depletion  deductions  from  gross  income  will  be  the  market  value  of 
mine  property  so  acquired  as  of  March  1,  1913;  value  contemplated  as  basis  for 
depletion  deductions  must  not  be  based  upon  assumed  salable  value  of  output  under 
current  operative  conditions,  less  cost  of  production,  for  reason  that  value  so  deter- 
mined would  comprehend  profits  to  be  realized  from  operation  of  property;  value 
must  not  be  speculative  but  must  be  determined  upon  basis  of  salable  value  en  bloc 
as  of  March  1,  1913,  of  entire  deposit  of  minerals  exclusive  of  improvements  and 
development  work;  en  bloc  value  having  been  ascertained,  estimate  of  number  of 
units  (tons,  pounds,  etc.),  should  be  made,  and  en  bloc  value  divided  by  estimated 
number  of  units  mil  determine  per  unit  value,  w^hich  multiplied  by  number  of 
units  mined  and  sold  during  any  one  year  will  determine  sum  which  will  constitute 
deduction  of  that  year;  deductions  computed  on  like  basis  may  be  made  from  year 
to  year  during  ownership  under  wMch  value  was  determined  until  aggregate  en  bloc 
value  as  of  March  1,  1913,  of  mine  or  mineral  deposit  shall  have  been  extinguished. 
(T.  D.  2G90;art.  172.) 

Precise  manner  in  which  estimated  fair  market  value  of  mineral  deposits  as  of 
March  1, 1913,  shall  be  made,  must  be  determined  by  oivner  upon  such  basis  as  must 
aot  comprehend  any  operating  profits,  estimate  to  be  subject  to  approval  of  com- 
missioner; in  parsing  upon  accuracy  and  fairness  of  estimate  due  weight  will  be 
attached  to  market  value  of  stock  of  corporation  ou  March  1,  1913,  and  also  to 
sworn  statements  as  to  value  of  stock  filed  at  any  time  thereafter  for  purposes  of 
special  excise  tax  based  on  value  of  capital  stock  imposed  by  Title  IV  of  the  act  of 
September  8,  1916.     (T.  D.  2tJ90;  art.  172.) 

Where  depletion  deduction  is  computed  on  ba^is  of  cost  or  price  at  which  any 
mine,  mineral  lands  or  properties  were  acquired,  corjx)ration  upon  request  of  com- 
missioner must  show  that  cost  or  price  at  which  property  was  bought  was  fixed  for 
purposes  of  bona  fide  purcha;ie  or  sale  by  which  properly  passed  to  owner  in  fact 
as  well  as  in  form  different  from  vendor;  in  determining  whether  or  not  price  or  cost 
at  which  any  purchase  or  .sale  was  made  represented  actual  market  value,  due 
weight  will  be  given  to  relationsliip  or  connection  existing  between  party  or  parties 
selling  property  and  buyer  thereof.     (T.  D.  2690;  art.  172.) 

Lessee  corporation  not  entitled  to  any  deduction  as  such,  but  if  lessee,  in  addition 
to  royalties,  pays  stipulated  sum  for  right  to  explore,  develop,  and  operatQ  mine, 
such  sum  may  be  spread  ratably  over  estimated  number  of  units  in  mine,  and  thus 


324  INCOME    TAXES    (CORPORATIONS), 

Net  income — Continuod. 

Depletion — Mining  properties — Continued. 

ascertain  amount  of  invested  capital  or  bonus  payment  applicable  to  each  unit; 
per  unit  cost  thus  ascertained  will  be  multiplied,  by  number  of  units  removed  from 
mine  during  any  one  year,  and  result  will  be  amount  that  may  be  deducted  from 
gross  income  of  that  year  as  return  of  capital  invested ;  in  case  of  both  mine  own  er 
and  lessee  no  deduction  for  depletion  or  return  of  capital  will  be  allowed  when 
invested  capital  has,  through  the  aggregate  of  all  such  deductions,  been  extinguished ; 
for  purpose  of  computing  this  deduction  in  case  of  lessee  company  actual  amount 
of  bonus  paid  and  not  value  as  of  March  1,  1913,  will  be  considered  capital  invested 
to  be  returned  through  aggregate  of  annual  deductions.     (T.  D.  2690;  art.  172.) 

The  allowance  for  depletion  in  the  case  of  mines  pertains  to  a  consumption  of 
capital  assets  rather  than  to  a  business  loss.     (T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

The  lessee  of  a  mine  is  not  entitled  to  a  deduction  for  depletion  under  the  act  of 
September  8,  1916.     (T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

There  is  no  substantial  distinction  as  applied  to  a  mine  between  depreciation 
which  was  sought  by  mine  owners  under  the  acts  of  August  5,  1909,  and  October  3, 
1913,  and  the  depletion  which  was  allowed  by  the  act  of  September  8,  1916.  (T.  D. 
3001;  Apr.  15,  1920.     Ct.  Dec.) 

The  fact  that  the  lessee  of  a  mine  is  under  an  affirmati  ve  obligation  to  rem.ove  or 
at  least  to  pxy  for  a  fixed  amount  of  ore  does  not  change  the  general  rule  as  to  deple- 
tion in  the  case  of  lessees.     (T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

Oil  and  gas  pi  op  er  ties. 

Every  individual  or  corporation  entitled  to  deduction  on  account  of  depletion 
or  for  return  of  capital  invested  shall  keep  accurate  ledger  account,  in  which,  in  case 
of  fee  owner,  shall  be  charged  fair  market  value  as  of  March  1,  1913,  or  cost,  if  ac- 
quired subsequent  to  that  date,  of  oil  or  gas  property,  plus  cost  of  development,  or, 
in  case  of  lessee,  amount  actually  originally  invested  in  lease  and  its  development; 
this  amount  shall  be  credited  as  amount  claimed  each  year  as  deduction  on  account 
of  depletion  or  as  return  of  capital,  to  end  that  when  credits  to  account  equal  debits 
no  further  deductions  on  either  account,  with  respect  to  this  property  and  capital 
invested  therein  will  be  allowed ;  or,  in  lieu  of  direct  credit  to  property  account, 
amounts  so  claimed  and  allowed  as  deduction  may  be  credited  to  depletion  reserve 
account.     (T.  D.  2690;  art.  170.) 

Essence  of  sections  5  and  12  of  the  act  of  September  8,  1916,  as  amended  by  the  act 
of  October  3,  1917,  is  that  owner  or  operator  of  gas  or  oil  properties  shall  secure 
through  an  aggregate  of  annual  depletion  deductions  the  return  of  amount  of  capital 
actually  invested,  or  amount  not  in  excess  of  fair  market  value  as  of  March  1,  1913, 
of  properties  owned  prior  to  that  date.     (T.  D.  2690;  art.  170.) 

In  case  of  operating  fee  owner,  amount  returnable  through  depletion  deductions 
is  fair  market  value  of  property  (exclusive  of  cost  of  physical  property)  as  of  March 
1,  1913,  if  acquired  prior  to  that  date  or  actual  cost  of  property  if  acquired  subse- 
quent to  that  date,  plus  in  either  case  cost  of  development  (other  than  cost  of  physical 
property  incident  to  such  development)  up  to  point  at  which  income  from  developed 
territory  equals  or  exceeds  deductible  expenses.     (T.  D.  2690;  art.  170.) 

Estimate,  subject  to  approA^al  of  Commissioner  of  Internal  Revenue,  required  to 
be  made  of  probable  quantity  of  oil  or  gas  contained  in  or  to  be  recovered  from 
territory  with  respect  to  which  investment  is  made;  invested  capital  will  be  divided 
by  number  of  units  of  oil  or  gas  so  estimated,  and  quotient  will  be  per  unit  cost  or 
amount  of  capital  invested  in  each  unit  recoverable;  this  cjuotient,  when  multiplied 
by  number  of  units  removed  from  territory  in  one  year,  will  determine  amount 
which  will  be  allowably  deducted  from  gross  income  for  that  year  on  account  of  de- 
pletion or  as  return  of  invested  capital  until  total  of  such  deductions  shall  equal 
capital  invested.     (T.  D.  2690;   art.  170.) 

In  case  of  lessee,  capital  to  be  returned  is  amount  paid  in  cash  or  its  equivalent  as 
bonus  or  otherwise  by  lessee  for  lease,  plus  expenses  incurred  in  developing  property 
(exclusive  of  physical  property)  prior  to  receipt  of  income  therefrom,  sufficient  to 
meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and  lessee,  such  in- 
cidental expenses  as  are  paid  for  wages,  fuel,  etc.,  in  connection  with  drilling  of 
wells  and  further  development  of  property  may  be,  at  option  of  operator,  deducted ,  as 
operating  expense  or  charged  to  capital  account.     (T.  D.  2690;  art.  170.) 

If  quantity  of  oil  or  gas  can  not  be  determined  with  certainty,  depletion  deduction 
will  be  computed  in  accordance  with  rules  set  out  in  T.  D.  2447,  except  that 
lessees  may  compute  deductions  for  return  of  capital  (cost  of  lease  and  development) 
in  same  manner  as  owners  in  fee;  that  is,  they  may  extinguish  such  capital  on  basis 
of  reduction  in  flow  and  production  as  compared  with  preceding  year,  or,  in  case  of 
leasehold  properties  brought  in  or  developed  during  year,  depiction  deduction  may 


INCOME    TAXES    (  COEPORATIONS  J .  325 

Net  income — Continued. 

Depletion — Continued. 

• Oil  and  gas  properties^-Conlinucd. 

be  computed  on  basis  of  decline  in  settled  flow  and  production,  as  evidenced  by 
tests  and  gauges  made  at  end  of  j^ear  as  compared  with  similar  tests  and  gauges  made 
at  time  settled  flow  was  determined;  for  purpose  of  computing  depletion  territory 
comprehended  in  given  lease  will  be  considered  unit  with  respect  to  which  depletion 
deduction  may  be  claimed  and  allowed.     (T.  D.  2690;   art.  170.) 

As  to  both  fee  owner  and  lessee,  capital  invested  in  physical  property,  upon  which 
depreciation  deduction  is  computed,  should  be  segregated  in  books  of  account  from 
that  invested  in  oil  or  gas  territory  or  in  lease  or  leases,  with  respect  to  which  deduc- 
tion for  depletion  or  returii  of  capital  is  claimed,  and  credits  for  depreciation  may  be 
made  in  same  manner  as  provided  for  depletion.     (T.  D.  2690;   art.  170.) 

Both  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition  to  and 
separate  from  deduction  allowable  for  depiction  or  return  of  capital,  be  permitted  to 
deduct  reasonable  allowance  for  depreciation  of  physical  property,  such  as  machin- 
ery, tools,  equipment,  pipes,  etc.,  amount  deductible  (m  this  account  to  be  such 
an  amount,  based  upon  its  capitalized  value  (cost)  equitably  distributed  over  its 
useful  life,  as  will  bring  it  to  its  true  salvage  value  when  no  longer  useful  for  pur- 
pose for  which  property  was  acquired.     (T.  D.  2690;  art.  170.) 

Where  operator  is  owner  of  fee,  value  determined  and  set  up  as  of  March  1,  1913,  or 
cost  of  property  if  acquired  subsequent  to  that  date,  or,  if  operator  is  lessee,  actual 
amount  paid  for  lease,  plus,  in  case  of  both  owner  and  lessee,  cost  of  subsequent 
development,  exclusive  of  physical  property,  if  such  cost  is  capitialized,  will  be 
basis  for  determining  depletion  deduction  or  deduction  for  return  of  capital  for  all 
subsequent  years  during  continuance  of  ownersliip  under  which  value  was  fixed  or 
by  which  investment  was  made;  during  such  ownership  there  can  be  no  revaluation 
for  purpose  of  deduction  if  it  should  be  found  that  quantity  of  oil  or  gas  was  under- 
estimated at  time  value  was  fixed  or  property  was  acquired,  or  at  time  lease  contract 
was  entered  into  or  purchased.     (T.  D.  2690;  art.  170.) 

• Timberlands. 

In  case  of  timberlands,  fair  market  price  or  value  of  timber  standing  March  1, 
1913,  or  cost  of  timber  when  purchase  was  made  subsequent  to  that  date,  will  be 
basis  for  calculation  of  depletion,  and  this  value  as  of  March  1,  1913,  or  cost  when 
subsequently  purchased,  is  not  to  be  exceeded  for  purposes  of  deduction  in  returns 
of  income;  whole  of  such  value  is  to  be  distributed  over  entire  amount  of  standing 
timber  on  those  respecti^'e  dates;  rules  governing  timber-owning  companies.  (T.  D. 
2690;  arts.  8,  173.)' 

Fair  market  price  or  value  of  timberlands  as  of  March  1,  1913,  is  price  at  which 
property  in  its  then  condition,  and  with  circumstances  then  surrounding  it,  could 
have  been  sold  for  cash  or  its  equivalent;  such  value  must  not  be  speculative,  but 
must  be  determined  without  taking  into  account  any  prospective  profits  that  may 
result  by  manufacturing  the  timber  into  lumber;  value,  once  determined,  must  be 
set  up  on  books,  and,  as  measure  of  stunipage  deduction,  must  remain  constant  and 
can  not  be  increased  except  as  new  purchases  are  made  at  higher  average  cost;  value 
so  set  up  will  be  subject  to  approval  of  Commissioner.     (T.  D.  2690;  art.  173.) 

Where  entire  market  price  or  value  for  both  timber  and  lands  as  of  March  1,  1913, 
or  entire  cost,  if  acquired  subsequent  to  that  date,  is  extinguished  through  deduction 
from  gross  income  for  timber  used,  or  through  per  unit  charge  to  cost  of  manufactur- 
ing lumber,  entire  amount  realized  from  logged-off  lands  or  other  salvage  will  be 
returned  as  income  of  year  in  which  such  lands  are  sold  or  disposed  of;  if  timber  or 
timberlands  are  sold  eu  bloc,  gain  or  loss  will  be  ascertained  on  basis  of  difference 
between  fair  market  price,  or  cost,  and  selling  price,  accordingly  as  property  was 
acquired  prior  or  subsequent  to  March  1,  1913.     (T.  D.  2690;  art.  173.) 

Corporations  owning  timberland  and  logging  off  the  timber  and  manufacturing  it 
into  lumber,  will,  if  timber  was  acquired  prior  to  March  1,  1913,  be  permitted  to 
exclude  from  gross  income  either  tlirough  deduction  from  gross  receipts  Or  through 
charge  into  cost  of  manufacturing  timber  into  lumber,  an  amount  equivalent  to 
fair  market  price  or  value  of  standing  timber  as  of  March  1,  1913;  corporations  must 
set  up  on  their  books  as  of  March  1,  1913,  the  fair  market  price  en  bloc,  of  all  timber 
then  owned  by  them,  and  then,  by  dividing  such  value  by  estimated  number  of 
feet  in  entire  holdings,  per  unit  value  or  price  will  be  ascertained,  which  per  unit 
price  or  value  will  be  basis  for  measuring  amount  to  be  added  to  cost  of  manufacture, 
or  deducted  from  gross  income,  until  en  bloc  value  of  entire  holdings  shall  have  been 
extinguished;  same  rule  applies  to  timber  or  timberlands  purchased  subsequent  to 
March  1,  1913,  only  difference  being  that  actual  cost  shall  be  substituted  for  en  bloc 
price  or  value  as  of  March  1,  1913.     (T.  D.  2690;  art.  173.) 


326  INCOME  TAXES  (COBPOEATIONS). 

Net  income — Continued. 

Depositors'  guaranty  fund. 

Banking;  corporations  whicla  are  required  to- maintain  a  "Depositors'  guaranty 
fund  "  may  deduct  amount  set  apart  eacli  year  to  this  fund,  provided  that  sucli  fund, 
when  set  aside  and  carried  to  credit  of  State  banking  fund  or  of  duly  authorized 
State  officer,  ceases  to  be  asset  of  bank  but  may  be  withdrawn  upon  demand  by  such 
Board  or  State  officer  to  meet  needs  of  these  offecers,  as  required  by  State  laws,  in  re- 
imbursing depositors  in  insolvent  banks,  and  provided  further  that  no  portion  of 
amount  is  returnable  to  assets  of  banking  corporation;  if  amount  is  simply  set  up  on 
books  of  bank  as  reserve  to  meet  contingent  liability  and  remains  asset  of  bank,  it 
will  not  be  deductible  except  as  it  is  actually  ^laid  out  as  required  by  law  and  upon 
demand  of  proper  State  officers.     (T.  D.  2690;   art.  1*6.) 

Depreciation. 

Lessee  corporation  may  not  deduct  any  depreciation  with  respect  to  buildings 
erected  by  it  on  leased  ground,  but  cost  of  incidental  repairs  neces.sary  to  keep  build- 
ings in  efficient  condition  for  purpose  of  their  use  may  be  deducted  as  expense  of 
operation  and  maintenance;  if  life  of  improvement  is  less  than  life  of  lease,  deprecia- 
tion may  be  taken  by  lessee,  based  upon  cost  and  life  of  improvement.  (T.  D.  2699; 
art.  140.) 

Deduction  for  depreciation  authorized  by  item  "Second"  of  section  12  should  be 
amount  of  loss  occurring  during  year  to  which  return  relates,  estimated  on  cost  of 
physical  property  with  respect  to  which  such  deduction  is  claimed,  which  loss  re- 
sults from  wear  and  tear  due  to  use  to  which  property  is  put  and  which  loss  has  not 
been  made  good  through  expenditures  for  renewals,  replacements,  and  repairs  de- 
ducted under  heading  of  expense  for  maintanance  and  operation;  within  purview 
of  this  item  depreciation,  to  amount  measuring  decline  in  value  due  to  exhaustion, 
wear  and  tear  of  property  arising  out  of  its  use,  is  a  loss,  which  loss,  in  order  to  con- 
stitute allowable  deduction,  must  be  charged  off;  manner  of  charging  off  loss  is  not 
material,  except  that  the  amount  must  be  either  deducted  directly  from  book  value 
of  assets  or  credited  to  a  depreciation  reserve  account,  and  as  such  sliall  be  rejected 
in  annual  balance  sheet.     (T.  D.  2690;  art.  159.) 

Assets  of  any  character  whatever  which  are  not  affected  by  use,  wear,  and  tear 
(except  patents,  copj-rights,  etc.)  are  not  subject  to  depreciation  allowance;  real 
estate  as  such,  and  as  distinct  from  improvements  thereon,  is  not  reduced  in  value 
by  reason  of  wear  and  tear,  and  therefore  allowance  contemplated  as  offset  t<)  depre- 
ciation in  case  of  real  estate  corporation  does  not  apply  to  the  ground,  but  is  intended 
to  measure  the  decline,  bvreason,  of  wearand  tear,in  value  of  improvements.  (T.  D. 
2690;  art.  162.) 

Depreciation  set  up  on  books  and  deducted  can  not  be  used  for  any  purpose  other 
than  in  making  good  loss  sustained  by  reason  of  wearand  tear  of  property  ivith  respect 
to  which  it  is  claimed;  if,  however,  investment  is  made  in  extensions,  additions,  or 
betterments  of  company's  own  property,  representing  part  or  whole  of  credit  balance 
of  depreciation  reserve  account,  such  investment  will  not  be  considered  a  misuse-  or 
diversion  of  the  depreciation  deduction  otherwise  allowable.     (T.  D.  2690;  art.  164.) 

Where,  by  reason  of  underestimating  life  of  property,  or  overestimating  rate  of 
deterioration,  an  amount  in  excess  of  yearly  depreciation  has  been  taken,  rate  appli- 
cable to  future  3-ears  should  at  once  be  reduced  and  balance  of  cost  of  property  not 
provided  for  through  a  depreciation  reserve  should  be  spread  over  estimated  remain- 
ing life  of  property.     (T.  D.  2690;  art.  165.) 

If  indi\'idual  or  corporation  charges  expense  of  drilling  wells  or  further  develop- 
ment to  capital  account,  the  same,  in  so  far  as  expense  is  represented  by  physical 
property,  may  be  taken  into  account  in  determining  reasonable  allowance  for  depre- 
ciation during  each  year  until  property  account  thus  augmented  has  been  extin- 
guished tlu'ough  annual  depreciation  deductions,  after  which  no  further  dethiction 
on  this  account  will  be  allowed;  in  case  of  a  going  or  producing  business,  cost  of 
drilling  nonproductive  wells  mav  be  deducted  from  gross  income  as  operating  ex- 
pense.    (T.  D.  2690;  art.  170.) 

Cperiitor  will  be  permitted  to  deduct  from  gross  income  of  each  j'ear  reasonable 
allowance  for  depreciation  of  all  physical  property  used  in  connection  with  opera- 
tion of  mine  and  owned  by  operator;  for  this  purpose  the  actual  cost  (not  value) 
will  be  equitably  distributed  over  useful  life  of  Kuch  property  until  true  salvage 
value  has  been  reached;  both  owner  and  lessee  Mdll  keep  accurate  ledger  accounts 
to  which  will  be  charged  capital  invested  in  mine  or  lease,  and  in  machinery, 
equipment,  etc.,  crediting  such  accounts  or  a  depreciation  reserve  account  Avith 
amount  claimed  and  allowed  as  a  deduction  each  year  until,  as  result  of  such  credits, 


INCOME   TAXES    (CORPORATIONS).  327 

Net  income — rontim.'cd. 

Depreciation — Coiitiiiucd. 

the  ntpital  charge  shall  be  extinguished,  after  which  no  further  deduction  on  this 
account  vrill  l)e  allowed.     (T.  D.  2690;  art.  172.) 

Reasonable  allowance  for  wear  and  tear  of  property  arising  out  of  its  use  or  em- 
ploymont  in  lousiness  or  trade  is  to  be  based  upon  cost  of  such  projjerty  or  on  its 
fair  market  price  or  value  as  of  March  1,  1013,  if  acquired  prior  thereto;  in  absence 
of  proof  to  contrary  it  will  \}g  assumed  that  such  value  as  of  March  1,  1913,  is  cost 
of  property,  less  depreciation  up  to  that  date.     (T.  D.  2754;  Aug.  23,  1918.) 

Rate  for  computing. 

Though  no  defuiite  rate  has  been  fixed  by  which  deduction  on  account  of  depre- 
ciation in  value  of  properly  subject  to  wear  and  tear  is  to  be  computed,  it  is  con- 
templated that  such  allowance  shall  be  computed  upon  basis  of  cost  of  property 
and  probable  number  of  years  constituting  its  life ;  deduction  relates  solely  t  o  loss  duo 
touse,  wear,  and  tear,  and  matter  of  obsolescence  is  not  relevant.  (T.  D.  2690;  art.  162.) 

Deduction  on  account  of  dei)recialion  in  case  of  buildings  shall  not  include  any 
allowance  for  estimated  loss  due  to  lessening  of  rental  value,  nor  shall  computation 
of  deduction  be  influenced  by  changed  en\ironment  after  period  of  years  not  by 
its  lack  of  adaptability  to  use  originally  intended  nor  to  any  other  outside  influence 
affecting  its  value,  but  an  allowable  depreciable  shall  be  determined  solely  upon 
estimated  life  of  such  buildings  aftei*  making  due  allowance  for  ordinary  repairs, 
cost  of  which  may  be  deducted  as  expenses  for  maintenance  and  operation.  (T.  D. 
2690;  art.  102.)       • 

Where  actual  cost  of  buildings  or  improvements  at  time  they  were  taken  over  by 
corporation  can  not  be  definitely  determined,  it  will  be  sufficient  for  purpose  of 
determining  rate  of  depreciation  to  be  used  in  computing  amount  taxable,  to  esti- 
mate actual  value  at  time  acquired  of  buildings  or  improvement  if  acquired  after 
March  1,  1913,  or  fair  market  price  or  -i-alue  as  of  that  date  if  property  was  acquired 
prior  thereto,  value  in  either  case  to  be  reduced  by  amount  of  depreciation  previ- 
ously sustained.     (T.  D.  2690;  art.  163.) 

■ Destruction  of  property. 

Actual  cost  of  property  destroyed  by  order  of  authorities  of  a  State  or  of  the  United 
States  may  be  claimed  as  a  loss;  but  if  reimbursement  is  made  by  a  State  or  United 
States,  amount  received  shall  be  reported  as  income  for  j-ear  irl  which  reimburse- 
men-t  is  made.     (T.  D.  2690;  art.  123.) 

When  loss  is  claimed  through  destruction  of  property  by  fire,  flood,  or  other  casu- 
alty, amount  deductible  will  be  difference  between  value  as  of  March  1 ,  1913,  or  cost 
of  property  and  salvage  value  therof,  including  in  the  latter  value  the  amount,  if 
any,  that  has  been  or  should  ha\'e  been  set  aside  and  deducted  in  cin:rent  or  pre- 
\ious  years  from  gross  income  on  account  of  depreciation  and  which  has  not  been 
paid  out  in  making  good  the  depreciation  sustained.     (T.  D.  2690;  art.  147.) 

Discounts. 

Discount  on  bonds  issued  and  sold  irrior  to  1909,  if  such  discount  was  then  charged 
against  surplus  or  against  income  of  year  in  which  bonds  were  sold,  not  deductible 
from  income  of  subsequent  years,  for  reason  that  charging  off  prior  to  January  1, 
1909,  of  entire  amount  of  discount  constitutes  closed  tm^nsaction.  (T.  D.  2690- 
art.  149.) 

Where  bonds  were  sold  subsequent  to  January  1,  1909,  at  a  discount,  and  amount 
of  discount  was  charged  off  on  books,  cither  against  earnings  or  surplus,  but  not 
deducted  in  corporation's  return  of  net  income,  such  discount  as  was  not  then 
deducted  may  be  spread  over  life  of  the  bonds  and  an  aliquot  part  of  the  discount 
may  be  deducted  from  gross  income  of  each  year  until  bonds  mature  or  are  redeemed. 
(T.  D.  2690;  art.  150.) 

Where  corporation  sells  its  bonds  at  discount  plus  commission  for  selling,  amount 
of  such  discount  and  commission,  together  with  other  expenses  incidental  to  issuing 
bonds,  constitute  a  loss,  aggregate  amount  of  M-hich  will,  for  puq>ose  of  income-tax 
return,  be  prorated  over  life  of  bonds  sold,  and  amount  thus  apportioned  to  each 
year  will  be  deductible  from  gross  income  of  each  year  until  bonds  shall  have  been 
redeemed.     (T.  D.  2690;  art.  150.) 

Where  corporation  having  sold  its  bonds  at  discount,  discount  having  been  de- 
ducted from  gross  income,  later  repurcha.ses  or  redeems  the  bonds  at  a  price  less 
than  par,  difference  between  price  at  which  they  are  redeemed  and  their  par  value 
■will  be  returned  as  income;  if  bonds  are  sold  at  premium,  premium  must  be  re- 
turned as  income.     (T.  D.  2690;  art.  150.) 


328  INCOME   TAXES    ( COKPOEATIONS) . 

Net  income — Continued. 

Discounts— Continued. 

"\Miore  refund  payments  by  cooperative  societies,  associations  or  corporations 
are  made  in  proportion  to  purchases  made  by  recipient  in  accordance  with  by-laws 
or  published  rules  regularly  adhered  to,  they  are  regarded  as  discounts  or  rebates, 
tending  to  reduce  taxable  net  income  of  organization.     (T.  D.  2737;  June  19,  1918.) 

Diversion  of  fund. 

Where  corporation  at  end  of  year  distributes  net  income  as  dividends,  without 
providing  for  depreciation,  it  will  be  estopped  from  claiming  in  its  returns  for  such 
year  any  deduction  on  account  of  depreciation  unless  it  is  shown  conclusively  that 
property  account  has  been  reduced  by  amount  of  depreciation  claimed  or  unless 
such  amount  has  been  credited  to  a  depreciation  reserve  account,  and  such  amount 
^was  in  fact  a  reasonable  allowance;  a  depreciation  reserve  account  authorized  by 
section  12  can  not  be  diverted  to  payment  of  dividends;  fact  that  no  reserve  was 
made  for  depreciation  indicates  that  there  was  no  loss  on  this  account  to  be  pro- 
vided for.     (T.  D.  2690;  art.  IGl.) 

— —  Donations. 

See  "Gifts  or  bonuses,' '  under  this  subhead. 

Expenses — Additions  and  bettermejits. 

Amounts  expended  in  additions  and  betterments  or  for  furniture  and  fixtures 
which  constitute  increase  in  capital  investment  and  add  to  value  of  assets  are  not 
proper  deduction,  but  such  expenditures  when  capitalized  may  be  extinguished 
through  annual  depreciation  deductions,  which  latter  deductions  will  be  computed 
ujjon  basis  of  cost  and  probable  life  of  property.     (T.  D.  2690;  art.  132.) 

Cost  of  erecting  permanent  buildings  or  of  making  permanent  improvements  on 
ground  leased  by  company  is  an  additional  rental  and  may  be  deducted,  provided 
such  improvements,  under  terms  of  lease,  revert  to  owner  of  ground  at  expiration 
of  lease;  in  such  case  cost  will  be  prorated  according  to  number  of  years  constitut- 
ing term  of  lease  and  annual  deduction  will  be  aliquot  part  of  such  cost.  (T.  D. 
2690;  art.  140.) 

■ —  Capital  stock  sale. 

Expenses  connected  with  selling  of  capital  stock  to  raise  capital  to  be  by  it  in- 
vested in  property  or  employed  in  business  for  which  corporation  is  organized  may 
not  be  deducted  as  expense  of  operation  and  maintenance;  it  is  a  capital  loss  or 
expense  properly  chargeable  against  proceeds  of  sale  of  stock  and  reduces  the  capital 
rather  than  the  earnings  of  the  company.     (T.  D.  2690;  art.  145.) 

Compensation  payments. 

Amou'iits  expended  by  corporations,  partnerships,  or  individuals  engaged  in  busi- 
ness, in  paying  all  or  portions  of  regular  compensation  of  officers  or  employees,  who 
have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces  of  the 
United  States,  or  have  undertaken  services  ior  the  Ciovernment  at  reduced  or  nomi- 
nal compensation,  constitute,  during  the  continuance  of  the  v/ar,  ordinary  and 
necessary  expenses  of  doing  business  and  are  allowable  as  deductions  in  computing 
net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

AMien  amount  of  salary  of  officer  or  employee  is  paid  for  limited  period  after  his 
death  to  his  wddow  or  heirs  in  recognition  of  ser\-ices  rendered  by  indi\'idual,  no 
services  being  rendered  by  widow  of  heirs,  such  payment  is  not  ordinary  and  neces- 
sary expense  of  transacting  business  and  may  not  be  deducted.  (T.  D.  2G90;  art. 
137.) 

Where  salaries  of-  officers  or  employees  who  are  stockholders  are  found  to  be  out 
of  proportion  to  A^olume  of  business  transacted  or  excessive  when  compared  with 
salaries  of  Like  officers  or  employees  of  other  corporations  doing  similar  kind  or 
volume  of  business,  amount  so  paid  in  excess  of  reasonable  compensation  for  servi- 
ces will  not  be  deductible,  but  will  be  treated  as  distribution  of  profits.  (T.  D. 
2690;  art.  138.) 

Special  payments  made  to  officers  or  employees  who  are  stockholders,  in  guise 
of  additional  salaries  or  compensation,  amount  of  which  is  based  upon  or  bears 
close  relationship  to  stock  holdings  of  such  officers  or  employees,  or  capital  invested 
by  them  in  business  of  company,  will  be  regarded  as  sj^ecial  distribution  of  profits 
or  compensation  for  capital  invested,  and  not  payment  for  ser\-ices  rendered;  pay- 
ments under  such  latter  conditions,  being  in  nature  of  dividends,  will  not  be  deduct- 
ible.    (T.  D.  2690;  art.  138.) 

Compensation  paid  employee  in  capital  stock  of  corporation  may  be  deducted  as 
expense  if  so  charged  on  books  at  actual  value  of  such  stock.     (T.  D.  2690;  art.  139.) 


INCOME   TAXES    (  COEPOEATIONS) .  329 

Net  income — Continued. 

Expenses — Continufd. 

— Compensation  payments — Continued. 

In  rase  of  compensation  fixed  after  services  are  rendered  and  not  in  accordance 
with  any  contract  or  any  custom  or  practice  amounting  ^^rtualIy  to  a  contract,  rea- 
ponableness  is  ordinarily  the  controlling  test  of  deductibility.  (T.  D.  2696;  Apr. 
10,  1918.) 

Test  of  deductibility  in  case  of  compensation  payments  is  whether  they  are  in 
fact  payments  purely  for  services  or  include  some'other  element;  in  case  of  any 
compensation  which  exceeds  amounts  ordinarily  paid  for  like  ser\-ioes  in  like  enter- 
prises under  like  circumstances,  burden  is  upon  enterprise  to  show  that  amount 
paid  was  solely  purchase  price  of  services;  this  test  and  its  particular  application 
further  stated  and  illustrated.     (T.  D.-2696;  Apr.  10,  1918.) 

Compensation  greater  than  that  ordinarily  paid  for  like  services  in  similar  enter- 
prises must  be  shown  to  represent  payment  for  services  only.  (T.  I).  2696;  Apr. 
10,  1918.) 

Compensation  on  whatever  basis  fixed,  representing  only  the  price  paid  for 
services  pursuant  to  a  fair  bargain  made  in  advance  between  the  individual  and 
the  business  enterprise,  is  deductible  in  determining  taxable  net  income  of  the 
enterprise.     (T.  D.  2696;  Apr.  10,  1918.) 

Payments  nominally  as  compensation  for  services,  which  in  fact  include  amounts 
paid  as  dividends,  waste  of  corporate  assets,  payments  for  property,  or  for  anything 
other  than  services,  are  deductible  only  to  an  amount  not  in  excess  of  compensation 
for  like  services  in  similar  enterprises.     (T.  D.  2696;  Apr.  10,  1918.) 

■ Current  earnings,  charges  against. 

All  expenses  including  interest,  taxes,  and  other  necessajy  charges,  incidental 
and  necessary  to  creation  or  production  of  gross  income  or  properly  chargeable 
against  same,  being  deductible  irom  gross  income,  whether  paid  in  cash  or  entered 
on  books  as  liability,  can  not,  if  unpaid,  be  carried  forward  to  be  deducted  from 
gross  income  of  subsequent  year.     (T.  D.  2690;  art.  127.) 

Each  year's  return,  both  as  to  income  and  deductions  therefrom,  must  be  com- 
plete ^vithin  itself;  charges  against  income  can  not  be  cumulative,  but  must  be 
deducted  from  income  of  year  in  which  incurred  or  not  at  all;  expenses,  liabilities, 
or  deficit  of  one  y^xr  can  not  be  used  to  reduce  income  of  subsequent  year;  deduc- 
tions must  in  all  cases  be  such  as  are  authorized  and  within  limits  fixed  by  law 
(T.  D.  2690;  art.  127.     See  T.  D.  2433;  Jan.  8,  1917.) 

Corporation  having  right  to  deduct  all  authorized  allowances,  whether  paid  in 
cash  or  set  up  as  a  liability,  it  follows  that  if  it  does  not  within  any  year  pay  or  accrue 
certain  of  its  expenses,  interest,  taxes,  or  other  charges,  and  makes  no'deduction 
therefor,  it  can  not  deduct  from  income  of  next  or  any  subsequent  year  any  amounts 
then  paid  in  liquidation  of  the  previous  year's  liabilities.     (T.  D.  2690;  art.  128.) 

Drawings,  models,  etc. 

Where  corporation  has  made  expenditures  for  designs,  dra\vings,  patterns,  or 
models,  representing  work  of  experimental  nature,  and  "such  designs,  etc.,  prove  to 
be  .satisfactory  and  result  in  production  of  salable  goods,  they  will  be  treated  as  a 
capital  asset,  and  entire  cost  thereof,  including  experimental  and  developing  ex- 
penses, will  be  capitalized,  in  which  case  no  part  of  expenditures  will  be  included 
in  expenses  of  running  business  and  will  not  be  treated  as  deduction  from  gross 
income.     (T.  D.  2690;  art.  175.) 

\\'here  designs,  drawings,  patterns,  or  models,  for  which  corporation  has  made 
expenditures,  proxQ  to  be  unsatisfactory  and  do  not  result  in  production  of  salable 
goods  and  have  no  asset,  value,  such  expenditures  when  charged  off  may  be  included 
as  loss  incident  to  business  and  as  such  deducted,  provided  corporation  in  taking 
credit  in  its  return  shall  make  full  and  complete  explanation  to  satisfaction  of 
Commissioner  of  Internal  Revenue.     (T.  D.  2690;  art.  176.) 

Live  stock  purchases. 

Cost  of  live  stock  purchased  for  resale  by  corporation  engaged  in  operating  plan- 
tations, stock  farms,  etc.,  is  an  allowable  deduction  under  item  of  expense.  (T.  D. 
2690;  art.  123.     But  see  T.  D.  2665.) 

' Operation  and  maintenance. 

In  case  of  cemetery  company,  reserve  set  aside  out  of  profits  as  "maintenance 
fund"  is  not  deductible  from  gross  income,  and  any  accretions  to  such  fund  will 
be  held  to  be  income,  and  as  such  must  be  returned  by  the  corporation;  expenses 
of  maintenance  will  be  deductible  as  paid.     (T.   D.  2690;  art.  71.) 


330  INCOME   TAXES    (COEFORATIONS) . 

IJet  rncrni  e — Continued. 

Expenses — Continued. 

Operation  and  maintenance — Continued. 

Expenses  of  operation  and  maintenance  shall  include  all  expenditures  for  mate- 
rial, labor,  luel,  and  other  items  entering  into  cost  of  goo<ls  sold  or  inventoried  at 
fend  of  year,  ijrovided  such  expenditures  have  not  been  considered  in  determining 
cost  of  goods  or  materials,  or  purchases  thereof  during  year,  when  income  derived 
from  operations  is  aocertained  tlirough  inventory  and  all  other  disbursements  necos- 
eary  to  operation  of  business  except  such  as  are  required  to  bo  segregated  and 
Gtated  separately  in  return;  expenditures  which  are  talcen  into  account  in  deter- 
mining cost  of  products,  finished  or  unfinished,  are  not  to  be  again  deducted  as 
expenses  of  operation  and  maintenance.  (T.  D.  2G90;  art.  129.)  Modifiedby  T.  1). 
2649  and  T.  D.  2744,  so  that  returns  may  be  made  on  basis  of  inventorie.s  taken 
at  cost  or  market  value,  whichever  is  lower. 

Payment  required. 

^Miere,  in  course  of  its  business,  corporation  credits  accounts  with  amounts  of 
any  expenses,  interest,  rentals,  wages,  etc.,  due  them,  thereby  mak'ng  them  sub- 
ject to  personal  drawings  of  creditors,  or  if  expenses  actually  incurred  are  vouchered 
in  definite  amounts,  such  amounts  may  be  treated  as  i>aid,  and  if  such  amounts  arc 
expenses  incurred  concurrently  with  and  in  production  of  income  of  the  year  they 
aaay  be  allowably  deducted  therefrom;  this  ruling  must  not  be  construed  to  allow- 
as  a  deduction  anv  accrued  charges  which  if  paid  in  cash  or  otherwise  would  not 
be  deductible,     (t.  D.  2690;  art.  126.) 

"Paid  ■'  or  "actually  paid,"  within  meaning  of  Title  I  of  the  act  of  September  H, 
1916,  as  amended  by  the  act  of  October  3,  1917,  does  not  necessarily  contemplate 
that  there  shall  be  an  actual  disbursement  in  cash  or  its  equivalent;  if  amount 
involved  represents  actual  expense  or  element  of  cost  in  j^roduction  of  income  of 
year,  it  will  be  properly  deductible  even  though  not  actually  disbursed  in  cash, 
provided  it  is  so  entered  upon  books  of  company  as  to  constitute  a  liability  against 
its  assets,  and  provided  further  that  income  is  returned  upon  an  accrued  basis. 
(T.  D.  2690;  art.  126.) 

Hepairs. 

Cost  of  incidental  repairs  which  neither  add  to  \'alue  of  property  nor  appreciably 
prolong  its  life,  but  keep  it  in  an  ordinarily  efficient  operating  condition,  may  be 
deducted  as  expense,  provided  that  plant  or  property  account  is  not  increased  by 
amount  of  such  expenditures;  such  repairs  to  extent  that  they  arrest  deterioration 
should  have  effect  to  reduce  depreciation  charge  otherwise  deductible.  (T.  D. 
2690;  art.  131.) 

Cost  of  incidental  repairs  necessary  to  keep  buildings  erected  by  lessee  corporation 
in  efficient  condition  for  purposes  of  their  use  may  be  deducted  by  such  corporation 
as  an  expense  of  operation  and  maintenance.     (T .  D.  2690;  art.  140.) 

Uncompleted  contracts. 

Where  gross  income  of  contracting  corporations,  having  numerous  uncompleted 
contracts,  which  in  some  cases  run  for  period  of  years,  is  arrived  at  by  returning  as 
income  any  and  all  moneys  received  in  payment  for  completed  jobs  for  year  in 
which  work  was  completed,  deduction  from  gross  income  should  be  limited  to 
expenditures  made  on  account  of  such  comnleted  contracts.  (T.  D.  2690;  art. 
121.) 

• Farming  corporations,  etc. 

See  subhead  "Returns — Farmers,"  j^ost. 

If,  in  case  of  farmers',  fruit  growers',  or  like  association,  organized  and  operated 
as  sales  agent  to  market  products  of  its  members,  amounts  paid  to  members  are 
based  solely  upon  quantity  of  produce  furnished,  such  amounts  may  be  deducted 
from  gross  iiroceeds  of  sale,  .and  taxable  net  income  will  be  amount  of  earnings 
passerl  to  surplus,  or  distributable  among  members  on  basis  of  their  stock  holdings. 
(T.  D.  2690;  art.  75.) 

Money  expended  for  stock  for  breeding  jDurposes  is  regarded  as  capital  invested, 
and  where  stock  afterwards  dies  from  disease  or  injury  or  is  killed  by  order  of  the 
authorities  of  a  State  or  the  United  States,  and  cost  thereof  has  not  been  claimed  as 
an  item  of  expense  in  the  preparation  of  previous  returns,  the  amounts  so  expended, 
less  any  depreciation  which  may  have  been  previously  claimed,  less  also  tmy 
insurance  or  indemnity  recovered,  may  be  deducted  as  a  loss;  if  reimbursement  is 
made  by  a  State  or  United  States,  amount  received  shall  be  reported  as  income  for 
year  in  whioh  reimbursement  is  made.     (T.  D.  2690;  art.  123.) 


INCOME  TAXES    (CORPORATIONS).  33^1 

Net  income — Conf  inuod. 

Farming  corporations,  etc. — Continurd. 

There  may  be  churned  a  reasonable  aUowaiace  fur  depreciation  on  farm  buildings, 
farm  machinery,  and  other  phys'cal  property,  including  stock  purchased  for  brcSi- 
inq'  purpose?,  but  no  claim  for  depreciation  on  stock  raised  or  purchased  for  resale 
wi'll  be  allowed.     (T.  D.  2fJ90;  art.  123.) 

In  deteriniuing  cost  of  stock  for  purpose  of  ascertaining  deductible  loss  there  shall 
be  taken  into  account  only  the  purchase  price  and  not  the  cost  of  any  feed,  pasturage, 
or  care  which  has  been  deducted  as  an  expense  of  operations.     (T.  D.  2690;  art.  123.) 

Cost  of  farm  machinery  is  not  an  allowable  deduction  as  item  of  expense,  but  cost 
of  ordinary  tools  of  short  life  or  insignificant  cost,  such  as  hand  tools,  including 
shovels,  rakes,  etc.,  may  be  included  under  this  item.     (T.  D.  2690;  art.  123.) 

All  deductions  by  corporations  engaged  in  operating  plantations,  ranches,  etc., 
shall  be  based  upon  legitimate  expense  incident  to  current  year  whether  for  produc- 
tion of  present  or  future  years,  except  that  in  case  wherein  corporation  is  engaged 
in  producing  crops  which  take  more  than  a  j-ear  from  time  of  planting  to  process  of 
gathering  and  disposing,  income  reported  and  expenses  deducted  shoidd  he  deter- 
mined upon  crop  basis.    (T.  D.  2G90;  art.  123.    See  T.  D.  266-5;  Mar.  8, 1018.) 

Foreign  corporations. 

Net  income  of  foreign  coiporation  shall  bo  ascertained  by  deciucting  from  gross 
income  received  in  this  country  deductions  enumerated  in  income-tax  act,  which 
deductions  shall  be  limited  to  expenditures  or  charges  actually  incurred  in  mainte- 
nance and  operation  of  business  transacted  and  capital  invested  in  United  States, 
or,  as  to  certain  chai"ges,  such  proportion  of  aggregate  charges  as  gross  income  from 
business  done  and  capital  invested  in  United  Stales  bears  to  aggregate  income 
within  and  without  United  States.     (T.  D.  2690;  art.  197.) 

Gifts  or  bonuses. 

Donations  which  legitimately  represent  consideration  for  benefit  flowing  direcily 
to  corporation  as  incident  of  business  may  be  deducted.     (T.  D.  2690;  art.  134.) 

Donations  made  for  purposes  connected  with  operation  of  property  when  limited 
to  charitable  institutions,  hospitals,  or  educational  institutions,  conducted  for 
benefit  of  employees  or  their  dependents,  may  be  deducted  as  ordinarj'  and  neces- 
sary expense;  such  deduction  should,  however,  be  reduced  by  any  amount  repaid 
to  corporation  by  the  employees.     (T.  D.  2690;  art.  134.) 

Donations  made  to  employees  and  others,  and  which  do  not  have  in  them  the  ele- 
ment of  compensation,  are  considered  gratuities  and  are  not  allowable  deductions 
from  gross  income  as  expenses  of  operation  or  maintenance  or  under  anv  other  item. 
(T.  D.  2690;  art.  135.) 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made  in  good 
faith  and  as  additional  compensation  for  services  actually  rendered  by  employees; 
if,  when  added  to  stipulated  salaries,  they  do  not  exceed  a  reasonable  compensa- 
tion for  services  rendered,  they  will  be  regarded  as  a  part  of  the  wage  or  hire  of  the 
emplovee  and  are  deductible  as  an  ordinarv  and  necessary  expense  of  operation 
and  maintenance.     (T.  D.  2690;  art.  138.) 

Corporations,  partnerships,  or  individuals  paying  officer.?  or  business  employees 
a  portion  or  all  of  their  salaries  and  wages  during  the  war  period  in  which  they  are  in 
the  S3rvice  of  the  United  States  may  deduct  the  amounts  so  paid  as  ordinary  and 
necessary  exp?ns?a  of  doing  business.    (T.  D.  26^30;  Mar.  1,  1918.  > 

Good  will. 

For  purpose  of  income  tax  good  will  is  capable  of  neither  appreciation  nor  depre- 
ciation, and  amount  claimed  to  represent  its  decline  in  value  is  not  an  allowable 
deduction  in  computing  tax  liability  of  an  individual  or  corporation.  (T.  D.  2690; 
art.  8.) 

Good  will  represents  ^•3lue  attached  to  l-.usiness  over  and  above  value  of  physical 
property,  and  is  such  an  intangible  a,sset  that  it  is  not  subject  to  wear  and  tear,  and 
no  claim  for  depreciation  on  account  of  it  can  be  allowed;  any  loss  resulting  from 
or  on  account  of  investment  in  good  will  can  be  determined  only  when  property  or 
business  to  which  good  will  attaches  is  sold  or  dLsposed  of,  in  v.'hich  case  profit  or 
loss  will  be  determined  upon  basis  of  value  of  assets  including  good  will  if  acquired 
prior  to  March  1,  1913,  or  their  cost  if  acquired  subsequent  to  that  date.  (T.  D. 
2690;  art.  167.) 

If  good  will  shall  have  been  purchased  at  a  determined  price  and  shall  be  later 
sold  at  a  ]>rice  less  than  such  cost,  or  less  than  determined  fair  market  value  as  of 
March  1,  1913,  if  acquii'cd  prior  to  that  date,  amount  by  which  selling  price  is  leaa 


332  INCOME   TAXES    (  COEPOEATIONS) . 

Net  income — Continued. 
Good  will — Continued. 

than  cost  or  value,  as  case  may  be,  will  be  loss  deductible  from  gross  income  of  year 

in  which  such  asset  was  sold.     (T.  D.  2690;  art.  168.) 

Insurance  companies — Agency  balances. 

Losses  of  insurance  companies  other  than  mutuals,  but  including  mutual  life 
and  mutual  marine,  from  agency  balances  or  other  amounts  charged  off  as  worthless, 
and  losses  by  defalcation,  premium  notes  voided  by  lapse,  provided  such  notes 
have  at  some  time  been  included  in  gross  income  for  income  tax  purposes,  may  be 
deducted;  otherwise,  they  will  not  be  deductible.     (T.  D.  2690;  art.  2^0.) 

Ascertainment. 

In  ascertaining  net  income  of  insurance  company,  for  purpose  of  tax  imposed  by 
Title  I  of  the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3,  1917, 
the  general  provisions  contained  in  the  law  and  in  Regulations  No.  33  will  be 
observed,  except  as  modified  by  specific  legislation  or  regulation  or  regulations 
concerning  insurance  companies.     (T.  D.  2690;  art.  239.) 

Net  income  of  insurance  company  for  purpose  of  4  per  cent  tax  imposed  in  addi- 
tion to  2  per  cent  tax  is  to  be  ascertained  in  same  manner  as  directed  by  terms  of 
act  of  September  8,-1916,  except  that  for  purpose  of  4  per  cent  war  income  tax  credit 
against  net  income  is  permitted,  representing  amount  of  dividends  received  upon 
stock  or  from  net  earnings  of  any  other  corporation,  joint-stock  company  or  associa- 
tion, or  insurance  company,  which  is  taxable  upon  its  net  income  under  Title  I  of 
the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3,  1917.  (T.  D. 
2690;  art.  239.) 

• Disposition  of  ledger  assets. 

For  purpose  of  ascertaining  gain  or  loss  from  sale  or  other  disposition  of  ledger 
assets  acquired  prior  to  March  1,  1913,  fair  market  price  or  value  of  such  assets  as 
of  March  1,  1913,  shall  be  basis  for  determining  such  gain  or  loss  to  be  accounted  for 
in  return  of  year  in  which  such  assets  are  sold;  if  acquired  subsequent  to  March  1, 
1913,  then  profit  or  loss  to  be  returned  or  claimed  will  be  difference  between  cost  and 

.  selling  price;  reinsurance  and  return  premiums  should  not  be  included  in  gross 
income  nor  in  deductions.     (T.  D.  2690;  art.  239.) 

— ■ ■  Dividends  paid. 

None  of  the  cash  dividends  paid  by  life  insurance  company  to  policy  holders 
which  represent  redundancy  in  previous  premium  payments  is  deductible  from 
gross  income  as  "sums  other  than  dividends  paid  within  the  year  on  policy  con- 
tracts."   (T.  D.  2899;  July  24,  1919.     Ct.  Dec.) 

■ Expenses. 

All  ordinary  and  necessary  expenses  paid  within  the  year  in  the  maintenance 
and  operation  of  the  company  and  its  properties  may  be  deducted  from  gross  income 
in  returns  by  insurance  companies  other  than  mutuals,  but  including  mutual  life 
and  mutual  marine.     (T.  D.  2690;  art.  240.) 

Insurance  companies,  other  than  mutuals,  but  including  mutual  life  and  mutual 
marine,  may  add  to  expenses  in  lieu  of  depreciation  of  furniture  and  fixtures,  actual 
cost  of  repairs,  replacements,  and  renewals  of  such  furniture  as  is  reported  to  State 
insurance  department,  provided  that  in  case  of  an  original  investment  cost  thereof 
shall  be  charged  to  capital  account.     (T.  D.  2690;  art.  240.) 

Interest. 

Insurance  companies  keeping  books  of  account  on  an  accrued  basis  may  deduct 
from  gross  income  in  returns  of  annual  net  income,  the  accrual  of  interest  for  the 
return  year  within  limits  prescribed  by  taxing  acts  when  shown  as  a  charge  against 
accrued  income  upon  books  of  account.     (T.  D.  2625;  Dec.  17,  1917.) 

Interest  paid  on  indebtedness  wholly  secured  by  property  collateral  the  subject 
of  sale  or  hypothecation  in  ordinary  business  of  company  as  dealer  only  in  property 
constituting  such  collateral  or  in  loaning  of  funds  thereby  produced  is  an  allowable 
deduction  in  returns  by  insurance  companies  other  than  mutuals,  but  including 
mutual  life  and  mutual  marine,  as  business  expense  to  an  amount  of  interest  paid 
on  such  indebtedness,  not  in  excess  of  actual  value  of  collateral  securing  it.  (T.  D. 
2690;  art.  240.) 

• Losses. 

Losses  of  insurance  companies,  other  than  mutuals,  but  including  mutual  life 
and  mutual  marine,  deductible  (other  than  policy  payments)  must  be  distinguished 


INCOME  TAXES  (CORPORATIONS).  333 

Net  income — Continued. 

Insuiance  companies — Continued. 

Losses— Continued. 

from  depreciation  or  allowances  for  exhaustion,  wear,  and  tear;  lopses  mu.^t  be 
absolute,  oomplote,  actually  sustained  during  year,  and  charged  off  on  books  of 
company,  and  if  they  result  from  sale  of  assets  acquired  prior  to  March  1,  1913,  such 
losses  shall  be  ascertained  by  taking  difference  between  fair  market  price  or  value 
as  of  March  1,  1913,  and  the  selling  price;  if  assets  were  accjuired  subsecjuent  to 
March  1 ,  1913,  loss  will  be  amount  by  which  selling  price  is  less  than  the  cost;  losses 
compensated  Ijy  insurance  or  otherwise  are  not  deductible.  (T.  D.  2690;  art.  240.) 
There  should  be  reported  as  payments  on  policies  by  insurance  companies,  other 
than  mutuals,  but  including  mutual  life  ancl  mutual  marine,  all  death,  disability, 
or  other  policy  claims  (other  than  dividends)  paid  within  year,  including  fire, 
accident  and  liability  losses,  matured  endowments,  and  annuities,  payments  on 
installment  policies,  surrender  values,  and  all  claims  actually  paid  under  the  terms 
of  policy  contracts.     (T.  D.  2690;  art.  240.) 

Mutual  insurance  companies. 

Profit  or  income  to  be  returned  in  event  of  sale  or  maturity  of  capital  assets  ac- 
quired prior  to  March  1, 1913,  should  be  determined  upon  basis  of  difference  between 
fair  market  value  of  such  assets  as  of  that  date  and  selling  price  thereof;  if  assets 
were  acquired  subsequent  to  that  date,  loss  will  be  amount  by  which  selling  price 
is  less  than  cost;  such  profit  or  income  may,  for  purpose  of  tax,  be  reduced  by 
amount  of  any  loss  resulting  from  same  source  and  ascertained  in  same  manner;  in 
no  event  can  loss  resulting  from  sale  or  maturity  of  capital  assets  exceed  gain  within 
year  from  like  transactions.     (T.  D.  2690;  art.  242.) 

All  payments  received  in  cash  or  its  equivalent  as  rent  on  buildings  or  other 
property,  owned  or  controlled  by  company,  must  be  returned  as  taxable  income, 
after  deducting  amount  paid  for  repairs  and  expenses,  including  taxes  (levied  for 
purposes  other  than  local  benefits)  as  has  been  expended  on  property  from  which 
rental  income  returned  was  derived.     (T.  D.  2690;  art.  242.) 

The  provision  of  section  12  (a),  paragraph  second,  of  the  act  of  September  8,  1916, 
that  certain  mutual  fire  and  mutual  employers'  liability,  and  mutual  workmen's 
compensation,  and  mutual  casualty  insurance  companies,  shall  not  return  as  income 
any  portion  of  premium  deposits  returned  to  policyholders,  but  shall  return  income 
received  from  all  other  sources  plus  due  portions  of  premium  deposits  as  are  retained 
for  purposes  other  than  payment  of  losses  and  expenses  and  reinsurance  reserves, 
embrace  all  mutual  insurance  companies  (other  than  mutual  life  and  mutual  marine 
and  companies  exempt);  interinsurance  and  reciprocal  exchanges  and  returns  of 
annual  net  income  should  be  made  on  special  form  (Xo.  1030A),  provided  for  that 
purpose.     (T.  D.  2690;  art.  242.) 

^lutual  marine  insurance  companies  may  include  in  deductions  amounts  repaid 
to  policyholders  on  account  of  premiums  preAdously  paid  by  them  and  interest  paid 
upon  such  amounts,  between  date  of  ascertainment  thereof  and  date  of  payment 
thereof,  such  amounts  and  interest  having  been  included  in  gross  income,  which 
amounts  deducted  from  gross  income  should  be  fully  set  forth  in  supplementary 
statement  of  return  form.     (T.  D.  2690;  art.  243.) 

Hep  airs. 

Expenditures  for  incidental  repaii's  which  do  not  add  to  value  nor  appreciably 
prolong  life  of  property  are  deductible  as  expenses  by  insurance  companies  other 
than  mutuals,  but  including  mutual  life  and  mutual  marine,  but  expenditures  for 
new  buildings,  permanent  improvements,  or  betterments,  which  increase  value 
of  property,  or  for  restoring  or  replacing  property,  are  not  deductible;  such  expendi- 
tures are  properly  chargeable  to  capital  account,  to  be  extinguished  through  annual 
depreciation  allowances.     (T.  D.  2690;  art.  240.) 

Taxes. 

Taxes  paid  by  companies  other  than  mutuals,  but  including  mutual  life  and 
mutual  marine,  on  value  of  then*  capital  stock  outstanding  and  in  hands  of  stock- 
holders, are  not  deductible;  such  taxes  are  a  primary  liability  of  the  stockholders 
and  therefore  chargeable  against  stockholders'  income.     (T.  D.  2690;  art.  240.) 

Insurance  premiums. 

Section  32  of  the  act  of  September  8,  1916,  providing  that  premiums  paid  for 
insurance  covering  lives  of  officers,  etc.,  interested  in  business  of  corporation,  shall 
not  be  deducted  from  gross  income  of  corporation  paying  same,  applies  to  all  forms 
of  life  insurance,  premiums  upon  which  corporation  may  pay,  whether  or  not  cor- 


334  INCOME  TAXES  (CORPORATIONS). 

Net  income — Coutiaued. 

Insurance  premiums — Continued. 

porations  are  beneficiaries  of  the  insurance  policies  u^wn  the  death,  of  the  insured; 
all  rules  and  regulations  in  conflict  revoked.     (T.  I).  2690;  art.  236.) 

In  computing  its  profits,  partnership  shall  not  deduct  premiums  on  life  insurance 
policies  covering  lives  of  members  of  partnerships,  its  employees,  or  those  finan- 
cially interested  in  the  business  or  trade  conducted  by  the  partnership  or  otherwise. 
(T.  i).  2690;  art.  30.) 

Premiums  paid  on  life  insurance  policies  covering  lives  of  officers,  employees,  or 
those  financially  interested  in  any  trade  or  business,  conducted  by  an  individual, 
partnership,  cortx)ration,  joint-stock  company  or  association,  or  insurance  company, 
shall  not  be  deducted  in  computing  net  income  of  insurance  companies  other  than 
mutuals,  but  including  mutual  life  and  mutual  marine.  (T.  D.  2690;  art.  240.) 
Insurance  reserves. 

Funds  set  aside  by  corporation  for  insuring  its  own  projjerty  are  not  a  proper 
deduction,  but  if  such  funds  are  set  aside  or  a  reserve  therefor  is  set  up,  any  lass 
actually  sustained  and  charged  to  such  funds  or  reserves  may  be  deducted.     (T.  D. 
2690;  art.  144.) 
Interest. 

Corporations  and  joint-stock  companies,  keeping  books  of  account  on  accrued  ba^is, 
may  deduct  from  gross  income,  in  returns  of  annual  net  income,  accrual  of  interest 
for  the  return  year  within  limits  prescribed  by  taxing  acts  Avhen  shown  as  a  charge 
against  accrued  income  upon  the  books  of  account.     (T.  D.  2625;  Dec.  17,  1917.) 

Where  bonded  or  ether  indebtedness  of  leased  or  purchased  line  has  been  assumetl 
by  operating  company,  it  may  deduct  from  its  gross  income  interest  paid  on  such 
indebtedness,  pro\'ided  such  interest  plus  interest  paid  on  its  own  indebtedness  is 
not  in  excess  of  limit  fixed  by  law;  in  this  event  ihe  leased  or  purchasetl  lino  so  long 
as  it  has  a  corporate  existence  will  make  return  of  annual  net  income,  setting  out 
that  on  its  own  account  it  has  neither  income  nor  expenses,  and  that  both  are  taken 
up  in  return  of  operating  com|mny,  naming  it.     (T.  D.  2690;  art.  125.) 

Under  paragraph  "Third"  o!  section  12(a),  act  September  8,  1916,  maximum 
principal  upon  which  deductible  interest  may  be  computed  is  amount  of  paid-up 
capital  stock  plus  one-half  of  interest-bearing  indebtedness  outstanding  at  close  of 
year;  amount  of  interest  thus  computed  at  contract  rate,  if  actually  paid  within  year, 
may  be  deducted,  or  if  accounts  are  kept  on  basis  of  otlier  than  actual  receipts  and 
disbursements,  amount  of  interest  actually  accrued  at  contract  rate,  if  computed  on 
amount  not  in  excess  of  maximum  principal,  may  be  deducted,  provided  it  ia  so 
entered  on  books  as  to  constitute  liability  against  assets,  and  provided  it  does  not 
include  interest  on  indebtedness  incun-ed  in  purchaac  of  securities  income  from 
which  is  not  subject  to  tix;  in  ascertaining  maxim imi  priacipal  preferred  stock  will 
be  considered  as  paid-up  capital  stock  and  not  as  indebtedness.  (T.  D.  2690; 
art.  180.) 

Full  amount  of  stock  as  represented  by  par  value. of  shares  issued  and  outstand- 
ing is  regarded  aa  paid-up  capital  stock,  except  when  assessable  on  account  of  de- 
ferred payments  or  when  payable  in  installments,  in  which  case  amount  actually 
paid  vail  constitute  actual  paid-up  stock;  where  stock  is  issued  without  par  or 
nominal  value,  paid-up  cajjitai  stock  for  purpose  of  arriving  at  maximum  principal 
v/ill  be  amount  of  cash  paid  into  corporation  or  cash  value  at  time  acquired  of 
property  given  in  exchange  for  such  stock;  when  there  is  no  capital  stock,  entire 
amount  of  capital  (not  including  interest-bearing  indebtedness)  employed  in 
business  plus  one-half  of  interest-bearing  indebtedness  outstanding  at  close  of  year, 
constitutes  maxim imi  principal  upon  which  deductible  interest  can  be  computed. 
(T.  D.  2690;  art.  181.) 

Capital  employed  in  business,  constituting  one  of  the  elements  iai  computing 
allov.^able  interest  deductions,  contemplates  entire  capital  paid  in  by  members  of 
company,  including  so  much  of  accumulated  surplus  as  is  actually  used  and  em^- 
pkiyed  in  the  business  and  properties  of  corporation,  but  does  not  include  any  bor- 
r&v/ed  capital  or  interest-bearing  indebtedness.     (T.  T>.  2690;  art.  181.) 

The  qualifying  phrase,  "outatanding  at  the  close  of  the  year,"  ae  used  in  para- 
graph third  of  section  12  of  the  income-tax:  act,  applies  to  paid-up  capital  stock  or 
capital  invested  and  interest-bearing  indebtedness,  which  indebtedness,  like  the 
paid-up  capital  stock  or  capital  invested,  is  required  to  be  reported  in  ijiaking 
return  of  annual  net  income,  as  outstanding  at  close  of  year;  from  amount  of  invest- 
ment to  be  so  reported  there  must  be  eliminated  all  indebtedness  incurred  in  pur- 
chase of  securities  income  from  which  is  not  subject  to  tax.     (T.  D.  2690;  art.  182.) 


INCOME  TAXES    (CORFOSATIONS) .  335 

Net  income — Continuod. 
Interest — ^(.'ontinued. 

Indebtedness  which  is  to  l>e  reported  in  return  for  purpose  of  determining  maxi- 
mum principal  upon  which  interest  deduction  is  to  be  computed  shall  not  include 
noniuterest-bearing  indebtedness.     (T.  D.  2G90;  art.  182. )• 

UTiere  no  indebtedness  is  outstand Lnj^  at  close  of  year,  maximum  deduction  allow- 
ablo  will  be  amount  of  interest  paid  on  amoujit  of  indebtedness  (other  than  indebt- 
edness incurred  in  purchase  of  securities  income  from  which  is  exempt  from  tax) 
not  exceeding  at  any  time  withui  year  entire  paid-up  capital  stock  or  capital  em- 
ployed in  business  outstanding  at  close  of  taxable  year.     (T.  D.  2690;  art.  182.) 

Interest  on  bonded  or  other  indebtedness  bearing  different  rates  of  interest  may 
be  deducted  from  gross  income  during  year,  provided  aggregate  amount  of  indebt- 
edness on  which  interest  is  paid  does  nor  exceed  limit  prescribed  by  law  and  in 
case  indebtedness  is  not  in  excess  of  amount  on  which  the  deductible  interest  may 
be  legally  computed;  in  such  case  indebtedness  !)earing  highest  rate  may  be  first 
considered  in  computing  interest  deduction,  and  balance,  if  any,  wdll  be  computed 
on  indebtedness  beariiig  next  lower  rate,  and  so  on  until  interest  on  maximiun  prin- 
cipal allowed  has  been  computed.     {T.  D.  2690;  art.  183.) 

Corporations  o\yning  pro}jerty  such  as  ofRce  buildings,  hotels,  apartment  houses, 
etc.,  which  are  not  for  sale  in  ordinary  business  of  cor}X)ration,  but  are  held  prima- 
rily for  investment  purposes  or  as  a  means  bj'  which  business  of  corporation  is 
carried  on,  and  which  are  pledged  as  security  for  mortgaged  notes  or  bonds  upon 
which  interest  is  paid,  can  not  deduct  such  interest  under  deduction  for  expense  of 
maintenance  and  operation,  but  shall  include  such  interest  payments,  subject  to 
the  limitation  of  the  kw,  under  regular  interest  deductions.     (T.  D.  2690;  art.  184.) 

So-called  interest  on  preferred  stock,  v/hich  is  in  reality  a  dividend  thereon,  can 
not  be  deducted  in  arriving  at  net  income;  for  purpose  of  tax,  dividends  of  what- 
ever character  can  be  i>aid  only  out  of  net  income,  and  net  income  is  subject  to  the 
tax,  and  for  this  purpose  can  not  be  reduced  by  anv  distribution  among  or  payment 
to  its  stockholders.     (T.  D.  2G90;  art.  18-5.) 

Interest  paid  pursuant  to  contract  on  indebtedness  secureti  by  mortgage  on  real 
estate  occupied  and  i!sed  by  corporation  in  which  corporation  has  no  equity  or  to 
which  it  is  not  taking  title,  is  allou-able  deduction  as  rental  charge,  pa\Tnent  of  which 
is  required  to  be  made  as  condition  to  continued  use  and  possession  of  proT^erty; 
where  corporation  has  equity  in  or  is  purchasing  for  its  own  use  real  estate  upon 
which  such  mortgage  is  prior  lien,  indebtedness  will  be  held  to  be  indebtedness  of 
corporation  within  meaning  of  law,  and  interest  paid  on  such  mortgage  .will  be 
deductible  only  to  extent  that,  including  interest  on  other  obligations  of  corporation, 
it  is  within  limit  fixed  by  law.     (T.  D.'2Q90;  art.  18G.) 

Interest  calculated  as  being  charge  against  income  on  account  of  capital  or  surplus 
invested  in  business,  but  which  does  not  represent  payment  on  inteie^^t-beaaing 
obligation,  is  not  an  allowable  deduction;  that  is  to  say.  interest  vdiich  money 
would  earn  if  otherwise  invested  is  not  a  deductible  charge.     (T.  D.  2690;  art.  187.) 

Car-trust  eertiticates  seciued  by  equipment  are  obligations  of  raikoad  company 
similar  to  corporate  bonds,  etc.,  and  tntstees  in  whose  i^.aoies  legal  title  to  equip- 
ment stands  are  not  an  association  witMn  meaning  of  Title  I  of  the  act  of  September 
8,  1916,  ai5  adiended  by  the  act  of  October  3.  1917.  and  are  therefore  net  taxable, 
but  they  are.  for  purposes  of  such  title,  a  fiscal  agent  paying  off  the  obligations,  both 
p  incipal  and  interest,  of  railroad  companiea  with  funds  appropriated  by  such  com- 
panies; companies  may  mortgage  such  certificates  in  amount  of  bonded  or  other 
indebtedness  reportetl  under  item  2  of  return.  Form  1031.  and  interest  paid  thereon 
with  interest  on  other  obligalioiis  will  be  deductible;  if  cerlificates  contain  provi- 
sion by  which  obligor  agrees  to  pay  portion  of  tax  imposed  upon  obligee,  or  reim- 
burse obligee  for  any  portion  of  tax,  or  pay  interest  without  deduction  for  any  tax, 
trustees,  in  making  interest  pa3,Tnents  will,  in  absence  of  claims  for  exemption, 
where  interest  payments  are  made  to  individuals,  withhold  normal  income  tax  on 
such  payments  regardless  of  amount  thereof.     (T.  D.  2690;  art.  188.) 

Where  trustees  of  sinking  fund  have  invested  amount  of  sinking  fund  received  or 
any  portion  of  it  in  bonds  of  corporal  ion,  and  such  corporation  pays  to  trustees  inter- 
est thereon,  the  corporation  will  be  permitted  to  deduct  such  interest,  provided 
amount  thus  paid,  plus  interest  on  any  other  outstanding  indebtedness,  does  not 
exceed  legal  limit;  interest  p.iid  to  trustees,  together  with  all  other  earnings  on 
investments  made  bv  trustees  of  the  sinking  fund,  m-ust  be  included  in  gmss  income 
of  corporation.     (T.'D.  2690;  art.  189.) 

In  case  of  banks  and  banking  associations,  loan  or  trust  companies,  interest  paid 
witliin  year  on  deposits  or  on  moneys  receiN"cd  from  investment  and  secured  by 
ixiterest-beaiing;  ceitificatcs  of  indebtedness  issued  by  such  bank,  banking  associa- 


336  INCOME  TAXES  (COEPOEATIONS). 

Net  income — Continued. 

■ Interest — Continued. 

lion,  loan  or  trust  company,  mav  be  allowably  deducted  from  gross  income  of  such 
corporation.     (T.  D.  2680;  art.  190.) 

In  ascertaining  net  income  of  a  corporation  under  section  2,  paragraph  G  (b) 
(first)  of  the  act  of  October  3,  1913,  which  has  taken  title  to  real  property  subject 
to  mortgage,  but  has  not  assumed  indebtedness  secured  thereby,  interest  paid  on 
indebtedness  may  be  deducted  as  payments  required  to  be  made  as  condition  to 
continued  use  or  possession  of  the  property.     (T.  D.  2787;  Jan.  31,  1919.) 

• — —  Lobbying  expenses. 

Sums  of  money  expended  for  lobbjdng  purposes,  promotion  or  defeat  of  legislation, 
and  exploitation  of  propaganda,  are  not  an  ordina.ry  and  necessary  expense  in  opera- 
tion and  maintenance  of  business,  and  are  therefore  not  deductible.  (T.  D.  2690; 
art.  143.) 

Local  assessments. 

A  ssessments  paid  for  local  benefits  imposed  because  of  and  measured  by  some  benefit 
inuring  directly  to  property  against  which  assessment  is  levied,  do  not  constitute 
allowable  deduction;  such  assessments  are  not  deductible  even  though  an  incidental 
benefit  may  inure  to  the  pubUc  welfare.     (,T.  D.  2690;  art.  194.) 

■ Losses. 

WTien  corporation,  as  result  of  suit  or  otherwise,  secures  payment  for  damages 
which  it  may  have  sustained,  and  amount  of  such  payment  is  less  than  damage  sus- 
tained, or  less  than  an  amount  necessary  to  make  good  the  damage,  difference 
between  actual  amount  of  damage  sustained  and  amount  recovered  will  be  deducti- 
ble as  a  loss.     (T.  D.  2690;  art.  94.) 

AMiere  shares  of  capital  stock  are  sold  at  a  discount,  amount  of  discount  is  not  a 
loss  deductible  from  operating  income.     (T.  D.  2690;  art.  97.) 

Unissued  stock  retained  by  corporation  for  purpose  of  future  sale,  vrill  not  be  con- 
sidered treasury  stock  and  there  will  be  no  deductible  loss  if  such  stock  is  sold  at  a 
price  less  than  par.     (T.  D.  2690;  art.  98.) 

AMiere  buyer  of  property  of  corporation  sold  on  installfnent  plan,  title  passing  at 
time  of  sale,  forfeits  his  contract  and  fails  to  meet  any  of  the  payments  contracted  to 
be  made,  selling  corporation  may  deduct  from  its  gross  income  as  a  loss,  such  propor- 
tion of  defaulted  payments  as  was  previously  returned  as  gross  income.  [T.  D. 
2690;  art.  116.) 

\\Tiere  corporation  sells  merchandise  on  installment  basis,  title  passing  to  vendee 
at  time  of  sale,  if  purchaser  defaults  in  payment  and  account  becomes  uncollectible 
and  the  uncollected  balance  is  charged  off,  amounts  so  charged  off  may  be  deducted 
as  a  loss.     (T.  D.  2690;  art.  120.) 

In  sale  or  contract  for  sale  of  personal  property  on  installment  plan,  whether  or  not 
title  remains  in  vendor  until  property  is  fully  paid  for,  income  to  be  returned  by 
vendor  will  be  that  proportion  of  each  installment  which  gross  profit  to  be  realized 
when  property  is  paid  for  bears  to  gross  contract  price;  if,  for  any  reason,  vendee 
defaults  and  vendor  repossesses  property,  entii'e  amount  received  on  installment 
pajTnents,  less  profit  originally  returned,  will  be  income  to  vendor  to  be  so  returned, 
for  year  in  which  property  was  repossessed.     (T.  D.  2707;  Apr.  25,  1918.) 

Deduction  for  losses  must  represent  losses  not  compensated  for  by  insurance  or 
otherwise  and  which  were  charged  off  and  actually  sustained  within  year  as  evidenced 
by  closed  and  completed  transactions.     (T.  D.  2690;  art.  147.) 

Losses  properly  deducted  on  account  of  bad  debts  o?  doubtful  accounts  are  those 
definitely  ascertained  to  have  occurred  and  M-hich  are  charged  off  during  year  for 
which  return  is  made;  not  essential  that  debt  or  account  shall  be  proved  worthless 
by  legal  proceedings,  but  corporation  must  not  only  be  satislicd  that  debt  or  account 
is  worthless,  but  must  be  able  to  satisfy  commissioner  or  collector  that  accounts 
charged  off  were  definitely  determined  at  the  time  to  be  worthless  and  that  they  had 
not  been  recognized  as  worthless  or  vrithout  value  prior  to  beginning  of  year  for 
which  return  is  made;  deduction  permissible  only  when  debt  or  account  is  written 
-out  of  the  assets  of  the  corporation.     (T.  D.  2690;  art.  151.) 

Corporation  engaged  in  raising  and  selling  live  stock  can  not  deduct  amounts 
claimed  as  loss  on  account  of  death  of  such  stock  through  exposure  or  otherwise, 
unless  and  to  extent  that  such  stock  was  specifically  paid  for  in  cash  or  its  eriui\a- 
lent;  if  stock  is  raised  and  fed  upon  farm  or  range,  cost  of  feeding  and  rai^dng  will  be 
included  as  operating  expense,  and  no  loss  of  capital  is  sustained  when  live  stock 
perishes;  if  stock  was  purchased  and  cost  thereof  was  not  charged  into  expenses  and 


INCOME   TAXES    (COKPOKATIONS) .  337 

Het  income — fonliniud. 

Losses — Continued. 

as  such  deducted  from  p;rosH  income,  deductible  loss  -will  be  actual  purchase  p  ico 
lees  any  depreciation  which  had  been  previously  charged  off  and  deducted.  ( T.  D. 
2690;  art.  154.) 

Any  amount  paid  pursuant  to  judgment  or  otherwise  on  account  of  damages  is 
deductible  from  gross  income  to  the  extent  of,  aixl  when  amount  is  actually  paid, 
less  any  amount  of  such  damages  as  may  have  been  compensated  for  by  insurance. 
(T.  D.  2G90;  art.  158.) 

Materials,  cost  of. 

Corporations  carrying  materials  and  supplies  on  hand  should  include  in  expenses 
the  charges  for  materials  and  supplies  only  to  amount  that  the  same  are  actually 
consumed  and  used  in  operation  and  maintenance  during  year  for  which  return  is 
made,  provided  that  cost  thereof  has  not  been  taken  into  account  in  determining 
net  income  for  any  p-evious  year;  if  no  record  of  consumption  is  kej)t  or  if  physical 
inventories  at  beginning  and  end  of  year  are  not  taken,  corporation  may  include 
in  expenses  total  cost  of  supplies  and  materials  purchased  during  year  for  which 
return  is  made.     (T.  D.  2690;  art.  130.) 

Merchandise  in  stock. 

Depreciation  computed  on  total  invoice  cost  of  merchandise  in  stock  is  not  an 
allowable  deduction,  except  that  if  portion  of  such  merchandise  is  unsalable  by 
reason  of  obsolescence  or  damage,  depreciation  deduction  not  in  excess  of  decline  in 
value  during  taxable  year  will  be  allowed.     (T.  D.  2690;  art.  169.) 

Reasonable  allowance  for  wear  and  tear  of  property  arising  out  of  its  use  or  em- 
ployment in  business  or  trade  is  to  be  based  upon  cost  of  such  property  or  on  its 
fair  market  price  or  value  as  of  March  1,  1913,  if  acquired  prior  thereto;  in  absence 
of  proof  to  contrary  it  will  be  assumed  that  such  value  as  of  March  1,  1913,  is  cost  of 
property,  less  depreciation  up  to  that  date.     (T.  D.  2754;  Aug.  23,  1918.) 

• Obsolescence. 

No  deduction  from  inventory  value  of  merchandise  or  material  will  be  allowed 
excejit  where  inventory  includes  goods  or  materials  which,  by  reason  of  obsolescence 
or  damage,  are  unsalable;  when  such  deduction  is  claimed  facts  connected  there- 
wth,  including  statement  of  cost  of  goods,  value  at  wliich  they  were  inventoried, 
and  present  condition,  must  be  filed  ^\'ith  return.     (T.  D.  2690;  art.  160.) 

WTiore  patent  becomes  obsolete  prior  to  its  expiration,  corporation  may  deduct 
from  gross  income  such  proportion  of  its  original  cost  (less  any  amount  previously 
charged  off)  as  immber  of  years  of  its  remaining  life  bears  to  whole  number  of  years 
intervening  between  date  it  was  acquired  and  date  it  legally  expires.  (T.  D, 
2690;  art.  174.) 

Where  designs,  drawings,  patterns,  or  models,  for  which  corporation  has  made 
expenditures,  result  in  production  of  goods  which  prove  to  be  salable  for  certain 
length  of  time  and  then  become  obsolete  and  can  not  be  sold,  amount  expended  for 
such  designs,  etc.,  less  any  amounts  claimed  as  depreciation  or  as  return  of  capital, 
may  be  charged  off,  be  included  in,  and  deducted  as  loss  incident  to  business,  pro- 
vided full  and  complete  information  is  reported  to  satisfaction  of  Commissioner  of 
Internal  Revenue.     (T.  D.  2690;  art.  177.) 

Amounts  representing  losses  on  account  of  obsolescence  of  physical  property 
may  be  included  as  deduction  from  gross  income  as  a  loss,  provided  such  amounts 
have  been  recorded  in  books  follo-vnng  condemnation  and  withdrawal  from  use  of 
the  obsolete  property;  amount  of  obsolescence  that  may  be  claimed  as  deduction 
shall  be  ascertained  by  deducting  from  cost  of  property  total  amount  previously 
claimed  and  deducted  on  account  of  depreciation,  plus  residual  value  at  time  of 
obsolescence,  or  plus  amount  received  for  sale  of  property;  obsolescence  deducti  >n 
must  not  include  accumulated  depreciation  applicable  to  prior  years.  (T.  D.  2690; 
art.  178.)  Deduction  should  be  based  on  value  as  of  March  1 ,  1913,  or  cost.  (T.  D. 
2754;  Aug.  23,  1918.) 

Where  no  depreciation  has  been  charged  off  and  deducted  from  gross  income  of 
prior  years,  amount  allowable  as  deduction  for  year  in  which  property  becomes 
obsolete  shall  be  ascertained  by  deducting  from  such  property  its  residual  value 
plus  amount  equal  to  depreciation  actually  sustained  during  the  prior  period  and 
which  might  have  been  deducted  when  computed  at  rate  applicable  to  same  or 
similar  property;  amount  of  such  depreciation  as  applicable  to  former  years  may  be 
made  basis  of  amended  returns  and  claim  for  refund  of  taxes  overpaici  by  reason  of 
fact  that  no  depreciation  deduction  wasclaimed  in  thoseyears.    (T.  D.  2690;  art.  179.) 

70420°— 21 22 


338  INCOME  TAXES  ( COEPOEATIONS) . 

Net  income — Continued. 
Patents. 

Corporation  disposing  of  patents  by  sale  should  determine  profit  or  loss  arising 
thercirom  by  computing  difference  between  selling  price  and  the  cost  or  value 
as  of  March  1,  1913,  if  acquired  before  that  date;  apparent  profit  or  loss  sliould  be 
increased  or  decreased,  as  case  may  be,  by  amounts  deducted  since  March  1,  1913, 
as  return  of  capital  invested  in  such  joatents.     (T.  D.  2690;  art.  109.) 

O'wner  of  patent  may  deduct  from  gross  income  each  year  until  capital  invested 
therein  is  extinguisherl,  sum  ascertained  by  dividing  cost  of  patent  by  number  of 
years  constituting  its  life  or  by  number  representing  years  of  its  life  remaining  after 
date  of  acquirement.     (T.  D.  2690;  art.  113.) 

Cor[3orations  disposing  of  patents  by  sale  should  determine  profit  or  loss  by  com- 
puting difference  between  selling  price  and  value  as  of  March  1,  1913,  if  acquiretl 
prior  to  that  date,  or  between  selling  price  and  cost,  if  acquired  subsequent  to  such 
date;  profit  or  loss  thus  ascertained  should  be  increased  or  decreased,  as  case  m.ay  be, 
by  amount  deducted  on  account  of  depreciation  of  such  patents  since  March  1,  1913, 
or  since  date  of  purchase  if  acquired  after  that  date.     (T.  D.  2690;  art.  157.) 

Deduction  for  any  given  year  for  return  of  capital  invested  in  jiatents  at  time  of 
issue  will  be  an  amount  equal  to  one-seventeenth  of  actual  cost,  in  cash  or  its  equiva- 
lent, of  such  patents;  where  patent  has  been  secured  from  Government  its  cost  will 
be  represented  by  various  Government  fees,  cost  of  drawings,  models,  attorney's 
fees,  etc.,  actually  paid,  but  where  patent  has  been  purchased  for  cash  consideration, 
amount  paid  therefor  would  represent  cajjit^l  invested  therein;  where  payment 
for  patent  was  made  in  stocks  or  other  securities,  actual  cash  value  of  such  stock  or 
securities  at  time  of  purchase  will  represent  cost  or  capital  invested;  if  patent  was 
purchased  after  part  of  its  life  had  expired,  cost  for  puqwse  of  deduction  for  return 
of  capital  will  be  ratably  spread  over  remaining  years  of  its  life;  in  determining 
amount  deductible  on  account  of  expiring  life  only  actual  cost  and  not  estimated 
value  as  of  March  1,  1913,  or  anv  other  date,  will  be  considered.  (T.  D.  2690;  art. 
174.) 

Pensions. 

Amounts  paid  for  pensions  to  retired  employees  or  to  their  families  or  others 
dependent  on  them,  or  on  account  of  injuries  received  by  employees,  or  lump-sum 
amounts  paid  as  compensation  for  injuries  are  proper  deductions  as  ordinary  and 
necessary  expenses;  such  deduction  shall  be  limited  to  amount  not  compensated 
for  by  insurance  or  otherwise;  no  deduction  shall  be  made  for  contributions  to  pension 
fund,  resources  of  which  arc  held  by  corporation,  amount  deductible  in  such  case 
being  amount  actually  paid  to  employee.     (T.  D.  2690;  art.  136.) 

■ Public  utilities'  earnings. 

Where  public  utility  constructed,  operated,  or  maintained  by  corporation  under 
contract  ■with  any  city,  State,  Territory,  or  the  District  of  Columbia,  agrees  that 
portion  of  net  earnings  shall  be  paid  to  s\ich  city.  State,  Temtory,  or  the  District  of 
Columbia,  amount  so  paid  may  be  deducted  by  the  public  utility  company  as 
necessary  expense  of  transacting  business.     (T.  D.  2690;  art.  142.) 

Purchase  of  assets  of  other  corporation. 

Where  one  corporation  buys  assets  of  another  and  issues  direct  to  selling  company 
its  own  capital  stock  in  payment  for  such  assets,  if  excess  of  value  of  stock  taken  in 
payment  for  assets  over  value  of  assets  sold,  as  of  March  1,  1913,  or  over  cost,  as  case 
may  be,  includes  any  surplus  earned  since  March  1,  1913,  upon  which  income  tax 
has  been  jjaid,  excess  of  profits  resulting  from  sale  may  be  reduced  by  amount  of 
such  tax-paid  surplus.     (T.  D.  2690;  art.  124.) 

ileal  estate  subdivisions. 

■\\liere  real  estate  corporation  purchases  tract  of  land  with  view  to  dividing  h 
into  lots  or  parcels  to  be  sold  as  such  and  loss  results  from  sale,  amount  of  loss  to  be 
deducted  will  be  ascertained  in  like  manner  as  if  gain  had  been  realized  and  will 
be  amount  by  which  selling  price  is  less  than  the  value,  as  of  March  1,  1913,  or  less 
than  the  cost,  if  acquired  subsequent  to  that  date,  as  the  case  may  be.  (T.  D.  2690; 
art.  117.) 

In  case  of  real  estate  corporations  purchasing  tract  of  land  with  view  to  dividing 
it  into  lots  or  parcels  to  be  sold  as  such,  entire  value  as  of  March  1,  1913,  or  co.st,  it 
acquired  subsequent  to  that  date,  shall  be  equitably  apportioned  to  the  several 


INCOME  TAXES  (CORPORATIONS).  339 

Net  income — Continued. 

• Ileal  estate  subdivisions — ^Continued. 

lots  or  parcels  s(j  that  any  giiin  derived  may  be  returned  as  income  for  year  in  wliich 
salewas  made;  rule  contemplates  that  there  will  be  gain  or  loss  in  every  sale  and  does 
not  contemplate  that  capital  invested  in  entire  tract  shall  be  extin<^uished  before 
any  taxable  income  shall  be  returned;  sale  of  each  lot  or  ^jarcel  will  be  treated  as 
separate  transaction  and  gain  will  be  accounted  for  accordingly.  (T.  D.  2690;  art. 
117.) 

Reraoval  or  demolition  of  buildings,  etc. 

See  '  "Destruction  of  property  "  under  this  subhead. 

Loss  due  to  voluntary  removal  or  demolition  of  old  buildings,  scrapping  of  machin- 
cry,  equipment,  etc.,  incident  to  renewals  and  replacements,  will  be  deductible  in 
amount  representing  difference  between  cost  of  such  property  and  amount  measur- 
ing reasonable  allowance  for  depreciation  wliich  property  had  undergone  prior  to 
its  demolition  or  scrapping.     (T.  D.  2690;  art.  155.) 

^Mien  corporation  buy.g  real  estate  upon  which  is  located  building  or  buildings 
which  it  proceeds  to  raze  with  \-iew  to  erecting  thereon  other  building  or  buildings, 
it  will  be  held  that  corporation  has  sustained  no  deductible  loss  by  reason  of  demo- 
lition of  old  building  or  buildings;  in  such  case  it  will  be  considered  that  value  of 
real  estate,  exclusive  of  old  improvements,  is  equal  to  purchase  price  of  land  and 
buildings.     (T.  D.  2690;  art.  156.) 

H.etirenient  of  bonds. 

Where  corporation,  under  terms  of  its  indenture  securing  issue  of  bonds  is  re- 
quired at  certain  specified  period  to  purchase  and  retire  certain  number  of  its  bonds 
and  in  doing  so  pays  more  than  par  for  the  bonds,  loss  sustained  is  allowable  as 
deduction  from  gross  income  for  year  in  v,diicli  purchase  is  made,  under  certain 
specitied  conditions.     (T.  D.  2690;' art.  152.) 

Royalties. 

See  "Patents,"  under  this  subhead. 

Sale  by  subsidiary  to  parent  corporation. 

Where  subsidiary  or  other  corporation  sells  or  transfers  assets  to  parent  or  other 
corporation,  accepting  in  exchange  therefor  stock  or  bonds  of  purchasing  corpora- 
tion, question  of  gain  or  loss  will  be  determined  upon  basis  of  difference  between 
cost  or  market  value  of  assets  sold  and  actual  value  of  stock  or  bonds  given  in  ex- 
change therefor;  any  gain  or  loss  thus  ascertained  as  resulting  from  such  transaction 
will  be  added  to  or  deducted  from  entire  gross  income,  as  case  may  be,  of  selling 
corporation  in  year  in  which  capital  assets  were  sold.     (T.  D.  2690;"art.  119.) 

Sale  of  assets. 

In  case  of  sale  of  assets,  real,  personal,  or  mixed,  loss  will  bo  difference  between 
cost  thereof  or  valtie  as  of  March  1,  1913,  if  acquired  before  that  date,  and  price  at 
which  disposed  of.     (T.  D.  2690;  art.  147.) 

Shrinkage  in  securities. 

Corporation  possessing  securities  can  not  allowably  deduct  amount  claimed  as 
loss  on  account  of  shrinkage  in  value  through  fhictuation  of  market  or  otherwise; 
only  loss  to  be  allowed  is  that  suffered  when  securities  mature  or  are  disposed  of; 
in  case  of  banks  or  other  corporations  subject  to  supervision  by  State  or  Federal 
authorities,  and  which,  in  obedience  to  orders  of  supervisory  officers,  charge  off  li.s 
losses  amounts  represented  as  alleged  shrinkage  in  value  of  property,  amounts  so 
charged  off  do  not  constitute  allowable  deductions;  this  applies  only  to  o^'ners  ar.'i 
investors  and  not  dealers  in  securities,  as  to  Vvdiich  see  T.  D.  2609.  (T.  D.  2090; 
art.  148.) 

District  irrigation  bonds  generally  are  a  lien  upon  real  estate  affected  by  irriga- 
tion project,  and  until  corporation  holding  such  bonds  has  taken  necessary  action 
to  protect  its  interest  and  enforce  collection  of  such  bonds  corporation  viill  not  be 
allowed  to  deduct  face  value  or  any  estimated  amount  supposed  to  represent  loss 
or  shrinkage  in  value  of  such  bonds;  any  estimated  shrinkage  in  value  does  not 
constitute  loss  within  meaning  of  Title  I  of  the  act  of  September  8,  191G,  as  amended 
by  act  of  October  3,  1917;  so  long  as  value  of  security  is  uncertain  or  unknown  loss 
can  not  definitely  be  ascertained  and  is  therefore  not  deductible.  (T.  D.  2690; 
art.  153.) 


340  INCOME  TAXES  ( COKPOEATIONS) . 

Net  income — Continued. 

— —  Sinking-fund  reserve. 

When  corporation  sets  aside  part  of  its  earnings  to  create  sinking  fund  with  which 
to  retire  indebtedness,  annual  additions  to  such  fund  are  not  allowable  deductions 
from  gross  income  as  or  in  lieu  of  depreciation  or  on  any  other  account;  earnings 
thus  set  aside  are  an  asset,  and  any  accretion  thereto  must  be  accounted  for  as  in- 
come; ruling  will  not,  however,  forbid  deduction  or  reasonable  allowance  for  deple- 
tion of  natural  deposits  even  though  amount  so  deducted  be  used  in  whole  or  in 
part  in  payment  of  its  indebtedness.     (T.  D.  2690;  art.  166.) 

— —  Spending  or  treating  money. 

So-called  "spending  or  treating  money,"  actually  advanced  by  corporations  to 
their  traveling  salesmen  to  be  used  by  them  as  part  of  expense  incident  to  selling 
product  is  allowable  deduction,  but  deduction  is  conditioned  upon  satisfactory 
showing  that  all  allowance  claimed  was  actually  expended  for  and  was  an  ordinary 
and  usual  expense  incurred  in  selling  the  product  or  merchandise  of  the  corporation. 
(T.  D.  2690;  art.  133.) 

Taxes. 

Taxes  imposed  against  corporation  by  authority  of  the  United  States  (except 
income  and  excess-profits  taxes),  its  Territories,  or  any  foreign  country,  or  by 
authority  of  any  State,  coimty,  school  district,  municipality,  or  other  taxing  subdi- 
vision of  a  State  (not  including  those  assessed  against  local  benefits),  and  paid 
within  year  for  which  return  is  made,  are  deductible  from  gross  income  of  domestic 
corporation.     (T.  D.  2690;  art.  191.) 

Taxes  imposed  against  foreign  corporation  by  authority  of  United  States  (except 
income  and  excess-profits  taxes),  its  territories,  or  any  foreign  country,  or  by  author- 
ity of  any  State,  county,  school  district,  municipality,  or  other  taxing  subdivision 
of  a  State  (not  including  those  assessed  against  local  benefits)  and  paid  within  year 
for  which  return  is  made,  such  corporation  receiving  income  from  any  source  within 
United  States,  are  deductible  from  gross  income  received  from  such  source,  except 
that  taxes  imposed  by  a  foreign  Government  and  paid  by  a  foreign  corporation  are 
not  deductible  from  gross  income  received  by  it  from  sources  within  United  States. 
(T.  D.  2690;  art.  191.) 

Banks  paying  taxes  assessed  against  stockholders  on  account  of  ownership  of 
shares  of  stock  issued  by  such  banks  can  not  deduct  amount  of  taxes  so  paid  unless 
and  to  extent  that  laws  of  State  in  which  they  do  business  by  specific  terms  make 
tax  direct  liability  of  such  banks;  fact  that  State  laws  make  it  duty  of  banks  to  pay 
tax  does  not  necessarily  make. tax  a  liability  of  the  banks,  and  such  payments  are 
not  deductible  from  gross  income  of  such  Banks;  rule  applies  only  to  taxes  levied 
up'^n  value  of  capital  stock,  and  is  not  intended  to  prevent  bank  from  deducting  any 
State  tax  imposed  on  value  of  corporation's  real  estate,  furniture  and  fixtures,  or  as 
an  excise  or  franchise  tax;  rule  applies  in  case  of  corporations  other  than  banks,  upon 
value  of  whose  stock  taxes  are  assessed  to  the  stockholders.     (T.  D.  2690;  art.  192.) 

^\^lere  bonds  or  other  forms  of  indebtedness  are  issued  with  guaranty  that  interest 
thereon  shall  be  free  from  taxation  as  against  holder,  corporation  paying  tax  pur- 
suant to  guaranty  will  not  be  permitted  to  deduct  tax  so  paid,  as  contract  is  not  bind- 
ing upon  or  recognized  by  Government  in  determining  tax  liability  of  corporation. 
(T.  D.  2690;  art.  193.) 

Taxes  deductible  are  those  levied  for  the  public  welfare  by  the  proper  taxing 
authorities  at  a  like  rate  against  all  property  and  territory  over  which  such  authori- 
ties have  jurisdiction,  so  that  assessments  paid  for  local  benefits,  and  other  like 
assessments,  imposed  because  of  and  measured  by  some  benefit  inuring  directly  to 
property  against  which  assessment  is  levied,  do  not  constitute  an  allowable  deduc- 
tion.    (T.  D.  2690;  art.  194.) 

Import  or  tariff  duties  levied  by  Congress  and  paid  to  proper  customs  officers, 
stamp  taxes,  and  all  other  taxes  (except  income  and  excess-profits  taxes)  imposed 
by  internal  revenue  laws  and  paid  to  collectors  are  deductible  as  taxes  imposed 
under  authority  of  United  States,  provided  they  are  not  added  to  and  made  a  part 
of  the  cost  of  articles  of  merchandise  with  respect  to  which  they  are  jiaid,  in  which 
case  they  will  be  reflected  in  cost  of  merchandise  and  can  not  be  separately  deducted. 
(T.  D.  2690;  art.  195.) 

Trade-marks  and  trade  brands. 

No  deduction  will  be  allowed  for  depreciation  of  trade-marks  and  trade  brands; 
if  such  assets  shall  have  been  purchased  at  a  determined  price  and  shall  be  later 
sold  at  a  price  less  than  cost  or  less  than  their  determined  fair  market  value  as  of 


INCOME  TAXES    (COEPOEATIONS) .  341 

Net  income — Continiicd. 

Trade-marks  and  trade  brands — Continued. 

March  1,  1913,  if  acquired  prior  to  that  date,  amount  by  which  selling  price  is  lo?s 
than  cost  or  vahie,  as  case  may  be,  will  be  loss  deductible  from  gross  income  of  year 
in  which  such  assets  were  sold.     (T.  D.  2G90;  art.  168.) 

Trading  stamps,  etc. — Redemption. 

Corporations  which  issue  trading  stamps,  coupons,  etc.,  for  purpose  of  increai-ing 
business,  which  stamps  or  coupons  are  redeemable  in  merchandise,  may  deduct, 
as  business  expense,  amount  wliich  such  corporations  actually  expend  for  such 
stamps  or  coupons,  and  also  actual  cost  of  merchandise  given  in  redeeming  same. 
(T.  D.  2690;  art.  141.) 

Undistributed  net  income. 

All  dividends  received  in  1917,  even  though  paid  by  corporations  from  earnings 
of  previous  years,  constitute  income  to  the  recipients  for  1917;  method  of  ascer- 
taining precise  rate  applicable  to  such  portions  of  dividends  received  in  1917  stated; 
taxpayers  reporting  dividends  received  at  other  than  1917  rates  required  to  render 
statement  showing  corporations  from  which  such  dividends  were  received,  with 
amount  of  dividend  received  from  each.  (T.  D.  2659;  Feb.  28,  1918.  See  T.  D. 
2736;  June  18,  1918.) 

Wliere  there  is  any  doubt  whether  earnings  of  corporation  in  1917  up  to  date  of 
dividend  payment  in  that  year  were  sutiicient  to  cover  dividend  payment,  corpora- 
tion may  distribute  earnings  for  accounting  period  within  which  dividend  or  divi- 
dends in  question  were  paid,  ratably  over  the  period,  for  purpose  of  determining 
amount  of  earnings  during  period  up  to  date  of  payment ;  this  decision  should  be  read 
in  connection  with  instructions  set  forth  in  T.  D.  2659.  (T.  D.  2678;  Mar.  23,  1918, 
See  T.  D.  2736;  June  18,  1918.) 

In  determining  source  of  earnings  from  which  particular  distribution  is  made, 
corporation  may  treat  undivided  profits  and  surplus  of  current  year  as  reduced  by 
payments  for  income  and  excess-profits  taxes,  or  if  keeping  its  accounts  upon  an 
accrual  basis  by  proper  reserves  for  such  taxes,  although  such  payments  or  reserves 
are  not  deductible  in  computing  income  of  corporation  for  income  and  excess- 
profits  taxes.     (T.  D.  2700;  Apr.  16,  1918.     T.  D.  2736;  June  18,  1918.) 

Restrictions  as  to  distribution  of  earnings  of  previous  taxable  years  resulting  from 
presumption  that  all  current  distributions  are  from  current  earnings  do  not  apply 
to  use  of  earnings  for  investments  by  corporations;  the  acts  of  September  8,  1916, 
and  October  3,  1917,  contain  no  limitations  or  restrictions  as  to  source  from  which 
may  be  taken  earnings  used  for  this  purpose;  amounts  invested  in  obligations  of 
United  States  issued  after  September  1,  1917,  may  thus  be  treated  as  made  from 
such  earnings  as  the  corporation  may  designate.     (T.  D.  2700;  Apr.  16,  1918.) 

Every  corporation,  joint-stock  company  and  association,  and  insurance  company, 
domestic  or  foreign,  coming  within  terms  of  Title  I  of  the  act  of  September  8,  1916, 
as  amended  by  Title  XII  of  act  of  October  3,  1917,  which  was  subject  to  taxation 
upon  total  net  income  received  during  preceding  taxable  year,  is  subject  to  pro- 
visions of  section  10  (b)  added  to  act  of  September  8,  1916,  by  section  1206  of  act 
of  October  3,  1917,  which  impose  tax  upon  undistributed  net  income.  (T.  D.  2736; 
June  18,  1918.) 

Amount  of  undistributed  net  income  subject  to  10  per  cent  tax  imposed  by  sec- 
tion 10  (b)  of  the  act  of  September  8,  1916,  as  amended,  is  to  be  determined  as  of  a 
date  six  months  after  end  of  taxable  year;  changes  in  amount  of  such  undistributed 
income  after  such  date  do  not  change  amount  subject  to  such  tax;  Commissioner 
of  Internal  Revenue  has  no  authority  to  change  date  as  of  which  amount  of  undis- 
tributed net  income  subject  to  such  tax  is  determined,  either  in  case  of  taxable 
year  ending  before  October  3,  1917,  or  of  any  other  taxable  year.  (T.  D.  2736; 
June  18,  1918.) 

Net  income  received  by  corporation,  joint-stock  company  or  association,  or  in- 
surance company,  during  its  taxable  year  remains  undistributed  until  it  is  distribu- 
ted in  form  of  dividends,  whether  it"^  is  represented  by  liquid  assets  or  otherwise; 
income  distributed  in  form  of  dividends  is  subject  to  provisions  of  section  31  (b) 
added  to  act  of  September  8,  1916,  by  section  1211  of  act  of  October  3,  1917;  bur- 
den is  upon  corporation,  etc.,  seeking  to  establish  distribution  in  current  year  of 
profits  of  preceding  taxable  year  to  show  that  all  earnings  of  current  year  have 
been  first  distributed ;  in  determining  source  of  earnings  from  which  particular  distri- 
bution is  made  corporation  may  treat  undivided  profits  and  surplus  of  current  year 
as  reduced  b-y  payments  for  income  and  excess-profl'ts  taxes,  or  if  keeping  accounts 
on  accrual  basis  by  proper  reserves  for  such  taxes.    (T.  D.  2736;  June  18, 1918.) 


^42  INCOME    TAXES    (CORPORATIONS). 

Wet  inccnie — Continued. 

Undistributed  net  income — Continued. 

Undistributed  income  which  is  actually  invested  and  employed  in  business  is 
not  subject  to  10  per  cent  tax  imposed  by  section  10  (b)  of  the  act  of  September  8, 
191C,  as  amended;  undistributed  income  is  used  or  employed  in  the  business  if 
invested  in  increased  inventories  or  additions  to  plant  reasonably  required  by  busi- 
ness, or  if  used  for  payment  of  income  and  excess-profits  taxes  for  taxable  year, 
provided  amounts  so  paid  are  designated  upon  books  as  made  from  income  of  such 
taxable  year,  or  if  used  to  make  good  an  impairnietnt  of  capital  when  such  income 
is  by  law  required  to  be  so  used,  or  if  used  to  retire  whole  or  any  part  of  capital  stock, 
but  reserves  set  up  for  this  purpose  are  neither  invested  and  employed  in  the  busi- 
ness, nor  retained  for  employment  in  reasonable  requirements  of  business;  in  case 
of  banking  institutions,  business  of  which  is  to  receive  and  loan  money,  using  capi- 
tal, surplus,  and  deposits  for  this  purpose,  undistributed  income  actually  represented 
by  loans  is  invested  and  employed  in  the  business.     (T.  D.  2736;  June  18,  1918.) 

Portion  of  undistributed  net  income  whicli  is  retained  for  employment  in  rea- 
sonable Tcquirements  of  business  is  not  subject  to  10  per  cent  tax  imposed  by  sec- 
tion 10  (b)  of  act  of  September  8, 1916,  as  amended;  undistributed  income  is  retained 
for  employment  in  reasonable  requirements  of  business  if  to  a  reasonable  amount 
it  is  retained  to  make  good  an  impairment  of  capital  when  such  income  is  by  law 
required  to  be  so  used,  or  in  accordance  with  contract  requirements  placed  to  credit, 
of  sinking  fund  for  purpose  of  retiring  bonds  issued  by  corporation,  or  retained  for 
working  capital  required  by  the  business;  in  case  of  banking  institutions,  business 
of  which  is  to  receive  and  loan  money,  using  capital,  surplus,  and  deposits  for  this 
purpose,  such  reasonable  amounts  of  undistributed  income  as  are  retained  for  future 
loans,  are  not  subject  to  tax.     (T.  D.  2736;  June  18,  1918.) 

Undistributed  net  income  inves^ted  in  obligations  of  United  States,  issued  after 
September  1,  1917,  is  not  subject  to  10  per  cent  tax  imposed  by  section  10  (b)  of  act 
of  September  8,  1916,  as  amended,  but  this  is  not  tnic  of  obligations  issued  before 
September  ],  1917;  restrictions  as  to  distribution  of  e.amings  of  prcAdous  taxable 
years  resulting  from  presumption  that  all  current  distributions  ai-e  from  current 
earnings  do  not  apply  to  use  of  earnings  for  investment  by  corporations;  there  is  in 
the  statutes  no  limitation  or  restriction  as  to  source  from  which  may  be  taken  earn- 
ings used  for  this  purpose;  amounts  invested  in  obligations  of  United  States  issued 
after  September  1,  1917,  may  thus  be  treated  as  m?.de  fiom  such  earnings  as  cor- 
poration may  designate.     (T.  D.  2736;  June  18,  1918.) 

Under  section  10  ( b )  of  tlie  act  of  September  8,  1916,  as  amended,  if  Secretary  of 
Treasury  ascertains  and  finds  that  any  portion  of  undistributed  net  income  retained 
at  any  time  for  employment  in  )>usines3  is  not  so  employed,  or  is  not  reasonably 
required  in  the  business,  it  is  subject  to  tax  of  15  per  cent;  liability  of  undistribu- 
ted net  income  to  10  per  cent  tax  depends  upon  ma.nner  in  which  it  is  invested  on 
date  sbc  months  after  end  of  taxable  year;  however,  status  of  income  is  not  lost  by 
investment,  but  persists  for  possible  application  of  15  per  cent  tax;  amounts  of 
undistributed  income  not  subject  to  10  per  cent  tax  because  of  employment  in 
business,  etc.,  becomes  subject  to  15  per  cent  tax  if  retained  after  such  investment, 
employment,  or  retention  for  emplovment  in  the  reasonable  requirements  of  the 
business,  has  ceased.     (T.  D.  2736;  June  18,  1918.) 

'  'The  business' '  of  a  corporation  is  not  limited  to  business  which  corporation 
has  previously  carried  on,  but  includes  anv  line  -of  business  which  the  corporation 
may  legitimately  uuderta'ke.     (T.  D.  2736;"  June  18,  1918.) 

\\'hen  one  corporation  owns  stock  of  another  in  same  or  related  line  of  businc^ss 
and  in  effect  operates  other  corporation,  business  of  such  other  falling  -within  general 
scope  of  powers  of  first,  that  business  may  be  in  effect,  altliough  not  in  legal  form, 
business  of  first  corporation;  income  of  first  corporation  may  be  put  into  second 
through  purchase  of  stock  or  othervase,  and  might,  if  subsidiary  relationship  is 
established,  constitute  employment  of  income  in  its  own  business;  for  such  employ- 
ment to  fall  vvithin  exception  provided  in  section  10  (b)  of  the  act  of  September  8, 
1916,  as  amended,  it  v^'ould-  be  essential  for  corporation  to  shovv^  same  facts  with 
reference  to  actual  utilization  of  funds  so  employed,  or  their  retention  for  its  reason- 
able requirements  which  it  vv  ould  be  ncessary  for  corporation  to  show  with  reference 
to  funds  employed  or  retained  directly  by  it.     (T.  D.  2736;  June  18,  1918.) 

Investment  by  corporation  of  income  in  securities  of  another  corporation  is  not, 
without  more,  to  be  regarded  as  employment  for  the  income  in  "the  business"; 
business  of  one  corporation  may  not  be  regarded  as  inclnding  busiaess  of  another 
within  meaning  of  exception  in  section  10  (b)  of  act  of  September  8, 1916,  as  amended 
unless  other  corporation  is  mere  instrumentality  of  first;  to  establish  this  it  is  ordi- 
narily essential  that  first  corporation  own  all  of  the  stock  of  the  second.  (T.  D. 
2736;  June  18,  1918.) 


INCOME  TAXES  (C0RP0RATI0K3) .  343 

Net  income — Conliiuu>d. 

Undistributed  net  income — ContlQued. 

Amoimt  of  income  subject  to  10  per  cent  tax  imposed  Tiy  section  10  (b)  of  act  of 
September  8,  191G,  as  amended,  is  to  be  ascertained  by  deducting  from  total  net 
income  received  diirin;^  taxable  year  as  doLorniined  for  purposes  of  annual  tax 
imposed  by  section  10  (a),  which  remains  undistributed  six  months  after  end  of 
such  taxable  year,  (1)  amount  of  any  income  taxes  imposed  by  authority  of  United 
States  paid  by  coTi;)oration  -within  such  taxable  year  for  income  of  that  year,  (2) 
such  part  of  undistributed  income  as  is  actuallj'  invested  and  employed  in  the 
business,  or  (3)  is  retained  for  employment  in  the  reasonable  requirements  of  the 
business,  or  (4)  is  invested  in  obligations  of  United  States  issued  after  September  1, 
1917;  if  taxable  year  began  on  or  after  January  1,  1917,  remainder  is  amount  upon 
which  tax  is  assessed,  but  if  taxable  year  began  before  January  1,  1917,  proportion 
of  such  remainder  vwiich  period  ])etv\'een  January  1,  1917,  and  end  of  such  taxablo 
year  bears  to  whole  of  such  taxable  year  is  amount  upon  which  tax  is  assessed; 
income  received  before  beginning  of  taxable  year  ending  in  1917  is  not  subject  to 
tax  even  though  remaining  undistributed  six  m.onths  after  end  of  such  taxable  year. 
(T.  D.  2736;  June  18,  1918.) 

In  determining  amount  of  net  income  of  taxable  year  "remaining  undistributed" 
six  raonths  after  its  close,  and  not  "invested  and  employed  in  the  business."  there 
mav  l)e  subtracted  the  amoimt  of  contri])utions  properly  made  for  charitable  or 
war  purposes.     (T.  D.  27G3;  Oct.  21,  1918.) 

In  determining  amount  of  net  income  of  taxable  year  '"'Temaining  undistributed" 
six  months  after  its  close,  and  not  "invested  and  employed  in  the  business,"  there 
may  in  general  be  subtracted  the  amount  of  any  interest  paid  l)y  corporation  but 
now  allowed  to  be  deducted  for  income  tax'purposes.     (T.  D.  2763;  Oct.  21,  1918.) 

Corporation  unable  to  show  by  tracinir  into  particular  assets  or  into  decrease  of 
particular  liabilities,  the  employment  of  undistri'outed  net  income  in  the  business, 
may  claim  benefit  of  what  may  be  shown  by  balance  sheet  for  date  of  expii-ation  of 
six  months  after  taxable  year,  or  by  a  comparati^■e  l^alance  sheet  as  sisecifically 
indicated.     (T.  D.  2763;  Oct.  21,  1918.) 

^^llere  resort  is  made  to  balance  sheet  in  effort  to  show  employment  in  business 
of  all  undistributed  net  income  oi  taxal)le  year  or  its  retention  for  reasonal)le  require- 
ments of  business,  net  income  for  six  months  after  taxable  year  is  necessarily  to  be 
taken  into  account  and  it  must  be  shown  that  undistributed  net  income  of  taxable 
year  as  well  as  undistributed  net  income  of  the  six  months  is  so  emploved  or 
retained.     (T.  D.  2763;  Oct.  21.  1918.) 

While  corporation  retains  profits  without  distribution  of  dividends,  it  may  retain 
them  in  such  form  as  it  may  elect.  Init  when  distrilnition  is  made  it  must  be  treated 
as  made  from  most  recent  pi'ofits  or  suT{)his  regardless  of  any  previous  designation 
of  any  portion  of  such  earnings  for  investment  purposes.     iT.  D.  2763;  Oct.  21, 1918.) 

Designation  of  investment  of  earnings  in  obligations  of  the  United  States  issued 
subsequent  to  September  I,  1917.  maj'  sen-e  to  prevent  application  of  additional 
tax  of  10  per  cent  to  amount  so  invested,  but  does  not  wai'rant  disregarding  the 
amount  of  net  income  for  taxable  year  so  invested  in  determining  profits  or  sm'plua 
from  wliicli  any  dividends  may  1)0  distrilnitcd.     (T.  D.  2763;  Oct.  21,  1918.) 

Pajmient. 

See  "Collection  and  paym?nt,"  ante. 
Penaltiets — Delay  in  filing;  returns. 

In  case  of  failure  to  make  and  file  return  within  prescribed  thne  or  within  ])erii)d 
of  extension  granted  by  collector,  Commissioner  of  Internal  Revenue  shall  add  to  the 
tax  50  per  cent  thereof,  except  tiiat  where  a  return  is  voluntarily  filed  after  due 
date  without  notice  from  collector,  and  it  is  shown  that  delinquency  was  due  to 
reasonable  cause  and  not  to  willful  neglect,  no  such  addition  shall  be  made  to  the 
tax;  collector  must  note  on  return  that  it  was  voluntarily  filed,  and  will  procure 
from  corporation  statement,  under  oath,  setting  out  cause  for  delay,  and  if  such 
cause  is  found  to  be  reasonable,  50  per  cent  addition  'will  not  be  made;  exemption 
from  50  per  c  ent  additional  tax  df>es  not  neces.sarily  reli  eve  corporation  from  liability 
to  specific  penalty  of  not  to  exceed  $10,000.     (T.  D.  2690;  art.  225.) 

The  time  '  'prescribed  by  the  collector,"  as  used  in  section  3176,  set  out  under  sec- 
tion 16  of  the  income-tax  act,  relates  to  an  extension  of  time,  not  exceeding  30  days 
from  normal  due  date,  on  or  before  which  return  is  required  to  be  filed;  that  's  to 
?ay,  if  upon  application  by  a  cor]>oratioii  an  extension  is  granted  by  the  collector, 
return  must  be  filed  on  or  before  last  day  of  extended  period ;  otherwise  the  50  ])er 
cent  tax  will  be  added,  subject  to  the  provisions  of  said  section  3176.  (T.  D.  2690; 
art.  228.) 


344  INCOME   TAXES    (CORPORATIONS). 

Penalties — Continued. 

— —  Disclosure  of  returns. 

Disclosure  by  collector,  dej)uty  collector,  agent,  clerk,  or  other  officer  or  em- 
ployee of  the  United  States  to  any  person  not  legally  authorized  to  receive  same,  of 
any  information  whatever  contained  in  or  set  forth  by  any  return  of  annual  net  in- 
come made  pursuant  to  the  law,  is,  by  the  act,  made  a  misdemeanor,  and  is  punish- 
able by  fine  not  exceeding  $1 ,000,  or  by  imprisonment  not  exceeding  one  year,  or  both 
indiscretion  of  the  court,  and  if  offender  is  an  officer  or  employee  of  the  United  States 
he  shall  be  dismissed  and  be  incapable  thereafter  of  holding  any  office  under  the 
United  States  Government.     (T.  1).  2690;  art.  229.) 

— —  Fraudulent  returns. 

Any  person  or  officer  of  any  corporation  required  by  law  to  make,  render,  sign,  or 
verify  any  return  who  makes  any  false  or  fraudulent  return  or  statement  with  the 
intent  todefeat  or  evade  the  assessment  required  by  Part.s  II  and  III  of  Title  I  of  the 
act  of  September  8,  1916,  shall  be  guilty  of  a  misdemeanor  and  shall  be  fined  not  ex- 
ceeding $2,000,  or  be  imprisoned  not  exceeding  one  year,  or  both,  at  the  discretion 
of  the  court,  with  costs  of  prosecution.     (T.  D.  2690;  art.  232.) 

In  case  false  or  fraudulent  return  is  willfully  made  100  per  cent  of  amount  of  tax 
ehall  be  added  thereto;  corporations,  officers  thereof,  and  other  individuals,  required 
to  make,  render,  sign,  or  verify  returns  of  corporations,  are  subject  to  specific  penal- 
ties provided  by  law  for  making  false  or  fraudulent  returns.  (T.  D.  2736;  June  18, 
1918.) 

Nonpayment  of  tax. 

Upon  failure  to  pay  tax  Avhen  due  and  for  10  days  after  notice  and  demand,  penalty 
of  5  per  cent  of  amount  of  tax  unpaid  and  interest  at  rate  of  1  per  cent  per  m.onth 
until  paid  shall  be  added  to  amount  of  tax,  and  to  amount  assessable  on  basis  of  net 
income  there  shall  be  added  50  per  cent  in  case  of  refusal  or  neglect  to  make  return, 
and  100  per  cent  in  case  of  false  or  fraudulent  return,  and  corporation  so  offending 
shall  be  liable  to  specific  penalty  not  exceeding  $10,000.     (T.  D.  2690;  art.  231.) 

If  tax  assessed  on  undistributed  net  income  by  section  10  (b)  of  the  act  of  Sep- 
tember 8,  1916,  as  amended,  is  not  paid  M'ithin  10  days  after  date  of  notice  and 
demand  therefor,  collector  must  collect  said  tax  with  penalty  of  5  per  cent  addi- 
tional upon  amount  thereof  and  interest  at  rate  of  1  per  cent  a  month.  (T.  D.  2736; 
June  18,  1918.) 

Refusal  or  neglect  to  file  return. 

Limitation  of  penalty  for  refusal  or  neglect  by  section  18  of  the  act  of  September 
8,  1916,  as  amended,  to  $1,000,  is  enlarged  as  to  corporations  by  section  14  (c)  of  that 
act,  to  $10,000,  so  that  as  to  corporations,  the  penalty  for  delinquency  or  fraud  is  not 
less  than  $20  nor  more  than  $10,000,  and  each  officer  of  the  corporation  required  to 
render,  sign,  or  verify  any  return,  who  makes  any  false  or  fraudulent  return  or  state- 
ment, will,  in  addition  to  a  payment  by  the  corporation,  be  subject  to  prosecution 
and  on  conviction  to  fine  not  exceeding  $2,000  and  imprisonment  not  exceeding  1 
year,  or  both,  in  discretion  of  court,  with  costs  of  prosecution.    (T.  D.  2690;  art.  54.) 

In  case  of  any  faihire  to  make  and  file  return  within  time  prescribed  by  law,  50 
per  cent  of  amount  of  tax  shall  be  added  thereto,  except  that  when  return  is  volun- 
tarily and  without  notice  from  collector  filed  after  such  time,  and  it  is  shown  that 
faihire  to  file  it  was  due  to  reasonable  cause  and  not  to  willful  neglect,  no  such  addi- 
tion shall  be  made  to  the  tax;  corporations,  officers  thereof,  and  other  individuals 
required  to  make,  render,  sign,  or  verify  returns  of  corporations,  are  subject  to  spe- 
cific penalties  provided  by  law  for  refusal  or  neglect  to  make  such  returns.  (T.  D. 
2736;  June  18,  1918.) 

Rate  of  taxation. 

The  normal  tax  under  act  September  8,  1916,  is  2  per  cent  on  net  income  from  all 
Bourc€'S,  while  under  act  October  3,  1917,  it  is  4  per  cent  on  net  income  from  all 
sources  except  dividends  from  corporations  whose  income  is  subject  to  income  tax, 
so  that  except  as  to  dividends  (which  as  income  to  corporations  are  subject  to  income 
tax  at  rate  of  2  per  cent  only)j  the  combined  normal  tax  on  income  of  corporations 
is  6  per  cent.     (T.  D.  2690;  art.  3.) 

Under  Parts  II  and  III  of  Title  I  of  act  September  8,  1916,  as  amended,  every 
corporation,  joint-stock  company,  or  association  or  insurance  company  organized 
in  the  United  States,  no  matter  how  created  or  organized,  except  those  specifically 
exempt  under  section  11  of  such  title,  shall  be  subject  to  pay  annually  an  income 


INCOME   TAXES    (CORPORATIONS).  345 

Rate  of  taxation — Conlinuod. 
tax  of  2  per  cent  upon  the  entire  net  income  received  during  the  preceding  calendar 
or  fiscal  year,  as  case  may  be.     (T.  D.  2090;  art.  55.) 

Under  section  10  of  Title  I  of  act  September  8,  1916,  as  amended,  a  tax  of  2  per 
cent  shall  be  levied,  assessed,  collected,  and  paid  annually  upon  total  net  income 
received  in  preceding  calendar  year  from  all  sources  within  United  States  by 
every  corporation,  etc.,  organized,  authorized,  or  e.xisling  under  laws  of  any  foreign 
country.     (T.  D.  2090;  art.  64.) 

Under  Title  I  of  act  October  3,  1917,  an  additional  tax  of  4  per  cent,  known  as 
war  income  tax,  is  imposed  on  net  income  of  corporations  organized  in  the  United 
States,  except  tliat  for  purpose  of  assessment  of  the  additional  4  per  cent  tax  net 
income  of  such  corporations  shall  be  credited  with  dividends  received  from  other 
corporations  subject  to  tax  under  act  September  8,  1916,  as  amended,  and  act 
October  3,  1917.     (T.  D.  2690;  art.  56.) 

The  additional  tax  of  4  per  cent  on  net  income  imposed  by  act  October  3,  1917, 
shall  apply  to  foreign  corporations  in  same  manner  as  in  case  of  domestic  corpora- 
tions, except  that  it  shall  apply  only  to  income  received  from  sources  within  United 
States.     (T.  D.  2690;  art.  65.) 

Rate  imposed  by  Title  I  of  the  act  of  September  8,  1916,  2  per  cent,  shall  apply  to 
total  net  income  received  by  every  taxable  corporation,  joint-stock  company  or 
association,  or  insurance  company,  in  calendar  year  1916  and  in  each  year  tliere- 
after,  except  that  if  it  has  fixed  its  own  fiscal  year  under  proA'isions  of  existing  law, 
euch  rate  shall  apply  to  proportion  of  total  net  income  returned  for  fiscal  year  ending 
prior  to  December  31,  1916,  which  the  period  between  January  1,  1916,  and  end  of 
Buch  fiscal  year  bears  to  whole  of  such  fiscal  year;  rate  of  1  per  cent  shall  apply  to 
remaining  portion  of  total  net  income  returned  for  such  fiscal  year.  (T.  1).  2690: 
art.  82.) 

For  purpose  of  4  per  cent  additional  tax  imposed  by  act  of  October  3,  1917,  in  case 
of  corporation  making  return  on  basis  of  its  own  fiscal  year  other  than  calendar  year, 
Buch  tax  for  fiscal  year  ending  during  calendar  year  1917,  shall  be  levied  only  on 
that  proportion  of  its  net  income  (less  dividends  received)  which  period  from  Jan- 
uary 1,  1917,  to  end  of  fiscal  year,  bears  to  entire  fiscal  year;  if  last  previous  return 
was  made  for  period  ended  December  31,  1916,  and  return  is  made  for  fiscal  period 
ended  with  last  day  of  some  month  in  1917,  tax  will  be  computed  on  entire  net  in- 
come so  returned;  also  in  case  of  new  corporation  making  return  for  period  from 
date  of  organization  to  close  of  calendar  year,  tax  will  be  computed  on  entire  net 
income  so  returned.     (T.  D.  2690;  art.  82.) 

Corporation  declaring  and  paying  dividends  out  of  a  surplus  of  earnings  accumula- 
ted over  a  period  of  years,  should  make  record  in  its  books  of  amount  of  dividends 
paid  out  of  each  year's  undistributed  surplus  or  profits  and  advise  stockholders 
accordingly,  in  order  that  dividends  received  by  them  may  be  taxed  at  respective 
rates  prevailing  during  years  in  which  surplus  or  profits  so  distributed  were  earned; 
provisions  of  subdivision  (b)  of  section  31  do  not  apply  to  distributions  made  prior 
to  August  6,  1917,  out  of  earnings  or  profits  accrued  prior  to  March  1,  1913.  (T.  D. 
2690;  art.  107.  See  T.  D.  2659,  Feb.  28,  1918;  T.  D.  2734,  June  17,  1918:  T.  D. 
2740,  June  24,  1918.) 

Refund  claims. 

See  "Claims." 
Regulations  published. 

Regulations  No.  33,  governing  collection  of  income  taxes  imposed  by  act  of  Sep- 
tember 8,  1910,  as  amended  by  act  of  October  3,  1917,  published.     (T"  D.  2090.) 

Retroactive  operation  of  act. 

The  retroactivity  of  the  act  of  October  3, 1913,  to  March  1,  1913,  a  date  not  prior  to 
the  adoption  of  the  16th  amendment  to  the  Constitution,  is  permissible.  (T.  D. 
2731;  June  11,  1918.     Ct.  Dec.) 

An  income  tax  may  be  and  was  imposed  by  retrospective  law.  (T.  D.  3043; 
July  2,  1920.     Ct.  Dec.) 

Returns — Absence  of  officer. 

Absence  of  one  or  more  officers,  at  time  return  is  required  to  be  filed,  will  not  l)o 
accepted  as  reasonable  cause  for  failure  to  file  return  within  prescribed  time,  unless 
it  is  satisfactorily  shown  that  there  Avere  no  other  principal  officers  available  and 
Buftlcientlv  informed  as  to  affairs  of  corporation  to  make  and  verify  retuin.  (T.  D. 
2090;  art.'223.) 


346  INCOME    TAXES    (  CORPOEATIONS) , 

Retiu-xis — Continued. 

Accuracy. 

Each  corporation  should  carefully  prepare  return  so  as  to  fully  and  clearly  set 

forth  data  therein  called  for;  imperfect  or  incorrect  returns  will  not  be  accepted  as 

meeting  requirements  of  law.     (T.  D.  2690;   art.  216.) 

Affiliated  corporations. 

Where  affiliated  corporation  has  made  its  income  tax  return  on  basis  of  taxable 
year  different  from  that  on  l^asis  of  which  consolidated  excess  profits  tax  return 
in  which  it  is  included  has  been  made  under  provisions  of  articles  77  and  73  of 
Regulations  No.  41  and  of  T.  D.  2662,  amended  income  tax  return  may  be  made 
on  basis  of  same  taxable  year  as  consolidated  return,  even  though  notice  was  not 
given  within  time  prescribed  in  articles  211  and  215,  inclusive,  of  Regulations 
No.  33,  revised;  in  such  case  amended  income  tax  return  shall  also  be  made  for 
any  unaccounted-for  portion  of  the  corporation's  taxable  year.  (T.  D.  2805;  Mar. 
14,  1919.) 

— —  Ainendinent, 

AMiere  corporation  discovers  expenses  or  liabilities  which  were  due  and  payable 
during  precedino-  year,  it  may  make  amended  return  for  year  to  ^^dlich  such  expense 
or  liability  applies,  include  such  expense  in  deductions  of  tliat  year,  and  file  claim 
for  refund  for  any  taxes  overpaid  by  reason  of  failure  to  deduct  such  expense  or 
liabiKty  in  original  return  of  that  year.     (T.  D.  2690;  art.  128.) 

Change  of  corporate  name. 

^-^Iiore  business  was  continuous  throug'hout  year,  no  change  in  management  or 
operation  other  than  change  in  name  of  coiporalion  having  occurred,  retui-n  should 
be  made  covering  business  transacted  throughout  the  year,  such  return  to  be  made 
by  corporation  in  name  which  it  bears  at  end  of  year,  with  notation  on  return  that 
name  had  been  changed,  gi\'ing  botli  old  and  new  names;  if,  however,  distinctly 
new  corporation  was  organized  to  take  over  property  of  old,  both  corporation  will  be 
required  to  make  separate  returns,  covering  periods  of  year  during  wliich  they  were 
respectively  in  charge  of  business.     (T.  D..  2690;  art.  20G.) 

Completeness. 

Each  year's  return,  both  as  to  income  and  deductions  therefrom,  must  be  complete 
within  itself;  charges  against  income  can  not  be  cumulative,  but  must  be  deducted 
from  income  of  year  in  which  incurred  or  not  at  all;  expenses,  Uabilities,  or  deficit 
of  one  year  can  not  be  used  to  reduce  income  of  subsequent  year;  deductions  must 
in  all  cases  be  such  as  are  authorized  arid  ■within  limits  fixed  by  law.  (T.  D.  2690; 
art.  127.) 

Copies. 

"\^lien  assessments  shall  have  heen  made  returns  shall  be  filed  in  office  of  com- 
missioner and  shall  constitute  public  records,  subject  to  inspection  upon  order  of  the 
President,  under  rules  and  regulations  prescribed  by  the  Secretary  of  the  Treasury 
and  approved  by  the  President;  copies  of  returns  on  file  in  commissioner's  office 
may  not  be  sent  to  any  person,  except  corporation  itself  or  to  its  duly  authorized 
attorney;  duly  authorized  attorney  for  this  purpose  is  one  possessing  properly 
executed  power  of  attorney  in  writing  by  corporation,  which  designation  shall  be 
signed  by  tvi'o  oiHcers  of  corporation  and  bear  the  imoress  of  the  seal.  (T.  D.  2690; 
art.  226.) 

At  request  of  Attorney  General  or  a  United  States  district  attorney,  certified 
copies  of  returns  may  be  made  by  Commissioner  of  Internal  Revenue  and  delivered 
to  United  States  district  attorneys  for  use  as  evidence  in  prosecution  or  defense  of 
suits  in  which  collection  or  legality  of  income  tax  assessed  on  basis  of  such  returns  is 
involved,  or,  by  special  permission  of  Secretary  of  the  Treasury,  such  certified  copies 
of  returns  may  be  furnished  as  evidence  in  any  suit  to  which  United  States  Govern- 
ment and  the  coiporation,  etc..  making  returns  are  parties,  or  as  evidence  before  any 
United  States  grand  jury,  and  in  which,  in  opinion  of  Attorney  General,  such  certi- 
fied copies  would  constitute  material  evidence.     (T.  D.  2690;  art.  227.) 

Original  income  return  or  copy  thereof  may  be  furnished  by  Commissioner  to 
United  States  attorney  for  use  as  ei^idencc  before  United  States  gi-and  jury  or  in 
litigation  in  any  court,  where  the  United  States  is  interested  in  the  result,  or  for 
use  in  preparation  for  such  litigation,  or  to  attorney  connected  ^^ith  Department 
of  Justice  designated  by  Attorney  General  to  handle  such  matters  if  and  when 


INCOME   TAXES    (CORFORATIONd; .  347 

Beturns — Continued . 

Copies — Continued. 

Attoniey  General  states  to  Commissioner  in  writing  that  sucli  attorney  is  so  desig- 
nated; return  of  copy  thereof  thus  furnished  must  be  limited  in  use  to  purpose  for 
which  furnished  and  is  under  ]io  conditions  to  be  made  public,  except  where  pub- 
licity necessarily  results  from  such  use;  where  original  return  is  necessary,  it  shall 
he  placed  in  evidence  by  the  Commissioner  for  that  pur]:)ose,  and  after  being  placed 
in  evidence  it  shall  bo  "returned  to  files  in  office  of  CommLssioner  in  Washington; 
original  return  will  be  furnished  only  in  exceptional  cases,  and  then  only  when 
it  is  made  to  appear  that  ends  of  justice  may  othcrv/ise  be  defeated;  neither  the 
original  nor  a  copy  desired  for  use  in  litigation  where  United  States  Government 
is  not  interested  and  where  such  use  might  result  in  making  public  tlie  information 
contamed  therein  will  be  furnished,  except  as  otherwise  provided  in  the  next 
succeeding  paragraph.     (T.  D.  2962;  Jan.  7,  1920.) 

Copy  of  income  return  may  be  furnished  by  the  Commissioner  to  person  v/lio 
made  the  return  or  to  his  duly  constituted  attorney,  or  if  person  is  deceased,  to 
his  executor  or  administrator,  or,  if  entity  is  in  hands  of  receiver,  trustee  in  bank- 
ruptcy, guardian,  or  similar  legal  custodian,  to  the  receiver  or  other  custodian 
upon  written  application  for  same,  accompanied  by  satisfactory  evidence  that 
applicant  comes  v^^ithin  this  provision;  "person  who  made  the  return,"  as  herein 
used,  refers  in  case  of  an  individual  return  to  the  indiAddual  whose  return  is  desired, 
and  in  case  of  return  of  corporation,  etc.,  or  fiduciary,  to  the  corporation,  etc.,  or 
fiduciary,  a  copy  of  whoso  return  is  desired;  corporation  may  also  designate  oflicer 
or  individual  to  whom  ropy  made  by  corporation  niay  be  furnished,  and  upon 
sufficient  evidence  of  such  action  and  of  identity  of  officer  or  individual,  copy 
may  )>e  furnished  to  such  person;  copy  of  partnership  return  will  be  furnished 
to  partners  only  in  case  all  the  partners  join  in  the  request  tlierefor,  and  if  partner- 
ship has  been  dissolved  the  members  surviving  may  be  furnished  a  copy  if  all  the 
members  surviving  join  in  the  request.     (T.  D.  2962;  Jan.  7,  1920.) 

Disclosure. 

Copies  of  returns  on  file  in  Commissioner's  office  may  not  be  sent  to  any  person, 
except  corporation  itself  or  to  its  duly  authorized  attorney;  duly  authorized  attorney 
for  this  purpose  is  one  j)ossessing  properly  executed  power  of  attorney  in  writing  by 
corporation,  which  designation  shall  be  signed  by  two  officers  of  coiporation  and  Ijcar 
impress  of  the  seal.     (T.  D.  2690;  art.  226.) 

Disclosure  by  collector,  deputy  collector,  agent,  clerk,  or  other  officer  or  emplin-oe 
of  the  United  States  to  any  person  not  legally  authorized  to  receive  same,  of  any  in- 
fonnation  whatever  contained  in  or  set  forth  by  any  return  of  annual  net  iiicome 
made  pursuant  to  the  law,  is,  })y  the  act,  made  a  misdemeanor,  and  is  punishable  bj' 
fine  not  exceeding  §1,000,  or  by  imprisonment  not  exceeding  one  j'ear,  or  both,  in 
discretion  of  the  court,  and  if  offender  is  an  officer  or  employee  of  the  United  Statca 
he  shall  be  dismissed  and  be  incapable  thereafter  of  holding  any  office  under  the 
United  States  Government.     (T.  D.  2690;  art.  229.) 

When  assessments  shall  have  been  made  returns  shall  be  filed  in  office  of  Commis- 
sioner and  shall  constitute  public  records,  subject  to  inspection  upon  order  of  the 
President,  under  rules  and  regulations  prescribed  by  the  Secretary  of  the  Treasury 
and  approved  by  the  President;  copies  of  returns  on  file  in  Commissioner  "s  office 
may  not  be  sent  to  any  person,  except  corporation  itself  or  to  its  duly  authorized 
attorney;  duly  authorized  attorney  for  this  purpose  is  one  ])0S3essing  properly  exe- 
cuted power  of  attorney  in  writing  by  corporation,  which  designation  shall  be 
signed  by  two  officers  of  corporation  and  bear  the  impress  of  the  seal.  (T.  D.  2690; 
aft.  226.) 

Proper  officers  of  State  imposing  income  tax  are  entitled  as  of  right  upon  request 
of  its  governor  to  have  access  to  income  and  profits  tax  returns  of  corporation,  etc., 
or  to  abstract  thereof,  showing  its  name  and  income;  proper  officers  in  this  connec- 
tion are  only  those  officers  of  the  State  charged  with  enforcement  of  the  State  income 
tax  law  and  Avho  are  to  use  the  information  gained  by  the  access  only  in  connection 
with  such  enforcement;  contents  of  request  or  application  of  governor,  which  must 
be  in  Avriting,  signed  by  him  under  the  seal  of  his  State,  and  be  addressed  either 
to  the  Secretary  of  the  Treasuiy  or  to  the  Commissioner  of  Internal  Revenue,  stated; 
access  shall  be  given  only  in  the  oflice  of  the  Commissioner,  and  the  officers  designated 
by  the  governor  v.-ill  not  be  permitted  to  name  another  person  to  examine  the 
returns  or  abstracts  for  them,  and  the  officers  designated  will  be  given  access  only  to 
retiuns  of  those  corporations,  etc.,  organized  and  doing  business  in  their  State. 
(T.  I).  2902;  Jan.  7,  1920.) 


348  INCOME  TAXES  ( COEPOEATIONS) . 

Returns — Continued. 

Disclosure — Continued. 

Return  of  corporation  shall  be  open  to  inspection  by  officers  and  employees  of 
Treasury  Department  whose  official  duties  require  such  inspection  and  by  the 
Solicitor  of  Internal  Revenue;  upon  satisfactory  e\-idence  of  identity  and  official 
position,  by  the  president,  vice  president,  secretary,  or  treasurer  of  such  corporation, 
or,  if  none,  its  principal  officer;  and  by  a  stockholder  of  such  corporation  under 
certain  circumstances.     (T.  D.  2961;  Jan.  7, 1920.) 

Stockholder  of  record  owning  1  per  cent  or  more  of  the  stock  of  the  outstanding 
stock  of  a  corporation  may  be  permitted  to  inspect  its  return;  permission  will  only 
be  granted  upon  application  in  writing  to  Commissioner  accompanied  by  affidavit 
showing:  certain  facts;  this  privilea;e  of  inspection  is  personal  and  will  be  granted 
only  tolhe  stockholder.     (T.  D.  2961;  Jan.  7, 1920.) 

A  person  who,  under  the  regulations,  is  permitted  to  inspect  a  return  may  make 
and  take  copy  thereof  or  memorandum  of  data  contained  therein.  (T.  D.  2961; 
Jan.  7,  1920.) 

Written  statement  filed  with  Commissioner  designed  to  be  supplemental  to  and 
to  become  part  of  tax  return  shall  be  subject  to  same  rules  and  regulations  as  to 
inspection  as  are  tax  returns  themselves.     (T.  D.  2961;  Jan.  7,  1920.) 

Except  as  otherwise  provided.  Commissioner  may,  in  his  discretion,  upon  written 
application  setting  forth  fully  reasons  for  request,  grant  permission  for  inspection 
of  returns;  application  will  be  considered  by  Commissioner  and  decision  reached 
by  him  whether  applicant  has  met  conditions  imposed  by  regulations  and  whether 
reasons  advanced  for  permission  to  inspect  are  sufficient  to  permit  the  inspection; 
such  written  application  is  not  required  of  officers  and  employees  of  the  Treasury 
Department  whose  official  duties  requu-e  inspection  of  a  retiu"n,  or  of  the  Solicitor 
of  Internal  Revenue.     (T.  D.  2961;  Jan.  7, 1920.) 

^^^len  it  becomes  necessary  for  the  department  to  furnish  returns  or  copies  thereof 
for  use  in  legal  proceedings,  inspection  of  such  returns  or  copies  that  necessarily 
results  from  such  use  is  permitted.     (T.  D.  2961;  Jan.  7,  1920.) 

Except  as  to  returns  or  copies  thereof  for  use  in  legal  proceedings,  returns  may  be 
inspe'cted  onlv  in  the  office  of  Commissioner  of  Internal  Revenue,  Washington,  D.  C. 
(T.  D.  2961;  Jan.  7,  1920.) 

When  head  of  executive  department  (other  than  Treasury  Department)  or  any 
other  United  States  Government  establishment,  desires  insjjection  of  return  in 
connection  with  some  matter  officially  before  him,  the  inspection  may,  in  discretion 
of  Secretary  of  the  Treasury,  be  permitted  upon  \\Titten  application  to  him  by  head 
of  such  department  or  other  Government  establishment,  such  application  to  be 
signed  by  such  head  and  to  show  why  inspection  is  desked,  name  and  address  of 
taxpayer  who  made  return;  and  name  and  official  designation  of  one  it  is  desired 
shall  inspect  the  return;  the  reason  submitted  for  permission  to  inspect  the  return 
shall  be  considered  by  the  Secretary  and  decision  reached  by  him  whether  reasons 
are  sufficient  to  permit  inspection.     (T.  D.  2961;  Jan.  7,  1920.) 

Discounts. 

Corporation  loaning  money  by  discounting  bills  or  notes  required  to  state  in 
memorandum  attached  to  its  return  which  of  two  methods  was  used  in  determining 
amount  of  discount  returned  as  income.     (T.  D.  2690;   art.  114.) 

— —  Dissolved  corporations. 

Corporation  which  was  dissolved  in  1917,  prior  to  passage  of  the  act  of  October  3, 
1917,  will  make  return  on  Eorm  1031,  revised,  covering  period  in  1917  during  which 
it  was  in  business  prior  to  its  dissolution;  if  it  shall  have  p;e\"iously  made  return 
covering  this  period  and  shall  have  paid  any  excess  profits  tax  under  act  of  March  3, 
1917,  it  shall  be  entitled  to  credit  for  amount  of  tax  so  paid  against  any  excess  profits 
tax  assessed  against  it  under  Title  II  of  the  act  of  October  3,  1917.  (T.  D.  2690; 
art.  61.) 

All  coiporations  having  existence  as  such  during  all  or  any  portion  of  year,  unless 
ppe'-iiically  exempt,  are  required  to  make  returns;  corporations  dissolved  during 
yeajr  and  whose  fiscal  year  coincides  with  calendar  year  will  make  returns  covering 
pedod  from  January  1  to  date  of  dissolution,  and  such  corporations  having  fiscal  year 
other  than  calendar  j'ear  will  make  returns  covering  period  from  beginning  of  fiscal 
year  to  date  of  dissolution,  and  new  corporations  will  make  returns  for  period  from 
date  of  organization  to  December  31,  unless  fiscal  year  is  designated  in  proper  manner 
in  which  case  returns  for  period  from  date  of  organization  to  close  of  fiscal  year  so 
established  in  no  case  to  exceed  12  months,  will  be  filed.     (T.  D.  2690,  art.  203.) 


INCOME  TAXES    (COKPORATIONS) .  349 

Returns — Contimird. 

— —  Dividends  paid. 

Section  2(5  of  tlie  act  of  September  8,  1010,  as  amende;!,  requires  corporationg 
under  certain  circumstances  to  render  return,  setting  out  amount  of  dividends  paid 
during  year  covered  by  such  return,  names  and  addresses  of  stockholders,  number  of 
shares  owned  by  each,  tax  years  in  which  amounts  distributed  were  earned,  and 
amounts  so  distributed  to  each  stockholder  applicable  to  each  of  such  years;  such 
return  will  be  made  upon  form  prescribed  and  will  be  forwarded  direct  to  office  of 
Commissioner  of  Internal  Revenue  within  10  days  from  receipt  of  notice  requiring 
same.     (T.  D.  269U;  art.  237.) 

• Exempt  corporations. 

When  corp3ration  or  organization  has  established  its  right  to  exemption  under 
section  11  of  the  act  of  September  8,  1916,  as  amended,  it  \vill  be  unnecessary  for  it 
to  make  return  or  any  further  showing  thereafter  with  respect  to  its  status  under  the 
law,  unless  it  changes  the  character  of  its  organization  or  purpose  for  which  originally 
created.     (T.  D.  2(J90;  art.  80.) 

• Farmers — Accounts. 

Farmers  who  keep  books  according  to  some  approved  method  of  accounting, 
which  clearly  show  net  income,  and  take  annual  inventories,  may  prepare  returns 
in  accordance  with  showing  made  by  such  books  and  inventories;  ascertainment 
of  gross  income  where  inventory  method  is  adopted  by  farmer.  (T.  D.  2GG5;  Mar.  8, 
1918.) 

■ Deductions. 

Amount  expended  in  purchasing  stock  for  resale  is  an  investment  of  capital  and 
is  not  to  be  taken  as  an  item  of  expense  for  year  in  which  stock  was  purchased  or  for 
any  subsequent  year,  but  when  stock  so  purchased  is  sold  its  cost  is  to  be  deducted 
from  sales  price  in  ascertaining  amount  of  gain  or  profit  returnable  for  tax  purposes; 
return  where  cost  of  stock  or  farm  products  purchased  in  1916  or  any  previous  year 
for  resale  has  been  claimed  as  a  deduction.     (T.  D.  2665;  Mar.  8,  1918.) 

All  it.e*ns  of  expense  connected  with  the  planting,  cultivating,  harvesting,  and 
marketing  oi  a  crop,  or  the  care,  feeding,  and  marketing  of  live  stock,  may  be  claimed 
as  deductions  only  in  the  return  rendered  for  the  year  during  which  such  expendi- 
tures were  made;  this  applies  even  though  crop  or  stock  may  not  have  been  sold  or 
exchanged  for  money  or  money  equivalent  during  yeaT  for  which  return  is  rendered. 
(T.  D.  2665;  Mar.  8,  1918.) 

Definitions. 

The  term  "farm,"  as  used  in  instructions  governing  preparation  of  income  tax 
returns  by  farmers,  held  to  embrace  farm  in  the  ordinarily  accepted  sense,  and 
includes  plantations,  ranches,  stock  farms,  dairy  farms,  poultry  farms,  truck  farms, 
and  all  land  used  for  similar  purposes.     (T.  D.  2665;  Mar.  8,  1918.) 

All  corporations,  partnerships,  or  individuals  who  cultivate,  operate,  or  manage 
farms  for  gain  or  pr&iit,  either  as  owners  or  tenants,  are  farmers  for  the  purposes  of 
instruction  governing  preparation  of  income  tax  returns  by  farmers.  (T.  D.  2665; 
Mar.  8,  1918.) 

Exchange  of  produce  for  merchandise. 

Where  farmer  exchanges  farm  produce  for  merchandise,  groceries,  or  mill  prod- 
ucts, the  market  value  of  the  article  or  product  received  in  exchange  is  to  be 
returned  as  income.     (T.  D.  2665;  Mar.  8,  1918.) 

Inventories. 

Where  farmer  has  adopted  inventory  method  of  keeping  accounts,  he  should,  in 
order  to  ascertain  gross  income,  add  to  amovmt  received  from  sales  during  year  the 
inventory  of  the  live  stock  and  products  on  hand  at  the  close  of  the  year,  and  then 
deduct  amount  expended  in  purchasing  live  stock  and  products  plus  inventory  of 
live  stock  and  products  at  beginning  of  year;  no  deduction  can  be  made  for  stock  or 
products  lost  during  year;  stock  purchased  for  any  purpose  other  than  resale  may 
be  included  in  inventory  for  each  year  at  a  figure  which  will  reflect  reduction  in 
value  estimated  to  have  occurred  through  increase  or  age  or  other  causes;  cost  price 
of  articles  sold  must  not  be  taken  as  additional  deduction.  ^T.  D.  2665;  Mar.  8, 
1918.) 


350  INCOME  TAXES  ( COKPORATIONS) . 

Returns — Continued . 

— —  Farmers — Continued. 

Necessity. 

If,  in  caurse  of  their  business,  farmers',  fruit  growers ',  or  like  association,  organized 
and  operated  as  sales  agent  to  market  products  of  its  members,  purchase  for  cash  at  a 
stipulated  price  ai'ticles  of  produce  with  view  to  selling  them  for  gain,  they  will  be 
required  to  make  returns  of  annual  net  income  and  include  therein  for  purpose  of 
tax  all  income  derived  from  such  transactions.     (T.  D.  2690;  art.  75.) 

• Produce  consuined  by  family. 

A  farmer  is  not  required  to  include  in  his  income-fax  return  the  value  of  farm 
produce  consumed  by  himself  and  family.     (T.  D.  2665;  Mar.  8,  1918.) 

— — Receipts  and  disbursements. 

Farmers  who  do  not  keep  books  of  account  and  ascertain  their  gross  income  by 
inventory  should  prepare  returns  of  annual  net  income  on  basis  of  actual  receipts 
and  disbursements  in  order  that  returns  mav  be  susceptible  of  audit  for  purposes  of 
verification.     (T.  D.  2665;  Mar.  8,  1918.) 

— — ■  Time  as  of  which  return  made. 

All  gains,  profits,  and  income  derived  from  sale  or  exchange  of  farm  products, 
whether  produced  on  the  farm  or  purchased  and  resold  by  the  farmer,  shall  be 
included  in  the  return  of  income  for  year  in  which  i^roducts  were  actually  marketed 
and  sold.     (T.  D.  2665;  Mar.  8,  1918.) 

Rents  received  in  crop  shares  must  be  returned  as  of  year  in  which  shares  are 
reduced  to  money  or  money  equivalent,  and  allowable  deductions  must  be  claimed 
in  return  of  income  for  tax  year  in  which  they  apply,  although  expenses  and  deduc- 
tions may  be  incident  to  products  which  remain  unsold  at  end  of  year.  (T.  D. 
2690:  art.- 1.) 

■ Fiscal  year. 

Return  on  basis  of  fiscal  year  other  than  calendar  year  can  not  be  accepted  unless 
such  fiscal  year  shall  have  been  established  by  proper  notice  to  collector,  and  if  in 
absence  of  such  notice  and  designation  return  is  filed  subsequent  to  date  when  it  was 
required  to  be  filed,  if  made  on  calendar  year  basis,  it  will  bo  considered  delin- 
quent and  corporation  will  be  liable  to  penalty  for  failure  to  file  return  within  pro- 
scribed time.     (T.  D.  2690;  art.  203.) 

Where  corporation  had  previously  made  its  return  on  calendar-year  basis,  notice 
designating  fiscal  year  having  been  filed,  such  corporation  will,  on  or  before  March  1 
next,  following  closing  date  so  designated,  make  return  for  fractional  part  of  calendar 
year  ended  with  date  designated  as  close  of  fiscal  year;  all  returns  thereafter  must 
be  made  for  full  fiscal  year  and  must  bo  filed  on  or  before  last  day  of  60-da3'  period 
next  following  date  designated  as  close  of  fiscal  year.     (T.  D.  2690;  art.  211.) 

In  order  to  change  closing  date  of  fiscal  year  from  last  day  of  one  month  to  that  of 
another  (other  than  December)  corporation  must,  at  least  30  days  prior  to  1st  day  of 
March  next  following  closing  date  of  previously  established  fiscal  year,  file  with 
collector,  in  writing,  notice  designating  last  day  of  some  other  month  as  close  of  its 
fiscal  year,  in  which  case  return  for  fractional  period  ending  with  date  last  designated 
must  be  made  on  or  before  last  day  of  60-day  period  next  following  close  of  such 
previously  established  fiscal  year.     (T.  D.  2690;  art.  213.) 

\Vhen  corporation  has  in  prescribed  manner  established  fiscal  j-ear  other  than 
calendar  year  as  basis  for  making  its  return,  it  must  make  its  returns  on  such  basis 
until  such  fiscal  year  be  properly  changed ;  failing  to  make  returns  on  basis  designated 
and  within  prescribed  time  will  subject  corporation  to  penalties  imposed  for  delin- 
quency.    (T.  D.  2690;  art.  214.) 

Where  it  appears  that  returns  ha-.'e  been  made  to  collector  on  basis  of  fiscal  year 
not  designated  in  prescribed  manner,  corporation  making  such  returns  will  bo 
advised  that  such  returns  can  not  be  accepted,  but  must  be  made  to  cover  business 
of  calendar  year.     (T.  D.  2690;  art.  215.) 

Corporation  which  had  previously  established  fiscal  year  other  than  calendar 
year  as  basis  for  returns,  desiring  to  establish  calendar  year  basis,  may  do  so  by  filing 
not  le.ss  than  30  days  prior  to  March  1  next  following  closing  date  of  established 
fiscal  year,  notice  in  writing  with  collector,  designating  December  31  as  close  of  its 
year,  in  which  case  it  must  on  or  before  1st  day  of  Mai-ch  next  following  file  return 
covering  that  period  between  closing  date  of  its  previously  established  fiscal  year 
and  December  31.     (T.  D.  2690;  art.  217.) 


INCOME  TAXES  (CORPORATIONS).  351 

Setums — Continued . 

Foreign  corporations. 

Every  foreign  corporation  liaving  income  from  sources  within  United  States  must 
make  returns  of  annual  net  income  in  accordance  with  rule  set  out  in  S8ctionl2  (b) 
of  the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3,  1917.  (T.  I). 
2090;  art.  GG.) 

Forms. 

Returns  under  the  income-tax  act  and  pursuant  to  regulations  must  be  made  on 
forms  prescribed  for  each  particular  year  and  which  ai-e  available  at  offices  of  col- 
lectors; in  absence  of  prescribed  form  statement  by  corporation  disclosing  gross 
income  and  deductions  may  be  accepted  as  tentative  return.     (T.  D.  2G90;  art.  210.) 

Instructions  with  reference  to  furnishing  blank  forms  to  corporations;  failure  on 
part  of  any  corjioration,  joint-stock  company  or  association,  or  insurance  company, 
liable  to  tax,  to  receive  prescribed  blank  fonn,  will  not  excuse  it  from  making  return 
required  or  relieve  it  from  penalties  for  failure  to  make  return  within  prescri'oed 
time.     (T.  D.  2690;  art.  216.) 

Fraud. 

Where  returns  of  corporations  are  found  to  be  false  or  fraudulent,  commissioner 
may  upon  discovery  thereof  at  any  time  within  three  years  after  sucli  return  is  due 
make  return  upon  information  obtained  in  manner  provided  in  the  act,  and  tax  so 
discovered  to  be  due,  together  with  additional  tax  prescribed,  shall  be  assessed, 
and  amount  thereof  shall  be  paid  immediately  upon  notice  and  demand ;  for  purpose 
of  verifying  accuracy  of  return,  books  of  corporation  and  all  other  relative  data 
shall  be  open  to  inspection  of  Commissioner  of  Internal  Revenue  or  his  duly  auth.or- 
ized  agents.     (T.  D.  2690;  art.  221.) 

Any  person  or  officer  of  any  corporation  required  by  law  to  make,  render,  sigii,  or 
verify  any  return  vvdio  makes  any  false  or  fraudulent  return  or  statement  with  the 
intent  to  defeat  or  evade  the  assessment  required  by  Parts  II  and  III  of  Title  I  of 
the  act  of  September  8,  1916,  shall  be  guilty  of  a  misdemeanor  and  shall  be  fined  not 
exceeding  §2,090,  or  be  imprisoned  not  exceeding  one  year,  or  both,  at  the  discre- 
tion of  the  court,  with  costs  of  prosecution.     (T.  D.  2690;  art.  232.) 

In  case  a  false  or  fraudulent  return  is  willfully  made  as  to  undistributed  income 
100  per  cent  of  the  amount  of  the  tax  shall  be  added  thereto;  corporations,  officers 
thereof,  and  individuals  required  to  make,  render,  sign,  or  verify  returns  of  cori:)o- 
rations  shall  be  subject  to  specific  penalties  provided  by  law  for  making  false  or 
fraudulent  returns.     (T.  D.  273G;  June  18.  1918.) 

■ Illness  of  officer. 

Sickness  of  one  or  more  officers  at  time  return  is  required  to  be  filed  will  not  be 
accepted  as  reasonable  cause  lor  failure  to  file  return  -within  prescribed  time,  unless 
it  is  satisfactorily  shown  that  there  were  no  other  principal  officers  available  and 
sufficiently  informed  as  to  affairs  of  corporation  to  make  and  verify'  return.  (T.  D. 
2690;  art.  223.) 

— —  Incomplete  organizations. 

Corporations  which  have  applied  for  but  have  not  received  charters,  and  cor- 
porations which  have  received  charters  but  never  perfected  their  organizations 
and  which  as  entities  have  transacted  no  business  and  had  no  income  whateA'cr 
from  any  soiu'ce  may,  upon  presentation  of  facts  to  collector,  be  relieved  from  making 
returns,  so  long  as  they  remain  in  this  unorganized  condition;  in  absence  of  showing 
to  this  effect  to  the  collector  such  companies  will  be  required  to  make  returns  and 
will  be  liable  to  penalties  of  law  for  failure  to  do  so.     (T.  D.  2690;  art.  GO.) 

■ Inspection. 

See  "Disclosure,"  ajite. 
Insurance  companies. 

Copy  of  report  to  State  insurance  department  should,  wherever  possible,  be  sub- 
mitted with  returns;  olhcrwise  Schedule  D,  parts  1,  3,  and  4  of  report,  should  Ijc 
attached  thereto,  showing  Federal,  State,  and  municipal  obligations  from  which 
interest  omitted  from  gi-oss  income  was  derived ;  amounts  representing  reinsurance 
treaties  will  be  eliminated  from  income  and  disbursements;  deposit  premiums  or 
perpetual  risks  received  and  returned  should  be  treated  in  same  manner,  but  earn- 
ings on  deposits  -will  be  included  in  premium  income.     (T.  D.  2690;  art.  239.) 

Returns  must  be  rendered  in  conformity  with  reports  made  for  same  period  to 
State  insurance  departments;    returns  of  annual  not  income  should  be  made  for 


352  INCOME   TAXES    (COEPOIIATJONS) . 

Returns — Continued . 

— —  Insurance  companies — Continued. 

<  alendar  year,  unless  books  are  actually  kept  on  fiscal  year  basis;  T.  D.  2-133,  pro- 
viding that  returns  may  be  made  on  basis  other  than  as  above  set  forth,  is  not  applica- 
ble to  insurance  companies.     (T.  D.  2090;  art.  239.) 

Insurance  companies  other  than  mutuals,  but  including?  mutual  life  and  mutual 
marine,  clainun<^  as  deduction  from  G;ross  income,  for  purpose  of  4  per  cent  war 
income  tax,  dividends  received  from  foreign  organizations,  must  accompany  their 
returns  by  list  giving  names  of  such  organizations  and  amount  received  from  each. 
(T.  D.  2G90;  art.  240.) 

Ap[)lied  surrender  values  and  consideration  for  supplementary  contracts,  not  in- 
volving life  contingencies  included  in  income,  will  be  deducted  as  payments  under 
policy  contracts;  but  for  convenience  in  verif  >dng  returns,  these  items  should  appear 
in  return  in  both  gross  income  and  deductions.     (T.  D.  2690;  art.  241.) 

Assessment  life  and  accident  insurance  companies  will  make  returns  in  accord- 
ance with  articles  of  Regulations  No.  33  applicable  to  insurance  companies  in  general. 
(T.  D.  2690;  art.  245.) 

Stock  fire  insurance  companies,  stock  casualty,  fidelity,  and  surety  insurance 
companies,  will  make  returns  in  accordance  with  articles  of  Kegulations  No.  33 
applicable  to  insurance  companies  in  general.     (T.  D.  2690;  art.  245.) 

Except  as  otherwise  specially  provided  in  the  law  or  in  Regulations  No.  33,  gen- 
eral regulations  provided  for  use  of  corporations,  joint-stock  companies,  or  associa- 
tions, will  be  observed  by  insurance  companies  in  making  their  returns.  (T.  D. 
2690;  art.  246.) 

—  Liquidating  corporations. 

('or{)orations  going  into  liquidation  during  any  tax  period  may,  at  time  of  such 
lifjuidation,  prepare  final  return  covering  income  received  or  accrued  to  it  during 
fractional  part  of  year  during  which  it  was  engaged  in  business,  and  immediately 
file  same  with  collector  of  district  in  which  corporation  has  principal  place  of  busi- 
ness; before  distributing  assets  dissolving  corporation  should  reserve  funds  sufficient 
to  pay  income  tax  assessable  against  it;  otherwise  tax  may  be  collected  by  suit  against 
it;  otherwise  tax  may  be  collected  by  euit  against  stockholders.  (T.  D.  2690;  art. 
205.) 

Mailing. 

^\^len  last  due  date  for  filing  return  falls  on  Sunday  or  a  legal  holiday  the  last  due 
date  will  be  held  to  be  day  following  such  Sundav  or  legal  holiday  and  return  should 
be  made  not  later  than  such  following  day,  or,  if  placed  in  the  mails,  it  should  be 
posted  in  ample  time  to  reach  collector's  office,  under  ordinary  handling  of  the  mails, 
on  or  before  date  on  which  return  is  reciuired  to  be  filed.     (T.  D.  2690;  art.  219.) 

Where  return  is  made  and  placed  in  United  States  mails  in  due  course,  properly 
addressed,  and  postage  paid,  in  ample  time  to  reach  office  of  collector  or  deputy 
collector  on  or  before  such  due  date,  no  penalty  attaches  should  return  not  be 
actually  received  until  subsequent  to  that  date;  where  question  is  raised  as  to 
whether  or  not  return  was  posted  in  ample  time,  envelope  in  which  return  was 
transmitted  should  be  preserved  by  collector  and  forwarded  to  Commissioner  of 
Internal  Revenue  with  the  return.     (T.  D.  2690;  art.  220.) 

■ Mining  properties. 

Operator  of  mining  properties,  or  lessee  thereof,  required  to  attach  to  hie  return 
statement  setting  out  certain  specified  data.     (T.  D.  2690;  art.  172.) 

New  corporations. 

New  corporation  making  return  for  properly  established  fiscal  period  less  than  12 
months,  but  embracing  parts  of  two  calendar  years,  must  file  return  within  60  days 
from  last  day  of  designated  fiscal  year.     (T.  D.  2690;  art.  203.) 

Where  new  corporation  shall  have  established  fiscal  year,  in  prescribed  manner, 
it  may  make  its  first  and  all  subsequent  returns  on  basis  of  year  so  established,  pro- 
vided that  in  no  case  shall  a  return  cover  a  period  greater  than  12  calendar  months; 
in  absence  of  properly  established  fiscal  year,  returns  must  be  made  on  calendar-year 
basis.     (T.  D.  2690;    art.  212.) 

■ Oil  and  gas  properties. 

Individual  or  corporation  owning  and  operating  oil  or  gas  properties  required  to 
attach  to  each  return  a  statement  showing  certain  specified  data;  if  operator  is  lessee 
that  fact  should  be  stated,  and  to  return  made  by  such  lessee  there  should  be  attached 
a  etatcment  showing  certain  specified  matters.     (T.  D.  2690;  art.  170.) 


INCOME  TAXES  (COKPOEATIONS).  353 

Returns — Continued. 
Partnerships. 

Partnerships,  when  requestetl,  shall  render  eorrect  return  of  earnings,  profit,  and 
income  of  partnership,  except  income  exempt  under  section  4  of  the  law,  setting 
forth  item  of  gross  income  and  deductions  and  credits  allowed  as  for  an  individual, 
citizen,  or  resident  alien,  and  names  and  addresses  of  individuals  who  would  bo 
entitled  to  net  earnings,  profit,  and  income,  if  distributed.     (T.  D.  2690;   art.  30.) 

Partnerships,  as  such,  are  required  to  make  returns  only  when  requested  so  to 
do  by  the  Commissioner  or  collector.     (T.  1).  2690;  art.  30.) 

Common-law  partnerships,  not  being  associations  within  the  meaning  of  the 
income-tax  law,  are  not  required  to  make  returns  for  purpose  of  income  tax  except 
a-s  they  may  be  requested  by  the  Commissioner  of  Internal  Revenue  or  by  any 
district  collector  to  make  returns  for  their  earnings,  profits,  and  income.  (T.  D. 
2690;  art.  63.) 

Limited  partnerships  are  held  to  be  associations  Anthin  the  meaning  of  Title  I 
of  the  act  of  September  8,  1916,  as  amended  by  act  of  October  3,  1917,  and  as  such 
are  required  to  make  returns  of  annual  net  income  and  pay  any  tax  thereby  shown 
to  be  due.  (T.  D.  2690;  art.  62.)  The  above  article  was  construed  in  T.  D.  2711, 
and  it  was  there  held  that  it  was  ai)plicable  to  partnerships  of  the  Pennsylvania 
type  and  of  a  few  other  States,  but  that  it  did  not  apply  to  partnerships  of  the  New 
York  type;  therefore^  limited  partnerships  of  the  Pennsylvania  t^-pe  with  limited 
liability  are  corporations  or  joint-stock  companies,  and  limited  partnerships  of  the 
New  York  type  are  partnerships.     i^T.  D.  2711;  Mar.  9,  191S.) 

Penalties — Delay  in  filing. 

In  case  of  failure  to  make  and  file  return  within  prescribed  time  or  within  period 
of  extension  granted  by  collector.  Commissioner  of  Internal  Revenue  shall  add  to 
the  tax  50  per  cent  thereof,  except  that  where  a  return  is  voluntarily  filed  after 
due  date  without  notice  from  collector,  and  it  is  shown  that  delinquency  was  due 
to  reasonable  cause  and  not  to  wilful  neglect,  no  such  addition  shall  be  made  to 
the  tax;  collector  must  note  on  return  that  it  was  voluntarily  tiled,  and  will  pro- 
cure from  corporation  statement,  under  oath,  setting  out  cause  for  delay,  and  if 
such  cause  is  found  to  be  reasonable  50  per  cent  addition  will  not  be  made;  ex- 
emption from  50  per  cent  additional  tax  does  not  necessarily  relieve  corporation 
from  liability  to  specific  penalty  of  not  to  exceed  $10,000.     (T.  D.  2690;  art.  225.) 

The  time  "prescribed  by  the  collector,"  as  used  in  section  3176,  set  out  under 
section  16,  act  September  8,  1916,  relates  to  an  extension  of  time,  not  exceeding  30 
days  from  normal  due  date,  on  or  before  which  return  is  required  to  be  filed;  that 
is  to  say,  if  upon  application  by  a  corporation  an  extension  is  granted  by  the  col- 
lector return  must  be  filed  on  or  before  last  day  of  extended  period;  otherwise  the 
50  per  cent  tax  will  be  added,  subject  to  the  provisions  of  said  section  3176.  (T.  D. 
2690;  art.  228.) 

Disclosure. 

Disclosure  by  collector,  deputy  collector,  agent,  clerk,  or  other  officer  or  em- 
ployee of  the  United  States  to  any  person  not  legally  authorized  to  receive  same, 
of  any  information  whatever  contained  in  or  set  forth  by  any  return  of  annual  net 
income  made  pursuant  to  the  law,  is,  by  the  act,  made  a  misdemeanor,  and  is  pun- 
ishable by  fine  not  exceeding  $1,000,  or  by  imprisonment  not  exceeding  $1,000,  or 
bj;  imprisonment  not  exceeding  one  year,  or  both,  in  discretion  of  the  court,  and  if 
offender  is  an  oiEcer  or  em})loyee  of  the  United  States  he  shall  be  dismissed  and  be 
incapable  thereafter  of  holding  any  office  under  the  United  States  Government. 
(T.  D.  2690;  art.  229.) 

Fraud. 

Upon  failure  to  pay  tax  when  due  and  for  1 0  days  after  notice  and  demand,  ])enalty 
of  5  per  cent  of  amount  of  tax  unpaid  and  interest  at  rate  of  1  per  cent  per  month 
until  paid  shall  be  adde<l  to  amount  of  tax,  and  to  amount  assessable  on  basis  of  net 
income  there  shall  be  added  50  percent  in  case  of  refusal  or  neglect  to  make  return, 
and  100  per  cent  in  case  of  false  or  fraudulent  return,  and  corporation  so  offending 
shall  be  liable  to  specific  penalty  not  exceeding  $10,000.     (T.  I).  2690;  art.  231.) 

In  case  false  or  fraudulent  return  is  willfully  made  100  per  cent  of  amount  of  tax 
shall  be  added  thereto;  corporations,  officers  thereof,  and  other  individuals,  re- 
quired to  make,  render,  sign,  or  verify  returns  of  corporations,  are  subject  to  specific 
penalties  provided  by  law  for  making  false  or  fraudulent  returns.  (T.  D.  2736; 
June  18,  1918.) 

70420°— 21 23 


354  INCOME    TAXES     ( COKPOKATIONS) , 

Returns — Continued. 

Penalties — Continued. 

;__ E-efusal  or  neglect  to  make. 

Limitation  of  penalty  for  relasai  or  neglect  by  section  18  of  the  act  of  September 
8,  1916,  a.s  amended,  to*$l,000,  is  enlarged  as  to  corporations  by  section  14  (c)  of  that 
act,  to  $10,000,  so  tiiat  as  to  corporations,  the  penalty  for  delinquency  or  fraud  i.s 
not  less  than  $20  nor  more  than  $10,000,  and  each  officer  of  the  corporation  required 
to  render,  sign,  or  verify  any  return,  who  makes  any  false  or  fraudulent  return  or 
statement,  will,  in  addition  to  a  payment  by  the  corporation,  be  subject  to  prosecu- 
tion, and  on  conviction  to  fine  not  exceeding  $2,000  and  imprisonment  not  exceed- 
ing one  year,  or  both,  in  discretion  of  court,  with  costs  of  prosecution.  (T.  D.  2690; 
art.  54.) 

In  case  of  any  failure  to  make  and  file  return  within  time  prescribed  by  law,  50 
per  cent  of  amount  of  tax  shall  be  added  thereto,  except  that  when  return  is  volun- 
tarily and  without  notice  from  collector  filed  after  such  time,  and  it  is  shown  that 
failure  to  file  it  was  due  to  reasonahle  cause  and  not  to  willful  neglect,  no  such  addi- 
tion shall  be  made  to  the  tax;  corporations,  officers  thereof,  and  other  individuals, 
required  to  make,  render,  sign,  or  verify  returns  of  corporations,  are  subject  to  spe- 
cific penalties  provided  by  law  for  refusal  or  neglect  to  make  such  returns.  (T.  D. 
2736;  June  18,  1918.) 

■ Keceivers. 

Under  section  13,  paragraph  (C),  receivers,  trustees  in  bankruptcy,  or  assignees  in 
charge  of  and  operating  property  and  business  of  corporations,  must  make  returns 
of  annual  net  income  and  pay  tax  regardless  of  what  disposition,  subject  to  orders 
of  court,  may  be  made  of  such  income;  such  receiver,  etc.,  stands  in  place  of  cor- 
porate officers  and  must  perform  all  duties  and  assume  all  liabilities  which  would 
devolve  upon  such  officers  were  they  in  control;  income  vv'hich  he  receives  is  in- 
come of  corporation  and  is  subject  to  tax  imposed  in  so  far  as  it  exceeds  deduc- 
tions or  allowances  authorized  by  law,  and  such  receiver,  etc.,  must  make  true 
return  of  annual  net  income  covering  each  year  or  part  of  each  year,  during  which 
he  is  in  custody  and  control  of  business  or  j^roperties,  and  will  be  liable  to  all 
penalties  for  failure  to  meet  any  of  its  requirements.    (T.  D.  2690;  art.  209.) 

Refunds  by  cooperative  organizations. 

Refund  payments — sometimes  called  a  dividend — made  Ijy  a  cooperative  organ- 
ization in  accordance  with  by-laws  or  published  rules  regularly  adhered  to,  should 
appear  as  added  item  of  cost  in  detailed  schedule  of  cost  items  submitted  with  the 
orgtinization's  return  of  income.     i^T.  D.  2737;  June  19,  1918.) 

Refusal  or  neglect  to  make. 

Limitation  of  penalty  for  refusal  or  neglect  by  section  18  of  the  act  of  September 
8,  1916,  as  amended,  to'$l,000,  is  enlarged  as  to  corporations  by  section  14  (c)  of  that 
act,  to  $10,000,  so  that  as  to  corporations,  the  penalty  for  delinquency  or  fraud  is  not 
less  than  $20  nor  more  than  $10,000,  and  each  officer  of  the  corporation  reqnired  to 
render,  sign,  or  verify  any  return,  who  makes  any  false  or  fraudulent  return  or  state- 
ment,will,  in  addition  to  a  payment  by  the  corporation,  be  subject  to  prosecution 
and  on  conviction  to  fine  not  exceeding  $2,000  and  imprisonment  not  exceeding  one 
year,  or  both,  in  discretion  of  court,  with  costs  of  prosecution.     (T.  D.  2690;  art.  54.) 

^\Tiere  corj)orations  have  neglected  or  refused  to  make  returns,  commissioner  may, 
at  any  time  within  three  years  after  such  return  is  clue,  make  return  upon  informa- 
tion obtained  in  manner  provided  in  the  act,  and  tax  so  discovered  to  be  due,  to- 
gether TOth  additional  tax  prescribed,  shall  be  assessed,  and  amount  thereof  shall 
be  paid  immediately  upon  notice  and  demand ;  for  purpose  of  rnaking  return  ^vil'ero 
noneis  made,  books  of  corporations  and  all  other  relative  data  shall  be  open  to  inspec- 
tion of  Commissioner  of  Internal  Revenue  or  his  dulv  authorized  agents.  (T.  D. 
2690;  art.  221.) 

Requirement,  in  general. 

EA'cry  corporation  not  specifically  enumerated  as  exempt  shall  make  return  of 
annual  net  income  whether  or  not  it  may  have  for  any  past  year  any  net  income,  or 
whether  or  not  it  shall  be  a  subsidiarv  of,  or  controlled  by,  another  coqioration.  (T. 
D.  2690;  art.  203.) 

Statement  accompanying. 

Any  corjioration  entertaining  doubt  as  to  its  status  under  the  law,  for  reason  that  it 
does  not  clearly  come  within  one  or  another  of  the  classes  specifically  enumerated  as 
exempt,  should,  within  prescribed  time,  file  return  and  attach  thereto  for  considera- 
tion of  collector,  statement  setting  out  fully  nature  and  purpose  of  organization, 
source  of  its  income,  what  disposition  is  made  of  it,  and  particularly  of  any  surplus 


INCOME   TAXES    ( CORPOR ATIOJsrS ) .  355 

Returns — Continued. 

Statement  accompanying — Continued. 

which  it  may  receive  over  and  abovo  its  reasonable  needs;  if  collector  is  in  dinibt, 
he  will  refer  statement  and  return  to  Commissioner  of  Internal  Revenue  for  decision. 
(T.  D.  2690;  art.  79.) 

No  dcduciion  from  inventory  value  of  merchandise  or  material  will  be  allowed 
except  where  inventory  includes  goods  or  materials  which,  by  reason  of  obsolescence 
or  damage,  are  unsalabl-e;  when  such  deduction  is  claimed  facts  connected  there- 
with, including  statement  of  cost  of  goods,  value  at  which  they  were  inventoried, 
and  present  condition,  must  be  filed  with  return.     (T.  D.  2G90;  art.  IGO.) 

— —  Subsidiary  or  branch  corporations. 

Fact  that  branch  corj^oration  is  organized  in  any  State  to  meet  peculiar  condi- 
tions there  existing  and  v.-liicli  make  it  impracticable  for  parent  company  as  such  to 
do  business  in  such  State,  aith-mgh  such  subsidiary  may  be  to  all  intents  and  pur- 
poses a  mere  branch  of  the  parent  company,  docs' not  relieve  it  from  necessity  of 
making  return  for  each  year;  if  such  branch  corporation  actually  tram-acts  business 
from  Avhi^h  income  arise.'^,  accruer,  and  is  received  by  it,  such  corjjoration  must 
make  detailed  return,  as  if  it  were  in  m  way  related  to  any  other  cor{>oratIon,  pet- 
ting forth  full  amount  of  income  which  it  receives  or  which  accrues  to  it,  together 
with  authorized  deductions  therefrom,  and  upon  any  net  income  thus  disclosed, 
tax  udll  be  assessed  and  required  to  be  ])aid.     (T.  D.  2690;  art.  207.) 

VN'here  net  income  of  subsidiarj^  corporation  upon  which  tax  has  been  levied  and 
is  ])a3-able  is  turned  over  to  parent  company,  holder  of  its  stock,  amount  so  turned 
over  will  be  held  to  be  dividends,  or  amounts  paid  to  it  out  of  net  earnings  and  must 
be  returned  by  jiarent  company  for  purpose  of  2  per  cent  tax  imposed  by  the  act  of 
Sq^tember  8,  1916,  but  for  purpose  of  v,-ar  income  tax  imposed  by  Title  11  of  act  of 
October  3,  1917,  net  income  of  parent  company  may  be  reduced  hv  amount  of  divi- 
dends so  received.     (T.  D.  2690;  art.  207.) 

Sub.^diary  corporations  which  actually  transact  business  in  their  own  names, 
receive  income  for  their  own  account,  incur  and  pay  expenses  incident  to  prodnc- 
tion  of  income,  keep  separate  books  of  account,  and,  as  separate  entities,  exercise 
all  the  powers  and  functions  authorized  by  their  charters,  will  be  required  to  pay 
income  tax  on  nett  income  received  by  them  from  all  sources,  regardless  of  fact  that 
such  net  income  is  paid  or  turned  over  to  a  parent  or  holding  company,  by  whom  it 
must  also  be  returned  for  purpose  of  tax  imposed  by  section  10  of  theact  of  September 
8,  1916;  in  latter  case  both  parent  and  subsidiary  companies  must  make  separate 
returns.     (T.  D.  2690;  art.  208.) 

Subsidiary  corporations  existing  in  name  only  or  as  more  agents  or  integral  parts 
of  parent  company  ^vill  be  required  to  make  returns  of  ammarnet  income,  and  shall 
indorse  thereon  statement  that  it  is  a  subsidiary  or  integral  part  of  the  parent  com- 
pany (naming  it)  and  that  for  its  own  account  it  has  no  income  from  any  source 
whatever,  that  it  makes  no  disbursements,  and  that  all  'business  done  in  its  name 
is  done  for  account  of  and  as  business  of  parent  corporation,  and  will  be  accounted 
for  in  return  of  such  parent  corporation.     (T.  D.  2690;  art.  208.) 

V\Tiere  subsidiary  corporations  exist  in  name  onl^-,  or  are  mere  agents  or  integral 
parts  of  parent  organization  and  as  such  transact  no  business  and  have  no  income  of 
and  for  their  own  account,  and  incur  no  expenses,  all  business  being  transacted, 
all  income  being  received,  and  all  expenses  being  paid  directly  by  parent  company, 
no  separate  account-s  being  kept  by  or  for  such  subsidiaries, 'it  will  be  considererl 
that  such  subsidiary  concerns  do  not  have  any  taxable  income  within  meaning  of 
Title  I  of  tlie  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3,  19]  7, 
and  so  long  as  thej^  are  so  operated  no  tax  liabilitv  will  be  asserted  against  them. 
(T.  D.  2690;  art.  208.) 

Sunday  or  holiday. 

\Mien  last  due  date  for  fiUug  return  falls  on  Sunday  or  a  legal  holiday  the  last  duo 
date  will  be  held  to  be  day  follo-ndng  such  Sunday  or  legal  holiday,  and  returns 
should  be  made  not  later  than  such  following  day,  or,"  if  placed  in  the  mails,  it  should 
be  posted  in  ample  time  to  reach  collector's  office  under  ordinary  handling  of  the 
mails  on  or  before  date  on  which  return  is  required  to  be  fl^ed.  '  (T.  D.  2G90;  art. 
219.) 

Tentative  returns. 

In  absence  of  prescribed  form  statement  by  corporation  disclosing  gross  income 
and  deductions  therefrom  may  be  accepted  as'  tentative  return,  andlf  filed  Adthin 
prescribed  time  returns  so  made  wnil  relieve  corporation  from  liability  to  penalties, 
provided  that  upon  request  and  vv-illiout  delay  such  tentative  return  be  substituted 
by  return  made  on  regular  form.     (T.  D.  2690";  art.  210.) 


356  INCOME   TAXES    (CORPOEATIONS) , 

Returns — Continued. 
Time. 

Return,  if  made  on  basis  of  calendar  year,  must  be  filed  with  collector  on  or  before 
Marcii  1  next  following  year  for  which  return  is  made;  if  on  basis  of  fiscal  year  ending 
with  date  other  than  December  31,  it  must  be  filed  within  60  days  after  close  of  such 
fiscal  year.     (T.  D.  2690;  art.  203.) 

Where  fiscal  year  is  not  established  as  prescribed  returns  must  be  made  on  basis 
of  calendar  year,  in  which  case  such  returns  must  be  filed  on  or  before  1st  day  of 
March  next  succeeding  such  calendar  year.     (T.  D.  2690;  art.  204.) 

"Last  due  date,"  as  used  in  Regulations  No.  33,  means  last  day  upon  which  a 
return  is  required  to  be  filed  in  accordance  with  provisions  of  the  law,  or  last  day  of 
period  covered  by  an  extension  of  time  granted  by  the  collector  or  Commissioner  of 
Internal  Revenue.     (T.  D.  2690;  art.  218.) 

Return  of  net  income  received  during  taxable  year  remaining  undistributed  six 
months  after  end  of  such  year  must  be  made  within  60  days  after  expiration  of  six 
months  after  end  of  such  year,  except  that  any  corporation,  joint-stock  company  or 
association,  or  insurance  company,  which  would  otherwise  be  required  to  make 
return  on  or  before  date  earlier  than  August  1,  1918,  may  make  such  return  on  or 
before  August  1,  1918.     (T.  D.  2736;  June  18,  1918.) 

— Extension. 

Time  for  making  returns  pursuant  to  reqxiirements  of  Titles  I  and  II  of  the  act  of 
October  3,  1917,  in  case  of  corporations  whose  income-tax  returns  have  been  made 
or  shall  be  made  upon  basis  of  fiscal  year  ending  during  calendar  year  1917,  extended 
to  January  1,  1918.  (T.  D.  2561;  Oct.  16,  1917.)  Time  extended  to  February  1, 
1918.  Extension  applies  also  to  returns  of  annual  net  income  due  subsequent  to 
October  16,  1917,  but  prior  to  February  1,  1918.  (T.  D.  2615;  Dec.  13,  1917.)  Time 
extended  to  March  1,  1918.  Extension  also  applies  to  returns  of  annual  net  income 
due  subsequent  to  October  16,  1917,  but  prior  to  March  1,  1918.  (T.  D.  2633;  Jan. 
22,  1918.)  Time  extended  to  April  1,  1918,  and  extension  made  applicable  to 
returns  whether  made  on  basis  of  calendar  year  or  of  fiscal  year  ending  during  year 
1917.     (T.  D.  2650;  Feb.  9,  1918.) 

Extension  of  time  granted  for  such  period  as  may  be  necessary,  not  exceeding 
90  days  after  proclamation  by  President  of  end  of  war  with  Germany,  for  filing 
returns  of  income  for  1917  and  subsequent  years,  under  sections  6  (c),  8  (b)  (c),  and 
13  (b)  (c),  of  act  of  September  8,  1916,  as  amended,  and  under  war  income-tax  act 
of  October  3,  1917,  by  or  for  enemies  or  allies  of  enemies,  as  defined  by  section  2 
of  the  trading  with  the  enemy  act  of  October  6,  1917,  not  holding  license  granted 
under  such  act;  return  of  information  required;  duties  of  persons  controlling  money 
or  property  for  any  such  enemey  or  ally  of  enemy.     (T.  D.  2673;  Mar.  18,  1918.) 

^\^lere  corporation  fails  or  neglects  to  file  return  within  prescribed  time  and  such 
neglect  is  due  to  sickness  or  absence,  collector  may  grant  extension  of  time  within 
which  to  file  return,  which  extension  must  not  exceed  30  days  from  normal  due 
date;  application  for  extension  must  be  made  prior  to  expiration  of  period  for  which 
extension  is  desired.     (T.  D.  2690;  art.  222.) 

In  meritorious  cases  the  Commissioner  of  Internal  Revenue  may  grant  further 
reasonable  extension  of  time  in  which  returns  may  be  filed,  provided  reason  for 
refjuest  therefor  is  presented  fully  in  writing  and  is  considered  good  and  sufficient. 
(T.  D.  2690;  art.  224.) 

Time  for  filing  returns  extended  to  August  15, 1919,  as  to  partnerships  and  personal 
service  corporations  having  fiscal  year  ended  January  31,  February  28,  March  31,  or 
April  30,  1919.     (T.  D.  2883;  July  9,  1919.) 

■ S,easonable  cause  for  delay. 

In  case  of  failure  to  make  and  file  return  within  prescribed  time  or  within  period 
of  extension  granted  by  collector.  Commissioner  of  Internal  Revenue  shall  add  to 
the  tax  50  per  cent  thereof,  except  that  where  a  return  is  voluntarily  filed  after  due 
date  ■without  notice  from  collector,  and  it  is  shown  that  delinquency  was  due  to 
reasonable  cause  and  not  to  willful  neglect,  no  such  addition  shall  be  made  to  the 
tax;  collector  m^ust  note  on  return  that  it  was  voluntarily  filed  and  will  procure 
from  corporation  statement  under  oath,  setting  out  cause  for  delay,  and  if  such  cause 
is  found  to  be  reasonable,  50  per  cent  addition  will  not  be  made;  exemption  from 
50  per  cent  additional  tax  does  not  necessarily  relieve  coiporation  from  liability  to 
specific  penalty  of  not  to  exceed  $10,000.     (T.  D.  2600;  art.  225.) 


INCOME   TAXES    (CORPORATIONS).  357 

II  e  turns — Conti  mi  cd . 

— —  Undistributed  net  income. 

Every  corporation,  joint-stock  company  or  association,  and  insurance  cornpany, 
required  to  make  return  of  annual  net  income  and  which  had  taxable  net  income 
for  preceding  taxable  year,  must  make  return  of  amount  of  such  net  income  received 
during  such  taxable  year  remaining  undistributed  six  months  after  end  of  such 
taxable  year;  return  must  be  made  upon  Form  1112,  sworn  to  by  president,  -vice 
president,  or  other  principal  officer,  and  by  treasurer  or  assistant  treasurer,  and 
be  made  to  collector  of  district  in  which  its  return  of  annual  net  income  is  required 
to  be  filed.     (T.  D.  273«;  June  18,  1918.) 

Verification. 

Returns  must  be  verified  under  oath  or  afhrmation  of  corporation 's  president  or 
other  principal  officer,  and  its  treasurer  or  assistant  treasurer;  that  is  to  say,  by  two 
different  persons  acting  in  official  capacity  indicated.     (T.  D.  2690;  art.  204.) 

Withiiolding  of  tax. 

^^^lere  record  owner  of  stock  of  domestic  corporations  or  resident  alien  corpora- 
tions is  a  nonresident  alien  corporation,  etc.,  not  having  an  ofhce  or  place  of  business 
in  the  United  States,  the  debtor  corporation  will  withhold  the  normal  income  tax 
and  pay  same  to  proper  officer  of  United  States,  authorized  to  receive  it,  in  a  manner 
and  form  provided  for  withholding  and  accounting  for  tax  withheld.  (T.  D.  2690; 
art.  32.) 

Duty  of  withholding  income  tax  from  dividends  rests  upon  domestic  or  other 
resident  coiporations  paying  the  dividends;  when  it  appears  that  actual  owner  of 
stock  is  nonresident  alien  corporation  it  shall  be  duty  of  debtor  or  issuing  corpora- 
tion in  United  States  to  withliold  income  tax  from  amount  of  dividend  it  pays  to 
each  nonresident  alien  corporation,  and  to  make  return  of  such  withholding  on 
monthly  return  Form  1012;  annual  return,  which  is  summary  of  monthly  returns, 
shall  be  filed  on  or  before  March  1  of  each  year  for  preceding  calendar  year.  (T.  D. 
2690;  art.  201.) 

Where  for  any  reason  there  is  included  in  return  Avhich  foreign  corporation  ia 
required  to  make  of  all  income  received  from  sources  within  United  States  any 
income  upon  which  tax  has  been  withheld  at  source,  such  foreign  corporation  may 
take  credit  against  amount  of  tax  due  for  amount  of  tax  so  withheld  at  source,  pro- 
vided statement  is  attached  to  return,  setting  forth  source  and  amount  of  income 
upon  which  tax  was  so  withheld.     (T.  D.  2690;  art.  201.) 

Where  foreign  corporation  having  no  office,  agent,  or  place  of  business  in  United 
States,  receives  income  from  sources  within  this  country,  other  than  that  upon 
which  tax  has  been  withheld  at  source,  it  shall  make  retiirn  of  annual  net  income  to 
collector  of  internal  revenue  at  Baltimore,  Md.,  accounting  for  therein  all  income 
received  during  year  from  all  sources  in  United  States,  including  that  upon  which 
tax  has  been  withheld,  taking  credit  for  amount  of  tax  so  withheld  at  source  under 
stated  conditions.     (T.  D.  2690;  art.  202.) 

Status  of  tax. 

Tax  due  on  income  has  status  of  a  debt  due  to  the  United  States;  persons  receiv- 
ing property  charged  with  such  indebtedness  must  answer  for  the  debt.  (T.  D. 
2690;  art.  39.) 

Treasury  decisions — Date  effective. 

Treasury  decisions  promulgating  rulings  of  internal  revenue  bureau  become 
effective  upon  date  of  approval,  unless  otherwise  stated  therein;  cases  previously 
adjusted  in  contravention  of  law  as  pronounced  in  such  decisions  are  subject  to 
readjustment  in  accordance  with  the  decisioBi.     (T.  D.  2690;  art.  38.) 

Witliholding — Car-trust  certificates. 

Where  car-trust  certificates  contain  provision  by  which  obligor  agrees  to  pay 
portion  of  tax  imposed  upon  obligee,  or  reimburse  obligee  for  any  portion  of  tax,  or 
pay  interest  without  deduction  for  any  tax,  trustees  in  whose  names  legal  title  to 
equipment  stands,  in  making  interest  payments,  will,  in  absence  of  claims  for 
exemption,  where  interest  payments  are  made  to  individuals,  withhold  normal 
income  tax  on  such  payments  regardless  of  amount  thereof.     (T.  D.  2690;  art. 188.) 


358  INCOME    TAXES    ( COKPORATIONS) . 

Withholding— Continued . 

Credits. 

Where  for  any  reason,  there  h  included  in  return  which  foreign  corporation  is 
required  to  make  of  all  income  received  from  sources  within  United  States  any 
income  upon  v/hich  tax  has  been  withheld  at  source,  such  foreion  corj^oration  may 
take  credit  against  amount  of  tax  due  for  amount  of  tax  so  withheld  at  source,  pro- 
vided statement  is  attached  to  return,  setting  forth  source  and  amount  of  income 
upon  which  tax  was  so  withheld.     (T.  D.  2690;  art.  201.) 

— —  Dividends  paid  foreign  corporations. 

To  enable  debtor  corporations,  etc.,  in  the  United  States  to  distinguish  between 
nonresident  alien  corporations,  etc.,  which  have  and  those  which  do  not  have  any 
office,  agent,  or  place  of  business  in  the  United  States,  and  also  to  enable  such  non- 
resident alien  corporations,  etc.,  as  have  an  office  or  place  of  business  in  the  United 
States  to  claim  exemption  from  withholding  of  normal  income  tax  on  di\T.dends 
upon  capital  stock  of  domestic  or  other  resident  corjjorations,  etc.,  certificate  stat- 
ing that  such  corporation,  etc.,  has  an  office  or  place  of  business  in  the  United  States 
will  be  filed  with  the  debtor  corporation.     (T.  D.  2690;  art.  200.) 

When  record  owner  of  stock  of  domestic  or  other  resident  corporations,  joint-stock 
companies  or  associations,  and  insurance  companies,  is  a  nonresident  alien  corpora- 
tion, joint-stock  company  or  association,  or  insurance  company,  not  having  an  office, 
agent,  or  place  of  bu.sines3  in  the  United  States,  debtor  corporation  will  withhold 
and  pay  tax  to  proper  officer  of  United  States  authorized  to  receive  it,  in  manner  and 
form  provided  for  withholding  and  accounting  for  tax  withheld.  (T.D.2690;  art. 
200.) 

Duty  of  withholding  income  tax  from  dividends  rests  upon  domestic  or  other 
resident  corporations  paying  the  dividends;  when  it  appears  that  actual  owner  of 
stock  is  nonresident  alien  corjjoration  it  shall  bo  duty  of  debtor  or  issuing  corpora- 
tion in  United  States  to  withhold  income  tax  from  amount  of  dividend  it  pays  to 
each  nonresident  alien  corporation,  and  to  make  return  of  such  withholding  on 
monthly  return  Form  1012.     (T.  D.  2G90;  art.  201.) 

When  stock  in  domestic  or  resident  alien  corporation  whose  net  income  is  subject 
to  normal  income  tax  is  issued  in  name  of  another  than  nonresident  alien  corporation, 
dividends  on  such  stock  will  not  be  subject  to  withholding  of  normal  tax  under 
section  13  (f)  of  the  act  of  September  8,  1916,  as  amended,  except  when  debtor 
corporation  or  its  withholding  agent  has  knowledge  that  actual  owner  of  stock  is 
nonresident  alien  corporation  subject  to  withholding.     (T.  D.  2690;  art.  201.) 

Banks  and  collecting  agents,  debtor  corporations,  and  withholding  agents,  au- 
thorized to  accept,  until  June  1,  1918,  certificates  of  ownership  on  old  forms  when 
properly  executed.     (T.  D.  2702;  Apr.  18,  1918.) 

Monthly  returns  reporting  payment  of  interest  on  bonds,  or  payment  of  divi- 
dends on  stock  of  domestic  corporations,  registered  in  the  name  of  foreign  corpora- 
tions, not  having  an  office  or  place  of  business  in  the  United  States,  required  to  bo 
prepared  on  Form  1012,  revised  (1918).     (T.  D.  2702;  Apr.  18,  1918.) 

Exempt  corporations. 

Organizations  enumerated  in  section  11  of  the  act  of  September  8,  1915,  as 
amended,  are  not  exempt  from  requirements  with  respect  to  withholding  of  normal 
tax  on  bond  interest  or  dividends  paid  to  foreign  corjwrations  or  bond  interest  paid 
to  individuals  on  bonds  having  tax-free  covenant.     (T.  D.  2690;  art.  81.) 

Interest. 

Interest  received  from  deposits  in  banks  located  within  the  United  States  paid 
to  nonresident  alien  individuals  constitutes  income  received  from  resources  within 
the  United  States  and  is  subject  to  withholding  provisions  of  act  of  September  8, 
1916,  as  amended  by  act  of  October  3,  1917.  "(T.  D.  2623;  Dec.  28,  1917.  T.  D. 
2652;  Feb.  6,  1918.) 

When  fyeign  corporation  having  no  office,  agent,  or  place  of  business  in  United 
States,  receives  income  from  sources  within  this  country,  other  than  that  upon  which 
tax  has  been  withheld  at  source,  it  shall  make  return  of  annual  net  income  to  col- 
lector of  internal  revenue  at  Baltimore,  Md.,  accounting  for  therein  all  income 
received  during  year  from  all  sources  in  United  States,  including  that  upon  which 
tax  has  been  withheld,  taking  credit  for  amount  of  tax  so  withheld  at  source  under 
stated  conditions.     (T.  D.  2690;  art.  202.) 


INCOME   TAXES    (INDIVIDUALS).  359 

Withholding — Continued . 

Ownership  certificates. 

Where  debtor  corporation  or  its  duly  authorized  withholding  agent  has  made  no 
payments  o£  interest  to  nonresident  alien  individuals  or  foreign  corporations,  hav- 
ing no  office  or  place  of  business  in  the  United  States,  or  has  withheld  no  tax  from 
citizens  or  residents  of  United  States,  whether  or  not  bonds  upon  which  such  inter- 
est accrued  contain  tax-free  covenant  clause,  exemption  certificates  filed  in  con- 
nection with  such  interest  payments  shall  l)e  transmitted  direct  to  Commissioner 
of  Internal  Revenue  (Sorting  Division),  Washington,  D.  C,  accompanied  by  return 
on  Form  109G,  which  form  shall  be  filed  monthly,  and  need  not  be  sworn  to;  if  a 
corporation  or  withholding  agent  has  withheld  tax  and  is  therefore  required  to 
render  return  on  Form  1012,  revised,  all  (-ertificates  received  shall  be  accounted 
for  on  such  monthly  return,  as  directed  by  instructions  thereon.  (T.  D.  2687; 
Apr.  1,  1918.) 

Under  section  13  (e)  of  the  act  of  September  8,  191fi,  as  amended,  interest  on 
bonds  of  domestic  corporations,  joint-stock  companies  or  associations,  and  insurance 
comi^anies,  payable  to  nonresident  alien  corporations,  is  subject  to  deduction  of 
tax  at  source  at  rate  of  6  per  cent  (2  per  cent  under  act  of  Sept.  8,  191G,  and  4  per 
cent  under  act  of  Oct.  3,  1917);  foreign  corporation  will  file  ownership  certificate, 
Form  1000,  in  presenting  coupons  for  payment;  if  foreign  corporation  has  office, 
agent,  or  place  of  business  in  United  States,  cei'tificate  Form  1001  shall  be  filed 
establishing  such  fact  and  relieving  cori)oration  from  deduction  of  tax  at  source. 
(T.  D.  2690;  art.  202.) 

Record  ov/ner  liable  for  tax. 

In  all  case.5  where  actual  owner  of  stock  is  nonresident  alien  corporation,  and 
record  owner  is  individual,  firm,  or  corporation  in  the  United  States,  citizen,  or 
resident  alien,  and  actual  ownership  has  been  disclosed,  record  owner  will  be  held 
for  income-tax  i^urposes  to  have  receipt,  custody,  control,  and  disposal  of  divi- 
dend, and  will  be  required  to  make  return  for  actual  owner  and  pay  tax  found  to 
be  due.     (T.  D.  2090;  art.  201.) 

INCOME    TAXES  (INDIVIDUALS). 
Abatement  claims. 
See  "Claims." 

Acts  published. 

Income  tax  of  September  8,  1916,  published.  (T.  D.  2360;  Sept.  11,  1916.) 
Same  act,  as  amended  by  act  of  October  3,  1917,  and  war  income  tax  act  of  October 
3,  1917,  published.  (T.  D.  2549;  Oct.  20,  1917.  Note  correction  following  T.  D. 
2571.) 

Assessment  of  tax — Commissioner's  duty. 

Assessment  of  income  tax  shall  be  made  by  Commissioner  of  Internal  Revenue. 
(T.  D.  2690;  art.  38.) 

In  any  case  where  conditions  which  obtain  do  not  appear  to  fall  within  tlie  law 
and  regulations  for  the  assessment  and  collection  of  the  income  tax,  proper  tax 
shall  be  assessed  in  particular  case  by  Commissioner  of  Internal  Revenue  upon  his 
findings  concerning  the^ame.     (T.  D.  2690;  art.  49.) 

Effective  date  of  Treasury  decisions. 

Treasury  decisions  promulgating  rulings  of  internal-revenue  bureau  become 
effective  upon  date  of  approval  unless  otherwise  stated  therein;  cases  previously 
adjusted  in  contravention  of  law  as  pronounced  in  such  decisions  are  subject  to 
readjustment  iir  accordance  with  the  decision.     (T.  D.  2690;  art.  38.) 

Limitations. 

Paragraph  (a)  of  section  9  of  the  act  of  September  8,  1910,  does  not  require  assess- 
ment to  be  made  v»-ithin  three  years  from  time  return  was  due;  limitation  is  upon 
discovery  of  delinquency  or  error  within  three  years.     (T.  D.  2690;  art.  38.) 

Notice. 

All  persons  .shall  be  notified  of  the  amount  for  which  they  are  respectively  liable 
on  or  before  the  1st  day  of  June  of  each  successive  year.    "(T.  D.  2690;  art.  38.) 


360  INCOME    TAXES    (INDIVIDUALS), 

Assessment  of  tax — Continued. 

0^;vTier3hip  of  income. 

Ownership  of  income  and  liability  for  tax  thereon  shall  be  determined  as  of  the 
year  for  which  the  return  is  required  to  be  rendered.     (T.  D.  2690;  art.  49.) 

Claims  for  refund  or  abatement. 

See  "Claims." 

Collection  and  pa3mient — Advance  payment. 

Instructions  with  reference  to  time  for  making  advance  payments  in  installments 
or  in  whole  of  income  and  excess-profits  taxes  under  section  1009  of  act  of  October 
3,  1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to 
taxpayer;  refund  of  excess  pavment;  entries  to  be  made  on  specified  forms;  interest 
table.  (T.  D.  2622;  Dec.  26/1917.  T.  D.  2674;  Mar.  18,  1918.  T.  D.  2695;  Apr. 
11,  1918.) 

— —  Certificates  of  indebtedness. 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  maturing 
June  25, 1918,  at  par  and  accrued  interest,  in  payment  of  income  and  excess-profits 
taxes,  when  payable  at  or  before  maturity  of  certificates;  amount  of  such  certificates 
must  not  exceed  amount  of  taxes  due;  deposits  of  such  certificates  to  be  made  in 
Federal  reserve  banks  of  districts  in  which  collectors'  offices  are  located ;  insurance, 
where  amounts  are  transmitted  by  registered  mail;  until  certificates  of  deposits  are 
received  from  banks  amounts  must  be  carried  as  "cash  on  hand" ;  schedule  showing 
amount  of  accrued  interest  payable  per  certificate  of  each  issue  on  any  date  from 
January  2  to  June  25,  1918.     (T.  D.  2639;  Jan.  28,  1918.) 

Schedule  showing  exact  amount  of  accrued  interest  payable  on  any  day  from 
February  15,  1918,  to  June  25,  1918.     (T.  D.  2656;  Feb.  15,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
March  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess-profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  payable  on  any  day  from  March 
15,  to  June  25,  1918.     (T.  D.  2680;  Mar.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
April  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess-profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  on  any  day  from  April  15  to 
June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
May  15,  1918,  and  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment 
of  income  and  excess-profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  the  exact  amount  of  accrued  interest  payable  on  any  day  from 
May  15  to  June  25,  1918.     (T.  D.  2718;  May  28,  1918.) 

Collectors  directed  to  receive  at  par  United  States  Treasury  certificates  of  indebt- 
edness of  Tax  Series  of  1919,  dated  August  20,  1918,  and  maturing  July  15,  1919. 
and  of  Series  T,  dated  November  7,  1918,  and  maturing  March  15,  1919,  in  payment 
of  income  and  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
deposits  of  certificates  must  be  m.ade  with  Federal  reserve  banks  of  districts  in 
which  resi^ective  collectors'  offices  are  located  and  must  be  forwarded  by  registered 
mails;  until  certificates  of  deposit  are  received  from  banl's,  amounts  must  be  carried 
as  cash  on  hand;  schedules  of  certificates  required  to  be  kept  by  collectors;  deposit 
of  certificates  in  banks  by  taxpayers  permitted  under  stated  conditions.  (T.  D. 
2778;  Dec.  11,  1918.) 

Unmatured  coupons  attached  to  certificates  of  indebtedness  of  Tax  Series  of  1919, 
dated  August  20,  1918,  and  maturing  July  15,  1919,  and  of  Series  T,  dated  November 
7.  1918,  and  maturing  March  15,  1919,  must  he  stamped  "Paid";  coupons  maturing 
on  or  before  date  tax  is  due  must  be  detached  by  taxpayer  and  collected,  but  all 
other  coupons  must  be  attached  to  certificate  and  forwarded  to  Federal  reserve 
banks;  accrued  interest  to  date  income  or  profits  taxes  are  due  not  covered  by 
coupons  attached  will  be  remitted  to  taxpayer;  collectors  must  not  pay  interest  on 
such  certificates,  nor  accept  them  for  an  amount  other  or  greater  than  their  face 
value.     (T.  D.  2778;  Dec.  11,  1918.) 

— —  Excess  payment. 

An  excess  payment  of  tax  in  one  year  can  not  be  offset  against  an  assessment  of 
tax  for  a  subsequent  year.     (T.  D.  2690;  art.  39.) 


INCOME   TAXES    (INDIVIDUALS).  361 

Collection  and  payment — Continued. 

- —  Executors  or  administrators. 

Admini'^tratorH  or  executors  phould  pay  tax  found  by  return  for  calendar  year  in 
wlii  h  administration  was  closed  to  be  due  immediately  upon  receipt  of  notice  and 
demand  for  payment  of  such  tax.     (T.  D.  2690;  art.  26.) 

Lia])ility  for  payment  of  income  tax  attaches  to  the  person  of  an  executor  or 
administrator  up  to  and  including  date  of  discharge  regardless  of  fact  that  time  in 
which  claim  is  made  and  filed  against  estate  has  expired,  or  where,  prior  to  distri- 
bution and  discharge,  executor  or  administrator  had  notice  of  obligations  to  Fed- 
eral Government,  or  where  he  failed  to  exercise  due  diligence  in  determining  whelhcr 
or  not  such  obligations  existed.     (T.  D.  2690;  art.  29.) 

Liability  for  tax  due  from  deceased  person,  or  from  his  estate,  attaches  to  estate 
itself,  and  when  by  reason  of  distribution  of  estate  and  discharge  of  executor  or 
administrator  it  shall  appear  that  collection  of  tax  can  not  be  made  from  executor 
or  administrator  collector  will  make  demand  on  distributees  for  their  proportionate 
share  of  tax  due  and  unpaid.     (T.  D.  2690;  art.  29.) 

• Fractional  part  of  cent. 

In  payment  of  income  tax  a  fractional  part  of  a  cent  shall  be  disregarded  unless  it 
amounts  to  a  half  cent  or  more  in  which  case  the  fraction  shall  be  iucrea.sed  to  one 
cent.     (T.  D.  2G90;  art.  41.) 

Nonresident  aliens. 

All  property  in  United  States  of  nonresident  alien  is  subject  to  distraint  for  collec- 
tion of  tax  and  penalty.     (T.  D.  2690;  art.  13.) 

Tax  on  income  derived  by  nonresident  aliens  from  sources  wdthin  United  States 
shall  be  paid  by  owner  of  said  income  or  proper  representatives  of  the  alien  having 
the  receipt,  custody,  control,  or  disposal  of  same;  where  all  income  shall  have 
been  paid  over  by  the  representative  to  his  principal  on  or  before  October  3, 
1917,  or  where  stockholder  of  record  shall  not,  between  October  3  and  December 
31,  1917,  be  in  receipt  of  or  have  in  his  custody  or  control,  income,  the  property 
of  his  said  principal,  such  representative  need  not  pay  such  tax,  leaving  same 
a  charge  against  the  nonresident  alien  ^nd  to  be  collected  from  him  by  any 
means  at  disposal  of  the  Commissioner;  but  where  such  representative  shall  have 
in  his  possession,  custody,  or  control,  subsequent  to  October  3,  1917,  income 
of  his  principal,  said  representative  shall  pay  total  tax  due  upon  the  income  so  in 
his  custody  and  control  for  the  entire  year  1917  and  subsequent  years.  (T.  D. 
2690;  art.  32.) 

Upon  showing  properly  made  either  by  certification  or  return,  as  circumstancea 
may  require,  as  to  ownership  of  stock  of  domestic  or  resident  alien  corporation,  Com- 
missioner of  Internal  Revenue  will  make  such  assessments  and  issue  such  instruc- 
tions to  debtors  and  withholding  agents  as  will  insure  proper  collection  of  tax  in 
accordance  with  respective  tax  liabilities.     (T.  D.  2690;  art.  32.) 

Where  actual  owner  of  stock  of  domestic  corporation  or  resident  alien  corporation 
is  nonresident  alien  individual  or  corporation,  and  record  owner  is  an  individual 
firm  or  corporation  in  the  United  States  (citizen  or  resident  alien),  and  showing  of 
actual  ownership  is  made,  record  owner  \vill  be  held  to  have  receipt,  custody,  con- 
trol, and  disposal  of  dividend  income  and  will  be  requii-ed  to  pay  tax  found  by 
return  to  be  due.     (T.  D.  2690;  art.  32.) 

Notice. 

Tax  is  to  be  paid  upon  notice  from  collector  of  internal  revenue  of  amount  of  tax 
due,  and  at  all  events  not  later  than  June  15;  as  to  tax  unpaid  on  June  15,  and  for  10 
days  after  notice  and  demand  therefor  penalty  is  5  per  cent  of  amount  of  tax  unpaid 
and  interest  at  rate  of  1  per  cent  per  month  upon  such  tax  from  time  same  became 
due,  except  from  estates  of  insane,  deceased,  or  insolvent  persons;  collectors  should 
issue  Form  17  for  purj^ose  of  fixing  definitely  date  when  penalty  accrues  and  interest 
begins  to  run,  and  copy  of  notice  should  be  filed.     (T.  D.  2690;  arts.  39,  41.) 

• Payment  by  check— Bad  checks. 

Taxpayers  whose  checks  have  been  returned  uncollected  by  depositary  bank 
should  be  immediately  notified  to  make  checks  good;  if  taxpayer  fails  to  do  so,  col- 
lector should  proceed  to  collect  taxes  by  usual  methods,  as  though  no  check  had  been 
given.     (T.  D,  2666;  Mar.  8,  1918.) 

In  casss  where  checks  have  been  returned  uncollected  by  depositary  bank,  if 
recapitulation  of  assessment  list  for  the  month  has  not  yet  been  sent  to  the  Com- 


362  INCOME    TAXES    (INDIVIDUALS). 

Collection  and  pa3rment — Continued. 

Payment  by  check— Bad  checks — Continued. 

missioner,  original  entry  of  payment  should  bo  canceled,  and  at  the  same  time  there 
should  be  noted  in  the  "Remarks"  column  "Check  returned  unpaid;  transferred 
to  p.  — ,  1.  — , "  with  the  date,  and  the  item  should  1)9'  reentered  in  the  unpaid 
section  of  the  list,  with  the  notation  '  'Transferred  from  p.  — ,  1.  — . "  There  should 
1)0  submitted  in  support  of  the  new  entry  a  copy  of  the  collector's  letter  to  the  tax- 
payer with  regard  to  the  nonpayment  of  the  check;  if  monthly  recapitulation  has 
gone  forward,  note  should  be  made  in  the  '  'Remarks"  column,  opposite  the  original 
entry,  '  'Check  returned  unpaid, "  with  the  date.     (T.  D.  26(56;  Mar.  8,  1918.) 

Where  check  for  which  certificate  of  deposit  to  credit  of  Treasurer  of  the  United 
States  has  been  issued  is  returned  to  depositary  l:)ank  unpaid,  collector  will  be 
promptly  notified  and  check  held  for  few  days,  during  which  time  collector  should 
make  effort  to  recover  amount  from  taxpayer;  if  amount  is  recovered,  collector  should 
immediately  turn  it  over  to  depositary  in  exchange  for  liad  check,  which  should  bo 
returned  to  the  drawer,  but  if  amount  is  not  rccoA-ered  within  reasonable  time,  de- 
positary will  return  check  with  letter  of  transmittal  and  ask  receipt  from  collector, 
which  receipt  should  be  given  in  duplicate,  and  depositary  will  charge  amount  to 
Treasiirer's  account  in  next  daily  transcript.     (T.  D.  266G;  Mar.  8,  1918.) 

Where  check  deposited  in  collection  account  is  returned  unpaid,  and  no  certificate 
of  deposit  on  Form  15  covering  the  amount  thereof  has  been  issued,  amount  of  check 
Avill  be  charged  by  depositary  to  the  collection  account,  after  being  held  in  a  sus- 
pense account  for  a  few  days  while  an  effort  is  made  to  recover  amount  from  tax- 
payer.    (T.  D.  2GGG;  Mar.  8,  1918.) 

Collection  at  par. 

All  checks  in  payment  of  income  taxes  must  bo  collectible  at  par  (without  any 
deduction) ;  taxpayers  who  are  not  sure  that  their  checks  will  be  paid  at  par  should 
be  ad~vdsed  to  write  beneath  the  amount  "without  deduction  for  exchange,"  or 
"with  exchange";  collector  not  required  to  examine  all  checks  to  see  whether  they 
arc  collectible  at  par;  if  bank  on  which  check  is  drawn  refuses  to  pay  it  at  par,  it  will 
h<i  returned  through  depositary  bank,  and  should  be  treated  in  same  manner  as  a 
bad  check.     (T.  D.  2666;  Mar.  8,  1918.) 

• Monthly  and  quarterly  accounts. 

Instructions  with  reference  to  preparation  of  monthly  and  quarterly  accounts  in 
cases  where  checks  have  been  returned  uncollected  by  depositary  bank.  (T.  D. 
2666;  Mar.  8,  1918.) 

Out-of-town  check. 

All  out-of-town  checks  for  which  depositary  bank  is  unwilling  to  issue  immediate 
certificate  of  deposit  to  credit  of  Treasurer  of  United  States,  should  be  deposited 
separately  in  collection  account,  as  provided  in  T.  D.  2627;  collection  account  v/ill 
be  charged  and  Treasurer's  general  account  credited  by  issuance  of  certificate  of 
deposit  on  Form  15.     (T.  D.  2666;  Mar.  8,  1918.) 

Posting  records. 

Int^tructions  with  reference  to  posting  records  1  and  9  in  cases  where  checks  have 
been  returned  uncollected  by  depositary  bank.     (T.  D.  2666;  Mar.  8,  1918.) 

Uncertified  checks. 

If  uncertified  check,  accepted  by  collectors,  is  not  paid,  person  by  vvhom  it  has 
been  tendered  remains  liable  for  tax;  such  uncertified  checks  as  depositary  bank  is 
willing  to  accept  should  be  included  in  certificate  of  deposit  issued  to  collector;  all 
other  certificates  will  be  carried  by  collector  as  "cash  on  hand";  date  on  which  col- 
lector receives  check  considered  date  on  v,diich  payment  is  made  unless  check  is 
returned  dishonored;  such  uncertified  c'necks  as  bank  is  not  willing  to  accept  for 
immediate  credit  may  be  deposited  for  collection,  and  when  collection  is  made  pro- 
ceeds should  be  immediately  deposited  with  other  collections  for  the  day,  collector 
charging  his  account  "cash  on  hand,"  and  crediting  taxpayer  from  whom  check 
was  received.     (T.  D.  2627;  Dec.  28,  1917.) 

• Penalties  for  nonpaj^^ment. 

Tax  is  to  be  paid  upon  notice  from  collector  of  internal  revenue  of  amount  of  tax 
due,  and  at  all  events  not  later  tlan  June  15;  as  to  tax  unpaid  on  June  15,  and  for 
10  days  after  notice  and  demand  therefor  penalty  is  5  per  cent  of  amount  of  tax  un- 
paid and  interest  at  rate  of  1  per  cent  per  month  upon  such  tax  from  time  same 
became  due,  except  from  estates  of  insane,  deceased,  or  insolvent  persons;  coUec- 


INCOME   TAXES    (INDIVIDUALS).  363 

Collection  and  payment — Continued. 

Penalties  for  nonpayment — Conlinned. 

tors  should  issue  b'orm  17  for  purpose  of  fixin<^  dofiniLely  dale  when  penalty  accrues 
and  interest  begins  to  run,  and  copy  of  notice  should  be  filed.  (T.  D.  2G90;  art. 
39,  41.) 

There  shall  be  added  to  tax  unpaid  ))pforc  close  of  business  June  15  and  10  days 
after  notice  and  demand  5  per  cent  on  amount  of  tax  unpaitl  and  interest  at  rate  of 
1  per  cent  per  month  from  time  same  became  due,  except  from  estates  of  insane, 
deceased,  or  insolvent  persons,  and  delinquents  shall  al^=«5  be  liable  for  specific 
penalty  of  not  less  than  $20  nor  more  than  $1,000.     (T.  I).  2690;  art.  51.) 

Status  of  tax 

Tax  due  on  income  has  status  of  a  debt  due  to  the  United  States;  persons  receiving; 
property  charjied  with  such  indebtedness  must  answer  for  the  debt.  CT.  D.  2090; 
art.  39.) 

A  tax  is  not  a  debt  aud  the  Government  is  not  a  creditor  in  a  strict  sense.  The 
obligation  is  of  a  higher  nature  than  a  debt.     (T.  D.  304?,;  July  2,  1920.     Ct.  Dec.) 

Time  of  payment. 

Tax  is  to  be  paid  uiion  notice  from  collector  of  internal  revenue  of  amount  of  tax 
due,  and  at  all  events  not  later  than  June  15.     (T.  D.  2690;  art.  39.) 

Because  of  impossibility  of  receiving  notice  and  demand  on  Form  17  and  making 
payment  of  taxes  so  that  taxes  can  be  received  by  collector  within  10-day  period 
following  June  15,  or  within  10-day  period  following  service  of  notice,  by  reason  of 
absence  in  foreign  countries  or  on  account  of  traveling  abroad,  or  of  absence  in  the 
military  or  other  service  of  the  country,  and  consequent  delay  in  receiving  mail, 
collector  is  requested  to  ente,jf  on  Form  17  as  date  on  v/hich  tax  becomes  due  and 
payable,  as  near  as  possible,  date  10  days  subsequent  to  time  that  notice  should  be 
received  in  ordinary  course  of  mails,  and  where  it  appears  that  full  amount  of  tax 
was  placed  in  mail  within  10-day  period,  or  in  case  notice  is  not  delivered  in  due 
time,  and  satisfactorv  evidence  of  that  fact  is  furnished,  penalty  and  interest  will 
not  be  collected,     (f.  D.  2679;  Mar.  23,  1918.) 

Constitutional  provision. 

The  sixteenth  amendment  to  the  Constitution  of  the  United  States  does  not 
extend  the  taxing  power  to  new  or  excepted  subjects,  but  merely  removes  all 
occasion  which  otherwise  might  exist  for  an  apportionment  among  the  States  of 
taxes  laid  on  income,  whether  it  be  derived  from  one  source  or  another.  (T.  D. 
2726;  June  4,  1918.     Ct.  Dec.) 

Under  the  sixteenth  amendment  to  the  Constitution,  Congress  has  power  to  tax 
as  income,  without  apportionment,  everything  that  became  income  in  the  ordinary 
sense  of  the  word  after  the  adoption  of  the  amendment.  (T.  D.  2731;  June  11,  1918. 
Ct.  Dec.) 

Neither  under  the  sixteenth  amendment  to  the  Constitution  nor  otherwise  has 
Congress  power  to  tax  without  api^ortionment  a  true  stock  dividend  made  lawfully 
and  in  good  faith,  or  the  accumulated  profits  behind  it,  as  income  of  the  stock- 
holder; act  September  8,  191G,  held  unconstitutional  in  so  far  as  it  imposes  an  in- 
come tax  upon  true  stock  dividends.     (T.  D.  3010;  Apr.  26,  1920.     Ct.  Dec.) 

Deductions. 

See  '  'Net  income, ' '  post. 

Estete  tax — Deduction  of  income  taxes. 

Where  State  statute  or  act  of  Congress,  imposing  tax  on  income,  creates  either  a 
lien  or  a  personal  obligation,  as  of  a  date  in  the  deccndent's  lifetime,  the  tax  is  de- 
ductible, and  where  lien  or  obligation  is  created  as  of  a  date  subsequent  to  the  de- 
cedent's death  the  tax  is  not  deductible;  the  income  and  excess  profits  taxes  imposed 
l)y  acts  of  September  8,  1910,  and  October  3,  1917,  constitute  peraonal  obligation  of 
the  taxpayer,  and  are  deductible  in  accordance  with  these  rules;  the  unpaid  taxes 
for  years  prior  to  that  in  which  decedent  died  are  deductible;  for  the  year  in  which 
decedent  died,  the  tax  upon  income  up  to  the  date  of  death  is  deductible.  (T.  D. 
2771;  Nov.  8,  1918.) 

Exemptions — Amount. 

Under  act  of  Seiitember  3,  1916,  asamcudeJ,  and  act  of  October  3,  1917,  returns 
required  in  case  of  net  incomes  equal  to  or  in  excess  of  $1,000  or  $2,000,  according 
to  marital  status  of  person  maknig  return;  in  return  so  required  basic  personal 


364  INCOME    TAXES     (INDIVIDUALS). 

Exemption — Amount — Coutiniied. 

exemption  will  be  $1,000  under  act  of  October  3,  1917,  and  $3,000  under  act  of 
September  8, 1916,  as  amended;  exemption  allowed  husband  and  wife  living  together 
may  be  taken  by  one  or  divided  between  them  in  such  ratio  as  they  may  determine. 
(T/D.  2690;  art.  26.) 

Applying  only  to  citizens  and  residents  of  United  States  there  is  an  individual 
exemption  of  $3,000,  except  that  if  husband  and  wife  live  together  a  joint  exemption 
of  $4,000  under  the  act  of  September  8,  1916,  and  $2,000  under  the  act  of  October  3, 
1917,  is  substituted  for  the  several  exemption  of  $3,000  each,  under  the  earlier  act, 
and  $1,000  each,  under  the  later  act,  and  that  if  the  taxpayer  be  a  head  of  a  family 
consisting  of  a  person  or  persons  other  than  a  wife  or  husband  alone,  his  exemp- 
tion is  $4,000  under  the  earlier  act  and  -12,000  under  the  later  act,  plus  .$200  for  each 
dependent  child.     (T.  D.  2692;  Apr.  8,1918.) 

— —  Bequests  or  legacies. 

Value  of  property  acquired  by  bequest  or  devise  shall  not  be  included  as  income, 
but  income  from  such  property  shall  be  reported.     (T.  D.  2690;  art.  5.) 

Children. 

Exemption  of  .$200  for  each  dependent  child  provided  by  section  7  of  act  of 
September  8,  1916,  as  amended,  is  given  in  respect  of  income  tax,  and  is,  therefore, 
applicable  under  both  the  act  of  September  8,  1916,  as  amended,  and  the  act  of 
October  3,  1917,  under  same  conditions  of  fact.     (T.  D.  2690;  art.  14.) 

Death  within  calendar  year. 

Where  parson  having  taxable  income  dies  within  calendar  year,  his  personal 
representatives  in  making  return  for  him  may  claim  full  exemption  granted  by 
statutes  for  calendar  year.     (T.  D.  2690;  art.  14.) 

Where  husband  or  wife  having  taxable  income  dies  within  calendar  year  and  full 
exemption  for  year  is  used  by  personal  representative  in  making  return,  if  survivor 
is  also  required  to  make  return  at  close  of  year  for  income  received  within  that  year, 
the  full  personal  exemption,  according  to  marital  status  of  survivor  at  close  of  year, 
may  be  claimed  in  return  of  income.     (T.  D.  2690;  art.  14.) 

■ Excess. 

Personal  exemptions,  are  grante  1  in  respect  of  normal  income  tax  only,  and  where 
total  of  allowable  exemptions  and  credits  exceeds  amount  of  net  income,  excess 
of  such  exemptions  may  not  be  availed  of  as  against  additional  tax.  (T.  D.  2690; 
art.  14.) 

Federal  ressi've  bank  dividends. 

Exemption  provided  for  in  Federal  reserve  statute,  section  3,  of  the  act  of  October 
22,  1914,  attaches  to  and  follows  income  derived  from  dividends  on  stock  of  Federal 
reserve  banks  into  hands  of  stockholders,  that  is  to  say,  dividends  received  on  stock 
of  such  banks,  are  exempt  from  taxes  imposed  by  acts  of  September  8,  1916,  as 
amended,  and  of  October  3,  1917.     (T.  D.  2690;  art.  86.) 

Fiduciaries. 

Fiduciaries  acting  for  minors  or  incompetent  persons  are  permitted  to  take  per- 
sonal exemption  as  to  income  derived  from  property  of  which  they  have  charge  in 
favor  of  each  ward  or  beneficiary.     (T.  D.  269 );  art.  14.) 

Gifts. 

Value  of  property  acquired  by  gift  shall  not  be  included  as  income,  but  income 
from  such  property  shall  be  rei)orted.     (T.  D.  2690;  art.  5.) 

Head  of  family. 

Head  of  a  family  is  person  who  actually  supports  and  maintains  one  or  more 
individuals  who  are  closely  connected  with  him  by  blood  relationship,  relationship 
by  marriage  or  by  adoption,  and  whose  right  to  exercise  family  control  and  provide 
for  tiiese  dependent  individuals  is  based-  upon  some  moral  or  legal  obligation. 
(T.  D.  2690;  art.  14.) 

Appl>dng  only  to  citizens  and  residents  of  United  States  there  is  an  individual 
exemption  of  .$3,000,  except  as  to  taxpayer  who  is  head  of  family  consisting  of  person 
or  persons  other  than  a  wife  or  husl)and  alone,  his  exemption  is  .$4,000  under  act  of 
September  8,  1916,  and  $2,000  under  a-t  of  October  3,  1917,  plus  $200  for  each  de- 
pendent child.     (T.  D.  2692;  Apr.  8,  1918.) 


INCOME   TAXES     (INDIVIDUALS).  365 

Exemptions — Continued. 

Head  of  family — Continiiod. 

A  head  of  a  family  is  a  person  wlio  actually  supports  and  maintains  one  or  more 
indivitfuals  who  aroclossly  connected  with  him  by  blond  relationship,  relationship 
by  marriage,  or  by  adoption,  in  one  household;  in  al)rience  of  continuous  actual 
residence  together,  whether  or  not  a  person  with  dependents  is  head  of  a  family 
within  the  meaning  of  the  statute  must  depend  on  the  character  of  the  separation; 
if  a  child  or  other  dependent  is  away  only  temporarily  at  school  or  on  a  visit,  the 
common  home  being  still  maintained,  the  additional  exemption  applies;  if,  how- 
ever, the  dependent  continuously  makes  his  home  elsewhere  his  benefactor  is  not 
the  head  of  a  familv,  irrespective  of  the  question  of  support.  (T.  D.  2G92;  Apr.  8, 
1918.     See  T.  D.  2427;  Dec.  26,  191G.) 

Husband  and  wife. 

Resident  aliens  claiming  exemption  because  of  families  or  wives  residing  abroad, 
are  not  heads  of  families  or  married  men  or  women  with  wives  or  husbands  li\ing 
with  them  within  the  meaning  of  the  income-tax  law,  and  they  are  in  no  case  en- 
titled to  more  than  their  individual  exemptions  of  $;5,000,  under  the  act  of  Septem- 
ber 8,  1916,  and  $  1,000  under  the  act  of  October  3,  1917.     (T.  D.  2692;  Apr.  8,  1918.) 

In  the  case  of  a  married  man  or  a  married  woman  the  joint  exemption  replaces 
the  individual  exemptions  only  if  his  wife  lives  with  him  or  her  husband  lives  with 
her;  in  absence  of  continuous  actual  residence  together,  whether  or  not  a  man  or 
woman  has  a  wife  or  husband  living  with  him  or  her  must  depend  on  the  character 
of  the  separation;  if  merely  occasionally  and  temporarily  a  wife  is  away  on  a  visit 
or  a  husband  is  away  on  business,  the  joint  home  being  niaintained,  the  additional 
exemption  applies,  and  the  unavoidable  absence  of  a  wife  or  husband  at  a  sana- 
torium or  asylum  on  account  of  illness  does  not  preclude  claiming  the  exemption; 
if,  however,  the  husband  voluntarily  and  continuously  makes  his  home  at  one 
place  and  the  wife  hers  at  another,  they  are  not  living  together  for  the  purpose  of  the 
statute,  irrespective  of  their  personal  relations.     (T.  D.  2692;  Apr.  8,  1918.) 

■ Inherited  property. 

Value  of  property  acquired  by  bequest  or  devise  shall  not  be  included  as  income, 
but  income  from  such  property  shall  be  reported.     (T.  D.  2690;  art.  5.) 

■ Insurance. 

There  shall  not  be  included  as  income  proceeds  of  life  insurance  policies  paid  to 
beneficiaries  upon  death  of  insured,  or  amount  received  by  insured  as  return  of 
premium  or  premiums  paid  by  him  under  life  insurance,  endowment,  or  annuity 
contracts,  either  during  term  or  at  maturity  of  term  mentioned  in  contract  on 
surrender  of  contract.  '  (T.  D.  2690;  art.  5.) 

■ Interest. 

Interest  on  obligations  of  a  State  or  any  political  subdivision  thereof,  or  on  obli- 
gations of  the  United  States  (but,  in  case  of  obligations  issued  after  September  1, 
1917,  only  if  and  to  extent  provided  in  act  authorizing  issue  thereof),  or  its  posses- 
sions, or  on  securities  issued  under  provisions  of  Federal  farm  loan  act  of  July  17, 
1916,  shall  not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

Income  from  United  States  bonds  issued  under  the  act  of  September  24,  1917,  ia 
exempt  from  the  Avar  income  tax  of  4  per  cent  imposed  upon  net  income  of  corpora- 
tions by  section  4  of  Title  I  of  the  act  of  October  3,  1917,  and  the  2  per  cent  tax 
imposed  by  section  10  of  Title  1  of  the  act  of  September  8,  1916,  as  amended.  (T. 
D.  2690;  art.  85.) 

Idberty  bonds. 

Interest  on  obligations  of  United  States  (but,  in  case  of  obligations  issued  after 
September  1,  1917,  only  if  and  to  extent  provided  in  act  authorizing  issue  thereof) 
or  its  possessions  shall  not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

Income  from  United  States  bonds  issued  under  the  act  of  September  24,  1917,  is 
exempt  from  the  war  income  tax  of  4  per  cent  imposed  upon  net  income  of  corpora- 
tions by  section  4  of  Title  I  of  the  act  of  October  3,  1917,  and  the  2  per  cent  tax 
imposed  by  section  10  of  Title  I  of  the  act  of  September  8,  1916,  as  amended.  (T. 
D.  2690;  art.  85.) 

Wlien  income  as  such  is  taxable  to  beneficiaries,  as  in  case,  under  present  income 
tax  law,  of  trust  income  of  which  is  to  be  distributed  annually  or  regularly  between 
existing  beneficiaries,  each  beneliciary  is  regarded  as  owner  of  proportionate  part  of 
bonds  held  in  trust,  and  subscrij)tion  by  trustee  for  bonds  of  Fourth  Liberty  Loan 
constitutes  each  beneliciary  an  original  subscriber  for  his  proportionate  part  and 


355  INCOME    TAXES    <  INDIVIDUALS ) . 

Exemptions — Continued. 

Liberty  bonds — Continued. 

entitles  him  to  collateral  exemption  of  interest  on  bonds  of  previous  issues,  whether 
owned  by  beneficiary  or  by  trustee,  and  subscription  by  such  beneficiary  for  bonds 
of  Fourth  Liberty  Loan  entitles  him  to  collateral  exemption  of  interest  on  bonds 
of  previous  issues  held  by  tru.stee.     (T.  D.  2762;  Oct.  18;  1918.) 

When  income  is  taxable  to  trustee,  as  in  case,  under  present  income  tax  law^,  of 
a  trust  income  of  which  is  accumulated  for  benefit  of  unborn  or  unascertained 
j^ersons,  trustee  is  regarded  as  owner  of  all  bonds  held  in  trust,  and  the  trust  is 
entitled  to  exemption  on  account  of  such  ownership.  In  such  case  subscription 
by  trustee  for  bonds  of  Fourth  Liberty  Loan  constitut-es  trustee  as  such  the  original 
subscriber  and  entitles  the  trust,  on  account  of  such  subscription,  to  collateral 
exemption  of  interest  on  bonds  of  previous  issues.     (T.  D.  2762;  Oct.  18,  1918.) 

Corporation,  and  not  stockholders,  is  regarded  as  owner  of  Liberty  loan  bonds 
held  by  a  corporation  and  entitled  to  exemption  on  account  of  such  ownership. 
When  bonds  of  Fourth  Liberty  Loan  are  subscribed  for  by  corporation,  it.  and  not 
Ktockholders,  is  original  subscriber  and  entitled  to  collateral  exemption  of  interest 
on  bonds  of  previous  issues  on  account  of  such  original  subscription.  (T.  D.  2762; 
Oct.  18,  1918.) 

With  reference  to  tax  assessed  to  partnership  upon  partnership  income  as  a  whole, 
such  partnership  is  original  subscriber  and  entitled  to  collateral  exemption  of 
interest  on  Liberty  bonds  of  previous  issues  on  account  of  such  original  subscrip- 
tion for  bonds  of  Fourth  Liberty  Loan.     (T.  D.  2762;  Oct.  18,  1918.)' 

With  reference  to  tax  assessed  upon  individual  partner  on  share  of  partnership 
income,  such  partner,  if  partner  at  time  of  original  subscription  by  partnership 
for  bonds  of  Fourth  Liberty  Loan,  is  treated  as  original  subscriber  for  proportionate 
part  of  such  bonds  and  is  entitled  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues,  as  if  he  had  subscribed  directly  for  such  proportionate  i^art.  (T. 
D.  2762;  Oct.  18,  1918.) 

When  income  of  partnership  is  taxable  to  partnership  as  such,  as  under  present 
excess  profits  tax  law,  partnership  is  treated  as  owner  of  Liberty  loan  bonds  held 
by  it  and  entitled  to  exemption  from  taxes  assessed  ujwn  income  of  partnership 
as  such.     (T.  D.  2762;  Oct.  18,  1918.) 

When  income  of  partnership  is  taxable  to  individual  partners,  as  under  present 
income  tax  law,  eacli  partner  is  treated  as  owner  of  proportionate  part  of  Liberty 
loan  l)onds  held  by  })artnership  and  entitled  to  exemption  on  account  of  such 
ownership,  as  if  such  partner  owned  such  proportionate  part  of  bonds  directly. 
(T.  D.  2762;  Oct.  18,  1918.) 

Circular,  issued  under  date  of  April  23,  1919,  with  reference  to  tax  exemptions 
of  Liberty  bonds  and  Victory  notes,  published  for  inform.ation  of  internal  revenue 
officers  and  others  concerned.     (T.  D.  2836;  May  7,  1919.) 

For  pm'poses  of  additional  tax  exemption  for  Liberty  l>onds  granted  by  section 
2  (b)  of  the  Victory  Liberty  loan  act,  approved  March  3,  1919,  Victory  notes  of 
either  series  issued  upon  conversion  of  Victory  notes  of  the  other  series  which  were 
originally  subscribed  for  by  any  taxpayer  "will  be  deemed  to  ha^  e  been  originally 
subscribed  for  by  such  taxpayer.     (T.  D.  2857;  June  7,  1919.) 

Interest  accrued  on  4f  per  cent  Victory  notes  at  date  of  conversion  by  taxpayer 
into  3 1  per  cent  Victory  notes  will,  for  purposes  of  computing  net  income,  be  deemed 
to  be  interest  on  4f  per  cent  Victory  notes,  and  will  be  entitled  only  to  exemptions 
from  taxation  to  which  interest  on  4 J  per  cent  Victory  notes  is  entitled;  amoun.ts 
received  by  taxpayer  from  United  States  by  way  of  adjustment  of  accrued  interest 
upon  conversion  of  4|-  per  cent  Victory  notes  Avill  be  deemed  to  be  interest  on  4f 
per  cent  Victory  notes.     (T.  D.  2865;  June  14,  1919.) 

All  interest  accrued  on  3J  per  cent  Victory  notes  at  date  of  any  conversion  by 
taxpayer  into  4|  per  cent  Victory  notes  will,  for  purposes  of  computing  net  income, 
be  deemed  to  be  interest  iipon  3f  per  cent  Victorj^  notes,  and  will  be  entitled  to 
exemptions  from  taxation  to  which  interest  upon  3|  per  cent  Victory  notes  is  en- 
titled.    (T.  D.  2865;  June  14,  1919.) 

Partnership. 

Character  of  partnership  profits  divisible  between  persons  has  no  reference  (e%- 
cept  as  otherwise  specially  provided  for  in  section  8  (e)  of  the  act  of  September  8, 
1916,  as  amended)  to  any  character  which,  as  income  accruing  to  partnership,  it 
may  have  borne  prior  to  receipt  by  partnership,  and  hence,  with  exception  noted, 
income  received  by  partnership  can  not  be  traced  to  source  beyond  partnership 
for  purpose  of  claiming  individual  exemption.     (T.  D.  2690;  art."  30.) 


INCOME   TAXES    (INDIVIDUALS).  367 

Exemptions — Continued. 

■ Political  subdivisions. 

Interest  upon  obligations  of  State  or  any  political  subdivision  thereof  is  exempt; 
obligations  issued  for  public  purpose  by  or  on  behalf  of  State  or  duly  organized 
political  subdivision  acting  by  constituted  authorities  duly  empowered  to  issue 
such  obligations  are  obligations  of  a  State  or  political  subdivision  thereof.  (T.  D. 
2715;  May  20,  1918.) 

Term  "  political  subdivision."  as  used  in  article  83  of  Regulations  No.  3.3,  relating 
to  exemption  of  incomes  from  interest  upon  obligations,  denotes  every  division  of 
the  State  made  by  proper  authorities  thereof  acting  within  their  constitutional 
powers  for  purpose  of  carrying  out  portions  of  those  functions  of  State  which  by 
long  usage  and  inherent  necessities  of  Government  have  always  J^een  regarded  as 
public;  the  term  includes  special  assessment  districts  so  created,  such  as  roads, 
water,  sewer,  gas,  light,  reclamation,  drainage,  irrigation,  levee,  school,  harbor, 
port  improvement,  and  similar  districts  and  divisions  of  State,  (T.  D.  2715;  May 
20,  1918.) 

President  of  the  United  States. 

Compensation  of  President  of  United  States  for  term  for  which  he  is  elected, 
beginning  March  4,  1917,  shall  not  be  included  as  income  for  purposes  of  income 
tax  under  act  of  October  3,  1917,  such  compensation  being  subject  to  tax  under 
the  act  of  September  8,  1916.     (T.  D.  2690;  art.  5;  see  T.  D.  3037.) 

— —  Scope. 

_  Exemptionsin  respect  of  normal  income  lax  are  limited  to  individuals  who  arc 
citizens  or  resident  aliens,  and  are  provided  by  paragraph  (a)  of  section  7,  of  the 
act  of  September  S,  1916,  as  amended  by  the  act  of  October  3,  1917,  and  by  para- 
graph (b)  of  section  3,  of  the  act  of  October  3,  1917;  amount  of  exemption  stated. 
(T.  D.  2690;  art.  14.) 

Sta'oe  obligations. 

Interest  upon  obligations  of  State  or  any  political  subdivision  thereof  is  exempt; 
obligations  issued  for  public  purpose  by  or  in  behalf  of  State  or  didy  organized 
political  subdivision  acting  by  coiistituted  authorities  duly  empowered  to  issue 
suelr  obligations  are  obligatioiis  of  a  State  or  political  subdivision  thereof.  (T.  D. 
2715;  May  20,  1918.) 

State  officers  or  employees. 

Compensation  of  all  ofhcers  and  employees  of  a  State  or  any  political  subdivision 
thereof,  except  when  such  compensation  is  paid  by  United  States  Oovemment, 
shall  not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

Time  of  accrual  of  income. 

It  is  evident  purpose  of  act  of  October  3,  1913,  to  refrain  from  taxing  income  that 
accrued  prior  to  March  1,  1913,  and  to  exclude  from  consideration  in  making  com- 
putation of  taxable  income  forgiven  vear  any  income  that  accrued  in  the  precedino' 
taxable  year.     (T.  D.  2730;  June  if,  1918.     Ct.  Dec.) 

United  States  Judges. 

Compensation  of  all  judges  of  the  Supreme  and  inferior  courts  of  the  United 
States  in  office  September  8,  1916,  and  October  3,  1917,  shall  not  be  inchideJ  as 
income,  compensation  of  judges  of  those  courts  appointed  subsequent  to  September 
8,  1916,  being  subject  to  tax  under  act  of  that  date  but  not  under  act  of  October  3, 
1917;  compensation  of  judges  of  such  courts  appointed  subsequent  to  October  3, 
1917,  are  subject  to  tax  under  both  acts.     (T.  D.  2690;  art.  5;  see  T.  D.  3037.) 

Gross  income — Accretion  to  estate. 

Stock  dividends  paid  from  earnings  or  profits  accumulated  after  March  1,  1913, 
received  by  fiduciary  and  retained  as  an  accretion  to  the  estate,  under  tho  terras  of 
the  will  or  ti-ust,  are  held  to  be  income  to  the  estate  and  taxable  as  such  to  the 
estate.     (T.  D.  2690;  art.  29.) 

— —  Alimony. 

Alimony  or  allowance  based  on  soparation  agreement  is  not  income  to  recipient 
thereof,  nor  is  it  an  allowable  deduction  for  the  person  paying  same.  (T.  D.  2690; 
art.  4.) 


368  INCOME    TAXES    (INDIVIDUALS). 

Gross  inccme — Continued. 

Allowance  to  minor  children. 

As  a  rule,  allowances  which  father  gives  to  his  minor  children,  whether  said  to 

be  in  consideration  of  service  or  otherwise,  are  not  income  to  the  children.     (T.  D. 

2690;  art.  8.) 

Army  and  Navy  officers. 

Retired  pay  of  army  and  naval  officers  is  subject  to  income  tax.  (T.  D.  2690; 
art.  4.) 

■ Bad  debts  collected. 

Bad  debts  which  have  been  claimed  and  allowed  as  deduction  in  prior  returns 
are  considered  income  if  subsequently  collected.     (T.  D.  2690;  art.  4.) 

■ Beneficiaries  of  trust  estates. 

All  amounts  paid  by  fiduciaries  to  beneficiaries  of  trust  estates  from  income  of 
such  estates,  whether  from  receipts  or  otherwise,  are  held  to  be  distributions  of 
income  and  will  be  treated  for  income-tax  purposes  in  accordance  with  provisions 
of  laAv  and  regulations  applicable  to  income  of  such  beneficiaries.  (T.  D.  2690; 
art.  29.) 

Where  trustees  hold  shares  of  stock  of  corporation  and  real  estate  subject  to  lease, 
<!ollecting  dividends  and  rents,  but  otherwise  doing  no  business,  and  distribute  the 
income  less  taxes  and  similar  expenses  to  holders  of  their  receipt  certificates,  who 
have  no  control  except  right  of  filling  vacancies  among  trustees  and  of  consenting 
to  modification  of  terms  of  trust,  such  trust  is  not  subject  to  income  tax  as  joint-stock 
association,  under  act  of  October  3,  1913,  and  trustees  and  cestui  que  trust  are  to.be 
treated  as  fiduciaries  and  beneficiaries  for  purposes  of  taxation.  (T.  D.  2816;  Apr. 
2,  1919.     Ct.  Dec.) 

Bonds. 

Interest  accrued  to  time  of  purchase  of  bonds  (advanced  by  purchaser)  is  not  to 
be  accounted  for  as  income  by  purchaser;  only  amount  of  interest  assignable  to 
portion  of  interest  paid  subsequent  to  purchase  has  status  of  income,  and  amount 
of  a,ccrued  interest  so  advanced  by  purchaser  is  taxable  income  to  be  accounted  for 
in  return  of  vendor;  coupons  from  bonds  for  interest  thereon,  exchanged  for  other 
bonds,  are  equivalent  of  payment  of  interest  coupons  and  purchase  of  new  bonds 
with  cash;  amoimt  of  coupons  is  to  be  accounted  for  as  income  for  calendar  year  in 
which  exchange  is  made.     (T.  D.  2690;  art.  4.) 

Bondholders. 

While  payments  made  by  lessee  direct  to  bondholders  are  rentals  to  both  it  and 
lessor,  rentals  paid  in  one  case  and  rentals  received  in  other,  to  the  bondholders 
they  are  interest  and  dividend  payments  received  as  from  the  lessor,  and  as  such 
will  be  accounted  for  in  their  returns  of  annual  net  income.     (T.  D.  2090;  art.  103.) 

— —  Bonuses. 

Where  common  stock  is  received  as  bonus  in  consideration  of  purchase  of  pre- 
ferred stock,  entire  proceeds  derived  from  sale  or  transfer  of  such  stock  is  income 
subject  to  normal  and  additional  tax.     (T.  D.  2690;  art.  4.) 

Building  and  loan  association  shareholders. 

Amount  credited  to  shareholders  when  title  to  credit  passes  to  shareholder  at 
time  of  credit  is  subject  to  normal  and  additional  tax  as  for  year  of  credit;  where 
amount  of  such  accumulations  does  not  become  availalile  until  maturity  of  share, 
amount  of  share  in  excess  of  aggregate  amount  paid  in  by  shareholder  is  income  to 
be  accounted  for  as  for  year  of  maturity  of  share  for  both  normal  and  additional 
tax.     (T.  D.  2690;  art.  4'.) 

Commissions. 

Commissions  paid  salesmen  are  income  to  the  salesmen  as  well  as  expense  to  the 
payer.     (T.  D.  2690;  art.  4.) 

Commissions  on  renewal  premium  for  insurance  received  by  agents  on  account 
of  business  written  is  income  to  be  accounted  for  as  such  and  for  calendar  year  of 
its  receipt.     (T.  D.  2690;  art.  4.) 

Compensation  for  service  paid  for  on  percentage  of  net  profits  is  income  to  em- 
ployee and  must  be  accounted  for  as  such;  where  service  is  rendered  for  stipulated 


INCOME   TAXES    (INDIVIDUALS).  369 

Gross  income — Continued. 

Compensation  payments. 

price,  wage,  or  salary  and  paid  with  something  other  than  money,  stipulated  value 
of  service  in  terms  of  money  is  value  at  which  thing  taken  in  payment  is  to  he  con- 
sidered for  purpose  of  tax;  in  absence  of  stipulation  as  to  value  of  service,  payment 
being  made  with  something  other  than  money,  market  or  reasonable  value  of  thing 
taken  in  payment  is  amount  to  be  included  as  income.     (T.  D.  2690;  art.  4.) 

In  ca^e  of  compensation  for  service,  where  no  determination  of  compensation  is 
had  until  completion  of  service,  amount  received  is  income  to  be  accounted  for  as 
for  calendar  year  of  receipt;  where  service  and  payment  period  is  divided  by  end 
of  taxable  year,  compensation  for  period  so  divided  will  be  accounted  for  as  income 
for  year  in  which  payment  is  actually  received;  where  compensation  is  by  fee  or  is 
of  such  nature  that  no  part  of  fee  or  com])ensation  becomes  due  until  completion  of 
service,  entire  amount  received  should  be  accounted  for  as  for  year  of  receipt; 
person  having  salary  by  the  year  and  in  addition  commissions  on  sales,  salary  to  bo 
paid  at  time  commissions  are  determined,  and  determination  thereof  is  in  suc- 
ceedinsf  calendar  year,  entire  amount  should  be  accounted  for  as  income  of  calendar 
year  of  receipt.     (T.  D.  2690;  art.  4.) 

Wliere  employee  is  paid  in  capital  stock  of  corporation,  if  he  be  a  taxable  penson  he 
must  return  such  stock  at  its  actual  value  as  income.     (T.  D.  2690;  art.  139.) 

Damages  recovered. 

Amount  received  by  individual  as  result  of  suit  or  compromise  for  personal  in- 
juries sustained  by  him  through  accident  is  not  income  taxable  under  Title  I  of 
act  September  8,  1916,  as  amended  bv  Title  XII  of  act  October  3,  1917,  and  of  Title 
I  of  act  October  3,  1917.    (T.  D.  2747;"  July  12, 1918.) 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  uses,  or  property 
which  has  been  lost  or  destroyed  in  whole  or  in  part  through  war  hazards,  excess  of 
amount  received  by  owner  as  compensation  for  property  over  value  thereof  on 
March  1,  1913,  or  over  its  cost  if  it  was  acquired  after  that  date,  except  so  far  as 
actually  used  for  replacement  of  property  in  kind,  is  subject  to  income  and  war 
income  taxes.     (T.  D.  2706;  Apr.  25,  1918.) 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  uses 
or  lost  or  destroyed  through  war  hazards  may  be  to  use  entire  amount  received  as 
compensation  for  replacement  in  kind  of  such  propertj',  such  replacement  may 
not  be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case 
taxpayor  may  establish  "replacement  fund"  in  which  entire  amount  of  compensa- 
tion shall  be  held,  and  pending  disposition  thereof  accounting  for  gain  or  loss  may 
be  deferred  for  reasonable  time,  to  be  determined  by  Commissioner  of  Internal 
Revenue.     (T.  D.  2706;  Apr.  25,  1918.) 

Where  property  requisitioned,  lost,  or  damaged  constitutes  all  or  part  of  security 
under  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund  may,  sub- 
ject to  approval  of  commissioner,  be  amount  of  compensation  received,  less  amount 
if  any,  which  becomes  payable  out  of  such  comjiensation  under  terms  of  such  instru- 
ment or  obligations  thereby  secured;  in  such  case  taxpayer  should  apply  to  com- 
missioner for  permission  to  establish  such  fund,  reciting  in  his  application  all  facts 
relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  j^ossible  to 
replace  or  restore  i)roperty;  taxpayer  required  to  furnish  bond  with  security  or 
make  deposit;  when  replacement  or  restoration  is  made,  new  or  restored  projierty 
shall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  that  at  which  the 
requisitioned,  damaged,  or  destroyed  property  was  earned,  except  and  to  extent 
that  such  new  or  restor(Kl  property  has  an  increased  productive  capacity.  (T.  D. 
2706;  Apr.  25,  1918.) 

Only  active  depositaries  of  public  moneys  and  surety  companies  holding  certifi- 
cates of  authority  from  Secretary  of  Treasury  as  acceptable  sureties  on  Federal 
bonds  will  be  approved  as  sureties  or  depositaries  under  Schedules  B  and  C  of  Form 
1114,  prescribed  by  T.  D.  2733,  on  application  for  establishment  of  replacement 
fund  in  case  of  prop?rty  requisitioned  for  .war  uses  or  lost  or  destroyed  in  whole  or  in 
part  through  war  hazards,  as  permitted  by  T.  D.  2706.     (T.  D.  2755;  Aug.  26,  1918.) 

— —  Defioition. 

Gross  income  includes  gains  or  profits  and  income  derived  from  any  source  what- 
ever except  such  as  is  specifically  exempted  from  tax  under  provisions  of  section  4 
of  the  act  of  September  8, 1916,  as  amended  by  act  of  October  3,  1917.  i,T.  D.  2690; 
art.  4.) 

70420°— 21 24 


370  INCOME   TAXES    (INDIVIDUALS). 

Gross  income — Continued. 

Determining  vakie  as  of  March  1,  1913. 

No  method  of  determining  this  value  can  be  stated  which  will  adequately  meet 
all  circumstances;  such  value  is  question  of  fact  to  be  established  by  the  evidence 
which  will  reasonably  and  adequately  make  it  appear.     (T,  D.  2G90;  art.  4.) 

Dividends. 

According  to  the  decision  of  the  Supreme  Court  of  the  United  States  in  the  case 
ol"  Towne  v.  Eisner,  decided  January  7,  1918,  stock  dividends  declared  in  1914  for 
profits  accrued  before  January  1,  1913,  do  not  constitute  taxable  income  to  recipients 
under  section  2  of  the  act  of  October  3,  1913.     (T.  D.  2634;  Jan.  21,  1918.     Ct.  Dec.} 

All  dividends  received  in  1917,  even  though  paid  by  corporations  from  earnings 
of  previous  years,  constitute  income  to  the  recipients  for  1917;  method  of  ascertain- 
ing precise  rate  applicable  to  such  portions  of  dividends  received  in  ]917  stated; 
taxpayers  reporting  dividends  received  at  other  than  1917  rates  required  to  render 
statement  showine  corporations  from  which  such  dividends  were  received,  with 
amount  of  dividend  received  from  each.  (T.  D.  2659;  Feb.  28,  1918.  See  T.  D. 
2736;  June  18,  1918.) 

Where  there  is  doubt  whether  earnings  of  corporation  in  1917  up  to  date  of  divi- 
dend payment  in  that  year  were  sufficient  to  cover  dividend  payment,  corporation 
may  distribute  earnings  for  accounting  period  within  which  dividend  or  dividends 
in  question  were  paid,  ratably  over  the  period,  for  purpose  of  determining  amount 
of  earnings  during  period  up  to  date  of  payment;  this  decision  should  be  read  in 
connection  with  instructions  set  forth  in  T.  D.  2659.  (T.  D.  2678;  Mar.  23,  1918. 
(See  T.  D.  27.36;  June  18,  1918.) 

Dividend  paid  from  depletion  reserve  considered  a  liquidating  dividend  and  does 
not  constitute  taxable  income  except  to  extent  that  amount  so  received  is  in  execs."? 
of  capital  actually  invested  by  stockholder  in  shares  of  stock  and  with  respect  to 
which  distribution  was  made;  no  di\T.dend  will  be  deemed  to  have  been  paid  from 
such  reserve  except  to  extent  that  dividend  exceeds  surplus  and  undivided  profits 
of  corjioi^ation  at  time  of  payment,  and  unless  books,  etc.,  of  corporation  clearly 
indicate  corresponding  reduction  of  capital  assets  resulting  from  pavment.  (T.  D. 
2G90;  art.  4.)  ' 

Stock  dividends  declared  from  earnings  or  profits  accrued  prior  to  March  1,  1913, 
or  from  surplus  created  by  revaluation  of  capital  assets,  or  from  placing  value  upon 
trade-marks,  good  will,  etc.,  do  not  represent  distribution  of  earnings  or  profits  sub- 
ject to  tax  in  hands  of  shareholder;  when  stock  received  in  payment  of  such  divi- 
dend or  stock  in  respect  of  which  any  such  dividend  was  paid,  is  sold,  cost  of  each 
share  of  stock,  whether  new  or  old,  for  purpose  of  ascertaining  gain  or  loss  from  sale, 
is  quotient  of  cost  of  old  stock,  if  acquired  on  or  after  Llarch  1,  1913,  or  its  fair  market 
price  or  value  as  of  that  date  if  acquired  prior  thereto,  divided  by  the  number  of  old 
and  new  shares  added  together,  and  profit  so  ascertained  is  income  subject  to  both 
normal  and  additional  tax,  to  be  accounted  for  in  shareholder's  return  for  year  in 
which  sale  is  m.ade.     (T.  D.  2734;  June  17,  1918.) 

Di\idends  declared  by  corporation  and  paid  with  securities  in  which  surplus  of 
corporation  has  been  invested,  regardless  of  character  of  securities,  must  be  accounted 
for  as  dividend  for  income-tax  purposes  by  recipients  to  extent  that  it  represents  dis- 
tribution of  surplus  accrued  to  corporation  since  March  1,  1913.     (T.  D.  2690;  art.  4.) 

Payments  under  legal  requirements  by  bank  for  its  stockholders  of  taxes  on 
bank  stock  are  regarded  as  in  the  nature  of  additional  dividends  and  should  lie 
included  by  stockholder  in  his  dividends  received.     (T.  D.  2690;  art.  8.) 

\Miile  payments  made  by  lessee  direct  to  stockholders  are  rentals  to  both  it  and 
lessor,  rentals  paid  in  one  case  and  rentals  received  in  other,  to  the  stockholder  they 
are  interest  and  dividend  payments  received  as  from  the  lessor,  and  as  such  will  be 
accounted  for  in  their  returns  of  annual  net  income.     (T.  I).  2690;  art.  103.) 

Term  '  'dividends  "  held  to  mean  any  distribution  made  or  ordered  to  be  made  by 
a  corporation,  joint-stock  company  or  association,  or  insurance  company,  out  of  its 
earnings  or  profits  accrued  since  March  1,  1913,  and  payable  to  its  shareholders, 
whether  in  cash  or  in  stock  of  the  corporation,  joint-stock  company  or  association, 
or  insurance  company,  which  stock  dividend  shall  be  considered  income  to  amount 
of  earnings  or  profits  so  distributed.     (T.  13.  2690;  art.  106.) 

Any  distribution  made  to  shareholders  in  the  year  1917  or  subsequent  years  (ex- 
cept any  distribution  of  dividends  made  prior  to  August  G,  1917,  out  of  earnings  or 
profits  accrued  prior  to  March  1, 1913)  shall  be  deemed  to  be  made  from  most  recently 
accumulated  imdiwded  or  surplus  profits,  and  shall  constitute  income  of  distributee 
for  year  in  which  received,  and  shall  be  taxed  at  rates  prescribed  by  law  for  years  in 


INCOME   TAXES    (INDIVIDUALS).  371 

Gross  income — Continued. 

Dividends — Coutinuod. 

which  such  surplus  or  profits  were  ciirned  bj'  distributing  corj^orations.  (T.  [). 
2690;  art.  107.    See  also,  T.  D.  2G59,  Feb.  28,  1918,  and  T.  D.  2734,  June  7,  1918. ) 

Wiiere  capital  a.-sets  of  corporation  increased  in  value  prior  to  March  1, 1913,  and  a 
einj^le  and  final  dividend  was  made  in  liquidation  of  entire  assets  in  1914,  without 
further  dej)reciation  or  addition  to  the  assets  having  occurred,  no  part  of  dividend 
received  by  stockholder  is  taxable  under  act  of  October  3,  1913.  (T.  D.  2729; 
June  11,  1918.     Ct.  Dec.) 

The  act  of  September  8,  1916,  and  the  act  of  October  3,  1917,  in  excluding  divi- 
dends declared  out  of  earnings  or  profits  that  accrued  prior  to  March  1,  1913,  are  not 
intended  to  be  declaratory  of  the  meaning  of  the  term  "di\ddend3"  in  the  act  of 
October  3,  1913.    (T.  D.  2731;  June  11,  1918.    Ct.  Dec.) 

An  individual  stockholder  is  subject  to  the  additional  tax  under  the  act  of  October 

3,  1913,  on  all  dividends  de<dared  and  paid  by  a  coqioration  in  the  ordinary  course 
of  business  after  taking  effect  of  the  act,  whether  from  current  earnings  or  from  the 
accumulated  sur])luB  made  up  of  i)ast  earnings  or  increase  in  value  of  corporate 
assets,  notmthstanding  surplus  accrued  to  corporation  in  whole  or  in  part  prior  to 
March  1,  1913.    (T.  D.  2731;  June  11,  1918.    Ct.  Dec.) 

A  dividend  declared  and  paid  by  a  going  corporation,  partly  in  cash  and  partly 
in  assets  of  the  corporation,  is  subject  to  the  additional  tax  iniposed  by  the  act  of 
October  3,  1913,  when  received  by  an  individual  stocklolder,  allliough  declared 
from  a  surplus  which  was  in  part  acci'.mulated  before  March  1,  1913.  (T.  D.  2732; 
June  11,  1918.     Ct.  Dec.) 

A  dividend  declared  and  paid  by  one  corporation  in  the  stock  of  another  is  not  a 
"stock  dividend"  within  the  accepted  meaning  of  that  term.  (T.  D.  2732;  Juno 
11,  1918.     Ct.  Dec.) 

An  ordinary  stockliolder,  before  declaration  of  a  dividend,  has  only  the  right  (o 
have  the  assets  of  tlie  corporation  devoted  to  its  proper  business,  and  to  receive  such 
dividends  as  the  directors  may  in  their  discretion  declare — ^a  very  different  interest 
from  his  interest  after  a  dividend  is  declared.    (T.  D.  2732;  June  11,  1918.    Ct.  Dec.) 

Where  a  corporation,  being  authorized  so  to  do  liy  the  laws  of  the  State  in  which  it 
is  incorporated,  transfers  a  portion  of  its  surplus  to  capital  account,  issues  new  stock 
representing  the  amount  of  the  surplus  so  transferred,  and  distributes  the  stock  s  *  is- 
sued to  its  stockholders,  such  stock  is  not  income  to  the  stockholders  and  the  stocl;- 
holdcrs incur  no  liability  for  income  tax  bvreason  of  its  receipt.     (T.  D.  3052;  Aug. 

4,  1920.     Ct.  Dec.) 

Where  a  corporation,  being  thereunto  lawfully  authorized,  increases  its  capital 
stock,  and  simultaneously  declares  a  cash  dividend  equal  in  amount  to  the  increase 
in  its  capital  stock,  and  gives  to  its  stockholders  a  real  option  either  to  keep  the  money 
for  their  own  or  to  reinvest  it  in  the  new  shares,  such  dividend  is  a  cash  dividend  and 
is  income  to  the  stockholders  whether  they  reinvest  it  in  the  new  shares  or  not. 
(T.  D.  3052;  Aug.  4.  1920.     Ct.  Dee.) 

Where  a  corporation,  which  is  not  permitted  under  the  laws  of  the  State  in  v/hich 
it  is  incorporated  to  issue  a  stock  dividend,  increases  its  capital  stock  and  at  the  same 
time  declares  a  cash  dividend  under  an  agreement  with  the  stockholders  to  ^ein^Tst 
the  money  so  received  in  the  new  issue  of  capital  stock,  such  dividend  is  subject  to 
tax  as  income  to  the  stockholder.     (T.  D.  3052;  Aug.  4,  1920.     Ct.  Dec.) 

Wliere  a  cori^oration,  having  a  surplus  accumulated  in  part  prior  to  March  1,  191;;, 
and  1>eLug  thereunto  lawfully  authorized,  transfers  to  its  ( apital  account  a  portion  ol 
its  surplus,  issues  new  stock  representing  the  amount  so  transferred  to  the  capital  ac- 
count and  then  declares  a  dividend  ]iayable  in  jxart  in  cash  and  in  part  in  shares  of 
the  new  issue  oi  stock,  that  ])ortiou  of  the  dividend  paid  in  cash  will,  to  the  amount 
of  the  surplus  accumulated  since  March  1,  1913.  be  deemed  to  have  lieen  paid  out  ol 
such  surplus,  and  be  subject  to  tax,  but  the  portion  of  the  dividend  paid  in  stock  will 
not  be  subject  to  tax  as  income.     (T.  D.  3052;  Aug.  4,  1920.     Ct.  Dec.) 

A  dividend,  ])aid  in  stock  of  another  corporation  held  as  a  part  of  the  assets  of  the 
corporation  paying  the  dividend,  is  income  to  the  stockholder  at  the  time  the  same  is 
m.ade  availal^le  for  distribution  to  the  full  amount  of  the  then  market  value  of  such 
stock  (Peabody  v.  Eisner,  T.  D.  2732):  and  if  such  stock  be  subsequently  sold  by  the 
stockholder,  the  difference  between  its  market  value  at  date  of  receipt  and  the  price 
for  which  it  is  sold  is  additional  income  or  loss  to  him,  as  the  case  may  be.  (T.  D. 
3052;  Aug.  4,  1920.     Ct.  Dec.) 

The  profit  derived  by  a  stockholder  upon  the  sale  of  stock  received  as  a  dividend 
is  income  to  the  stockholder  and  taxable  as  such  even  though  the  stock  itself  was  not 


372  INCOME   TAXES    (INDIVIDUALS). 

Gross  income — Continued. 

Dividends — Continued. 

inrome  at  the  time  of  its  receipt  by  the  stockholder.  For  the  purpose  of  determining 
the  amount  of  gain  or  loss  derived  from  the  sale  of  stock  received  as  a  dividend  or  of 
the  stock  with  respect  to  which  such  dividend  was  paid,  the  cost  of  each  share  of 
stock  (provided  both  the  dividend  stock  and  the  stock  with  respect  to  which  it  is 
issued  have  the  same  rights  and  preferences )  is  the  quotient  of  the  cost  of  the  old  stock 
(or  its  fair  market  value  as  of  March  1,  1913,  if  acquired  prior  to  that  date)  divided 
by  the  total  number  of  shares  of  the  old  and  new  stock.  (T.  D.  3052;  Aug.  4, 1920. 
Ct.  Lee.) 

Farms. 

Rents  received  in  crop  shares  must  be  returned  as  of  year  in  which  shares  are 
reduced  to  money  or  money  equivalent,  and  allowable  deductions  must  be  claimed 
in  return  of  income  for  tax  year  in  which  they  apply,  although  expenses  and  deduc- 
tion.s  mav  be  incident  to  products  which  remain  unsold  at  end  of  year.  (T.  D.  26£0; 
art.  4.) 

In  case  of  sale  total  amount  received  for  stock  raised  and  for  stock  purchased  for 
re-ale  is  to  be  accounted  for  as  income.     (T,  D.  2690;  art.  4.) 

■ Gifts. 

Fair  market  price  or  value  of  stock  acquired  by  gift  subsequent  to  March  1,  1913, 
is  basis  for  computing  gain  derived  or  loss  sustained  by  sale  thereof;  if  accjuired  by 
gift  prior  to  March  1,  1913,  fair  market  price  or  value  as  of  that  date  is  the  basis  for 
computation.     (T.  D.  2690;  art.  4.) 

Improvements  under  rental  conti'aets. 

When  improvements  become  part  of  real  estate,  difference  between  cost  thereof 
and  allowable  depreciation  during  lease  term  is  gain  or  profit  to  lessor  at  end  of 
lease  term,  and  must  be  accounted  for  as  income  at  that  time.     (T.  D.  2690;  art.  4.) 

^- —  Inherited  property. 

Appraised  value  at  time  of  death  of  testator  is  basis  for  determining  gain  or  profit 
upon  sale  subsequent  to  death  after  March  1,  1913.     (T,  D.  2690;  art.  4.) 

• Installment  sales  of  property. 

In  sale  vr  contract  for  sale  of  personal  property  on  installment  plan,  whether  or 
not  title  remains  in  vendor  until  property  is  fully  ])aid  for,  income  to  be  returned  by 
vendor  will  be  that  proportion  of  each  installment  which  gross  profit  to  be  realized 
when  property  is  paid  for  bears  to  gross  contract  price;  if,  for  any  reason,  vendee 
defaults  and  venclor  repossesses  property,  entire  amount  received  on  installment 
payments,  less  profit  originally  returned,  will  be  income  to  vendor  to  be  so  re- 
turned for  year  in  which  property  was  repossessed.     (T.  D.  2707;  Apr.  25,  1918.) 

• Insurance. 

Where  insured  receives,  under  any  form  of  life  insurance,  an  amount  in  excess  of 
premiums  paid,  such  excess  has  taxable  status,  and  ie  to  be  accoimted  for  as  for 
calendar  year  of  its  receipt;  dividends  on  paid-up  policies  are  in  nature  of  corporate 
dividends  and  are  to  be  accounted  for  as  income  for  purposes  of  additional  tax  only. 
(T.  D.  2690;  art.  4.) 

Proceeds  of  life  insurance  policies  payable  to  esta»te  of  decedent,  when  received  by 
executor  or  administrator  are,  in  amount  by  which  they  exceed  the  premium  or 
premiums  paid  by  decedent,  income  of  the  estate  to  be  accounted  for  under  section 
2  (b)  of  the  act  of  September  8,  1916;  return  should  be  made  on  Form  1040  or  1040A. 
(T.  D.  2690;  art.  29.) 

Proceeds  of  accident  insurance  policy  received  by  individual  on  account  of 
personal  injuries  sustained  through  accident  are  not  income  taxable  under  Title 
I  of  act  September  8,  1916,  as  amended  by  Title  XII  of  act  October  3,  1917,  and 
of  Title  I  of  act  October  3,  1917.    (T.  D.  2747 ;  July  12,  1918.) 

• Interest. 

Interest  accrued  to  time  of  purchase  of  bonds  (advanced  by  purchaser)  is  not  to  be 
accounted  for  as  income  by  purchaser;  only  amount  of  interest  assignable  to  portion 
of  interest  paid  subsequent  to  purchase  has  status  of  income,  and  amoimt  of  accrued 
interest  so  advanced  by  purchaser  is  taxable  income  to  be  accounted  for  in  return 
of  vendor;  coupons  from  bonds  for  interest  thereon,  exchanged  for  other  bonds  are 
equivalent  of  payment  of  interest  coupons  and  purchase  of  new  bonds  with  cash. 
(T.  D.  2690;  art.  4.) 


INCOME   TAXES    (INDIVIDUALS).  373 

Gross  income — Continued. 

Interest  -Continued. 

Interest  on  State,  municipal,  and  United  Stat e.s bonds  received  by  corporations  ia 
not  taxable  to  the  corporation;  upon  an)al,ganiation  with  other  funds  of  corprjration 
such  income  loses  its  identity;  when  distributed  to  stockholders  as  a  dividend, 
entire  amount  of  dividend  is  subject  to  inclusion  in  returns  of  income  for  purposes 
of  tax;  foregoing  holds  true  for  scrip  payment  of  interest.     (T.  D.  2U90;  art.  4.) 

Interest  received  on  bonds  held,  whether  guaranteed  to  be  tax  free  or  not,  must  be 
included  in  income  and  must  be  so  accounted  for  in  return  of  annual  net  income; 
matter  of  complying  with  covenant  of  bond  is  matter  to  be  adjusted  between  debtor 
corporation  and  the  bondholder.     (T,  D.  2690;  art.  122.) 

• Nonresident  aliens, 

V-Tien  stock  is  sold  from  lots  purchased  at  different  times  and  at  different  prices 
and  identity  of  lots  can  not  be  determined  as  to  dates  of  •i)urchase,  stock  sold  sliall 
be  charged  against  earliest  purchases  thereof;  difference  between  cost  and  amount 
realized  from  sale  wnll  be  profit  to  be  accounted  f(jr  if  purchase  was  on  or  after  March 
1,  1913;  profit  derived  from  sale  of  stock  purchased  prior  to  March  1,  1913,  i.s  differ- 
ence between  fair  market  value  of  price  as  of  that  date  and  the  selling  price;  when 
nonresident  alien  disposes  of  stock  in  American  corporation  by  sale,  sale  and  delivery 
being  made  within  United  States,  profit  will  be  held  to  have  been  derived  from 
sources  within  ITnited  States,  and  is  to  be  included  for  purposes  of  income  tax. 
(T.  D.  2690;  art.  4.) 

Salaries,  etc.,  and  rents  paid  by  domestic  corporations,  resident  indi\ddua!3,  or 
partnerships,  to  nonresident  alien  employees  for  services  rendered  entirely  in  a 
foreign  country  and  for  property  located  in  a  foreign  country,  are  not  subject  to 
deduction  and  withholding  of  the  normal  tax,  and  such  payments  of  income  \vill 
not  be  subject  to  tax  in  hands  of  recipient  as  from  source  within  United  States. 
(T.  D.  2690;  art.  32.) 

The  income  received  by  a  nonresident  alien  from  stocks  and  bonds  of  corporations 
organized  under  the  laws  of  the  United  States  and  bonds  and  mortgages  secured 
upon  property  in  the  United  States,  the  certificates  representing  the  same  being 
held  by  a  Philadelphia  trust  company  under  a  power  of  attorney  which  gave  author- 
ity to  the  agent  to  sell,  assign,  or  transfer  any  of  them  and  to  invest  and  reinvest 
the  proceeds,  is  property  owned  in  the  United  States  within  the  meaning-of  the 
act  of  October  3,  1913.     (T.  D.  2876;  June  25,  1919.     Ct.  Dec.) 

Orchard  development  expenses. 

Amounts  expended  in  development  of  orchards  prior  to  time  when  productive 
stage  is  reached,  constitute  investments  of  capital.     (T.  D.  2690;  art.  4.) 

Partners. 

Income  of  partnership  accrues  to  individual  partner  at  time  his  distributive 
interest  is  determined;  returns  by  individuals  should  include  incomes  accruing 
from  business  of  partnerships  for  business  years  of  partnerships  as  may  have  been 
definitely  ascertained  by  means  of  book  balance,  Avhether  distributed  or  not;  part- 
n.ers  must  make  returns  of  income  as  individuals,  for  calendar  year,  and  should 
include  their  interest  in  profits  ascertained  at  end  of  business  year  falling  within 
calendar  year  for  which  individual  return  is  being  rendered.     (T.  D.  2690;  art.  4.) 

The  income  tax  law  of  1913  is  so  framed  as  to  deal  with  gains  and  profits  of  a 
partnership  as  if  they  were  the  gains  and  profits  of  the  individual  partners.  (T.  D. 
2858;  June  9,  1919.     Ct.  Dec.) 

Member  of  partnership  need  not  include  as  part  of  net  income  subject  to  normal 
tax,  income  tax  law  of  1913,  such  of  his  income  derived  from  or  through  a  partner- 
ship as  has  been  received  by  partnership  in  shape  of  dividends  on  stocks  owned  by 
it  in  corporations  taxable  upon  their  net  income.  (T.  D.  2858;  June  9,  1919.  Ct. 
Dec.) 

Pensions. 

Pensions  paid  by  United  States,  private  institutions,  or  individuals,  are  to  bo 
accoimted  for  in  all  cases  where  income  of  pensioner  is  liable  for  income  tax. 
(T.  D.  2690;  art.  4.) 

Proceeds  of  sale  of  rights. 

Amounts  realized  from  sale  of  rights  to  subscribe  to  stock  is  held  to  be  income  to 
the  seller.     (T.  D.  2690;  art.  4.) 


374  INCOME   TAXES    (INDIVIDUALS), 

Gross  income— Continued. 

Proceeds  of  sale  of  rights — Continued. 

Where  corporations,  desiring  to  secure  additional  capital,  propofse  to  issue  and 
sell  further  shares  of  stock,  reserving  to  stockholders  right  to  subscribe  for  a  certain 
number  of  shares  of  the  now  stock  issue,  proportioned  to  number  previously  held, 
and  such  stockholders  shall  sell  their  rights,  it  will  be  held  that  proceeds  of  sucli 
sale  are  in  their  entirety  income  for  year  in  which  lights  arc  sold,  and  diall  be  so 
returned  by  the  stockholders,  whether  they  be  individuals  or  corporations.  (T.  D. 
2690;  art.  95.) 

Profits  from  sale  of  stock. 

\\7ien  nonresident  alien  disposes  of  stock  in  American  corporation  by  sale,  sale 
and  deliv^ery  being  made  within  United  States,  profit  will  be  held  to  hav'e  been 
derived  from  sources  within  United  States,  and  is  to  be  included  for  purposes  of 
income  tax.     (T.  D.  2690;  art.  4.) 

^^^len  stock  is  sold  from  lots  purchased  at  different  times  and  at  different  prices, 
and  identity  of  lots  can  not  be  determined  as  to  dates  of  purchase,  stock  sold  shall 
be  charged  against  earliest  purcha-see  of  such  stock;  excess  of  amount  realized  on 
sale  over  cost  of  stock,  or  its  fair  market  price  or  value  as  of  March  1,  1913,  if  pur- 
chased before  that  date,  will  be  profit  to  be  accounted  for  as  income;  in  case  of 
stock  received  as  stock  dividend  out  of  surplus  other  than  eajnings  or  profits  accrued 
since  March  1,  1913,  or  of  stock  in  respect  of  which  any  such  dividend  was  paid,  cost 
of  each  share  of  such  stock  shall  be  ascertained  as  specified  in  paragraph  28  of  Regula- 
tions No.  33,  as  amended.     (T.  D.  2734;  June  17,  1918.) 

For  purpose  of  ascertaining  gain  or  loss  derived  from  sale  of  stock  of  corporation 
received  as  dividend  in  1913,  1914,  or  1915,  out  of  surplus  however  created,  or  re- 
ceived as  dividend  in  191G  or  subsequent  years  out  of  surplus  other  than  earnings  or 
profits  acci-ued  since  March  1,  1913,  cost  of  each  share  of  new  stock  is  the  quotient  of 
the  cost  of  the  old  stock  divided  by  the  number  of  old  and  new  shares  added 
together.     (T.  D.  2734;  June  17,  1918.) 

For  purpose  of  ascertaining  gain  or  loss  derived  from  sale  of  stock  in  respect  of 
which  any  stock  dividend  was  paid  in  1913,  1914,  or  1915,  out  of  surplus  howev^er 
created,  or  in  1916  or  subsequent  years  out  of  surplus  other  than  earnings  or  profits 
accrued  since  March  1,  1913,  cost  of  each  share  of  old  stock  is  quotient  of  cost  of  old 
stock  divided  by  the  number  of  old  and  new  shares.     (T.  D.  2734;  June  17,  1918.) 

For  purpose  of  ascertaining  gain  or  loss  derived  from  sale  of  stock  received  aa 
dividend  in  1910  or  subsequent  years  out  of  surplus  earnings  or  profits  accrued 
since  March  1,  1913,  cost  of  each  share  is  valuation  at  which  it  was  returnable  aa 
income,  as  shown  by  transfer  of  surplus  to  capital  account  on  books  of  corporation, 
usually  its  par  value.     (T.  D.  2734;  June  17,  1918.) 

For  purpose  of  ascertaining  gain  or  loss  derived  fromsaleofstockin  respect  of  which 
any  stock  dividend  was  paid  in  1916  or  subsequent  years  out  of  surplus  earnings 
or  profits  accrued  since  March  1,  1913,  cost  of  each  share  is  its  original  cost,  regardless 
of  any  stock  dividend.     (T.  D.  2734;  June  17,  1918.) 

— —  Ranches. 

Amounts  expended  in  development  of  ranches  prior  to  time  when  producti^^o 
stage  is  reached  constitute  investments  of  capital.     (T.  D.  2690;  art.  4.) 

Receipt  basis — Definition. 

Actual  receipt  is  reduction  to  possession;  constructive  receipt  is  where  income  is 
credited  to  or  made  available  to  recipients  and  is  to  be  reported  as  income.  (T.  D. 
2690;  art.  4.) 

■ Records. 

Every  individual,  partnership,  corporation,  or  association  liable  to  tax  or  for 
collection  thereof  shall  keep  such  records  and  render  such  statements  and  returns, 
under  oath,  as  shall  be  prescribed  by  the  Commissioner  of  Internal  P^e^'enue.  (T.  D. 
2690;  art.  50.) 

Corporation  declaring  and  paying  dividends  out  of  a  surplus  of  earnings  accumu- 
lated over  a  period  of  years  shoukl  make  record  in  its  books  of  amount  of  dividends 
paid  out  of  each  year's  undistributed  surplus  or  profits  and  advise  stockholders 
accordingly,  in  order  that  dividends  received  by  them  may  be  taxed  at  respective 
rates  prevailingduring  years  in  which  surplus  or  profits  so  distributed  were  earned; 
provisions  of  subdivision  (b)  of  section  3i  do  not  apply  to  distributions  made  prior 
to  August  6,  1917,  OTit  of  earnings  or  profits  accrued  prior  to  March  1,  1913.  (T.  D. 
2690;  art.  107.) 


INCOME   TAXES    (INDIVIDUALS).  375 

Gross  Income — Conlinucd. 

E-ef'onds  by  cooperative  oi'ganizations. 

Periodical  refunds  by  cooperative  oiganizalions,  which  are  sometimes  called 
"dividends' '  are  wholly  different  from  ordinary  dividends  based  on  stock  holdiuEja 
and  need  not  be  listed  as  income  by  recipient;  wliere  recipient  claims  right  to  deduct 
as  business  expenses  any  expenditures  on  which  refund  is  based,  sum  claimed  fis 
deductions  must  be  reduced  in  proportion  to  refund  received.  (T.  D.  2737;  June 
19,  1918.) 

Rent. 

Amounts  expended  by  tenants  for  taxes  and  necessary'  repairs  under  agreement 
in  addition  to  stipulated  cash  rental  arc  items  of  taxable  income,  and  as  such  should 
be  reported  in  return  of  landlord;  corresponding  amount  mav  bo  deducted  by  tlie 
landlord.     (T.  D.  2690;  art.  4.) 

Soyalties. 

Royalty  paid  to  proprietor  by  those  who  are  allowed  to  develop  or  use  property, 
or  operate  under  some  right  belonging  to  him,  is  to  be  accounted  for  as  income. 

(T.  D.  2690;  art.  4.) 

• State  officers  or  employees. 

Indi\idual  who  contracts  with  State,  or  any  political  subdivision  thereof,  for 
doing  of  specific  tilings,  completion  of  which  will  constitute  fulfillment  of  contract 
on  part  of  such  individual,  is  not  an  officer  or  employee  of  the.  State  or  political 
subdi\dsion  thereof  within  section  4  of  the  income-tax  law  and  amount  received 
by  him  is  to  be  accounted  for  as  income.     (T.  D.  2690;  art.  4.) 

Where  employees  of  universities  receiving  salaries  paid  in  part  or  in  whole  from 
funds  received  under  the  Smith-Lever  Act  of  May  8,  1914,  are  officers  or  employees 
of  a  State,  they  are  not  required  to  include  in  their  income-tax  returns  as  taxable 
income  the  salaries  so  received;  if  organization  of  college  is  one  which  belongs  to 
State  and  which  State  governs,  legislature  may  vacate  offices,  elect  new  professors, 
and  do  whatever  it  thinks  necessary  in  management  of  the  college;  but  if  colleges 
are  governed  by  trustees  not  directly  responsible  to  State  legislatures,  employees 
receiving  salaries  paid  in  part  from  Smith-Lever  funds  are  not  employees  of  the 
State  and  are  not  exempt  fr©m  tax  on  that  ground.     (T.  D.  2668,  Mar.  9,  1918.) 

Stock  dividends. 

See  "Dividends,"  ante. 

— — •  Trust  estates. 

Beneficiary  will  bo  required  in  case  of  trust  estate  to  account  for  actual  amounts 
distributed  or  credited  to  him.     (T.  D.  2690;  art.  29.) 

Undivided  profits. 

Taxable  income  includes  share  to  wliich  individual  would  be  entitled  of  gains 
and  profits,  if  divided  or  distributed,  whether  divided  or  distributed  or  not,  of  all 
corporations,  joint-stock  companies  or  associations,  or  insurance  companies,  how- 
ever created  or  organized,  formed  or  fraudulently  availed  of  to  prevent  imposition 
of  such  tax,  by  permitting  such  gains  or  profits  to  accumulate  instead  of  being 
divided  or  distributed;  fact  that  such  corporation,  etc.,  is  mere  holding  company, 
or  that  accumulation  beyond  reasonable  needs  is  permitted,  shall  be  prima  facie 
evidence  of  fraudulent  purpose  to  escape  tax,  but  fact  that  gains  and  profits  are  in 
any  case  permitted  to  accumulate  and  become  surplus  shall  not  be  construed  as 
evidence  of  purpose  to  escape  tax,  unless  Secretary  of  Treasury  shall  certify  that, 
in  his  opinion,  such  accumulation  is  unreasonable  for  purpose  of  business;  state- 
ment of  gains  and  profits,  etc.,  required  when  requested  by  Commissioner  of  Inter- 
nal Revenue.     (T.  D.  2690;  art.  19.) 

United  States  judges. 

Retired  pay  of  judges  of  United  States  Courts  is  subject  to  income  tax.     (T.  D. 

2690;  art.  4.)" 

Imposition  of  tax. 

Income  tax  is  levied  upon  income  received  by  (a)  individuals — citizens  and  resi- 
dent aliens,  nonresident  aliens;  (b)  fiduciaries  for  estates  in  process  of  administra- 
tion or  in  trust  for  accumulation  of  income  and  indi%T.duals  as  beneficiaries;  (c)  cor- 
porations, joint-stock  companies  or  as,3ociations,  or  insurance  companies.  (T.  D. 
2G90;  art.  1.) 


376  INCOME   TAXES    (INDIVIDUALS). 

Imposition  of  tax — Continued. 

Partnerships  as  such  are  exempt  from  income  tax  on  net  income;  partners  must 
inchide  respective  shades  of  partnership  income  (wtiether  distributed  or  not)  in 
returns  required  of  each  partner;  section  8  (e)  prescribes  method  of  corr.putati-.n 
for  both  partnerships  and  partners  for  purpose  of  income  tax.     (T.  D.  2690;  art.  ;3.) 

Normal  tax  is  levied  by  both  the  1916  act  and  the  1917  act  upon  net  inconje  in 
excess  of  allov/able  deductions,  credits,  and  exemptions;  subject  to  allowances  tax 
is  2  per  cent  under  each  act  on  total  net  income  from  all  sources  received  by  citizen 
or  resident  alien  in  preceding  calendar  year  and  2  per  cent  on  net  income  of  non- 
resident aliens  (under  act  of  Sept.  8,  1916,  as  amended  only),  received  by  them 
in  preceding  calendar  year  from  all  .sources  in  United  States,  including  interest  on 
bonds,  notes,  or  other  interest -bearing  obligations  of  residents,  coipoiate  or  cther- 
Avise.     (T.  D.  2G90;  arts.  3,  15-18.) 

Additional  tax  is  tax  levied  at  gialuated  rates  upon  net  income  in  exces;  of 
$5,000;  under  act  of  1916  additional  tax  is  levied  upon  amount  of  net  income  in 
excess  of  $20,000.  but  under  act  of  1917  such  tax  is  levied  upon  amount  of  net  income 
in  excess  of  $5,000,  so  that  above  $20,000  combined  rates  of  acts  of  1916  and  1917 
apply  to  same  income.     (T.  D.  2690;  arts.  3,  15-18,  20.) 

Information  at  source — Amount  of  payment. 

Returns  of  information  required,  regardless  of  amount,  in  case  of  payments  of 
'  interest  upon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  and  insur- 
ance companies,  and  in  the  case  of  foreign  items;  original  ownership  certificates, 
when  dulv  filed,  shall  constitute  and  be  treated  as  returns  of  information.  (T.  D. 
2759;  Oct.  2,  1918.) 

Annuitira. 

Annuities  representing  return  of  corpus  or  capital  need  not  be  reported.  (T.  D. 
2670;  Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  pajdng  annuities  of  $800  or  more  in  any  taxable 
year,  or,  in  case  of  such  payment  made  by  the  United  States,  the  officers  or  em- 
ployees of  the  United  States  having  information  as  to  such  payments,  authorized 
and  required  to  render  due  and  accurate  return,  setting  forth  the  amount  of  such 
annuities  and  the  name  and  address  of  the  recipients  thereof.     (T.  D.  2690;  art.  34.) 

Bills  paid  for  merchandise,  telegrams,  etc. 

Bills  paid  for  merchandise,  telegrams,  telephone,  freight,  storage,  and  similar 
charges,  do  not  require  rej^orts  of  iuicrmation.     (T.  D.  2670;  Mar.  11,  1918.) 

Brokers. 

Every  pe'-son,  corporation,  partnership,  or  association,  doing  business  as  a  broker, 
or  any  exchange  or  board  of  trade  or  other  similar  place  of  business,  shall,  upon 
request  of  the  Commissioner  of  Internal  ReA'enue,  render  correct  return  under  oath, 
showing  names  of  customers  for  whom  such  broker  has  transacted  any  business, 
with  such  details  as  to  profits,  losses,  or  other  information,  as  may  be  called  for  by 
such  return  form  as  to  each  of  such  customers.     (T.  D.  2690;  art.  33.) 

— —  Dutch  administration  oflaces. 

Dutch  administration  offices  as  the  registered,  but  not  the  actual  owners  of  stock 
of  domestic  or  other  resident  corporations  in  the  United  States,  required  to  disclose 
identity  of  actual  owners  of  said  stock  for  purposes  of  the  withholding  prov^isiors  of 
section  13  (f)  of  act  of  September  8,  1916.  as  amended  by  act  of  October  3,  1917; 
returns;  forms;  certificates;  T.  D.  2.386,  revised.     (T.  D.  2669;  Mar.  9,  1918.) 

• Employees'  compensation  and  bills. 

Salary,  wages,  and  other  compensation  for  services  rendered  in  December,  1017, 
but  paid  in  1918,  need  not  be  reported,  unless  the  amount  was  fully  due  and  passed 
to  the  credit  of  the  individual  in  December,  1917.  (T.  D.  2670;  Mar.  11,  1918.) 
Payments  made  by  branches  of  business  houses  located  in  foreign  countries  to 
alien  employees  serving  in  foreign  countries  need  not  be  reported.  (T.  D.  2670; 
Mar.  11,  1918.) 

In  case  of  employer  having  large  number  of  employees  who  are  moA'ed  from  place 
to  place  and  who  consequently  has  no  complete  record  of  annual  payments  to  them 
at  any  one  place,  salary  of  two  representative  months  may  be  taken  to  establish  a 
fair  monthly  wage,  and  unless  yearly  payment  based  on  this  estimate  in  the  case 


INCOME   TAXES    (INDIVIDUALS).  377 

Information  at  source — Continued. 

• Employees'  compensation  and  bills — Contiuiicd. 

of  an  employee  amount  s  to  $800  or  more  no  return  of  payments  to  such  employee 
is  required  for  1917.     (T.  D.  2670;  Mar.  11,  1918.) 

When  living  quarterw,  such  as  camps,  are  furnished  for  the  convenience  of  the 
em{)ioyer  only,  the  cost  need  not  be  added  to  the  compensation  of  the  employee; 
"living  quarters"  referred  to  in  paragraph  235,  Regulations  No.  3;},  revised,  are 
quarters  furnished  for  the  benefit  and  convenience  of  employees  only.  (T.  D. 
2670;  Mar.  11,  1918.) 

Payments  made  to  cTuployees  in  factories  wliere  tlie  brass  check  or  number  system 
was  in  use  in  1917  and  a  record  of  surhcient  detail  does  not  exist  and  can  not  be 
obtained  because  employees  are  not  longer  in  tlie  employ  of  the  company,  do  not 
require  reports  of  information;  in  all  such  cases  au  accounting  system  must  be 
installed  that  will  enable  such  employers  to  keep  an  accurate  check  so  that  full 
information  can  be  given  in  the  future.     (T.  D.  2670;  Mar.  11,  1918.) 

Heads  of  branch  offices  and  subcontractors  employing  labor  and  keeping  the  only 
complete  record  of  payments  should  tile  returns  of  information  direct  with  Commis- 
sioner of  Internal  llevenue,  Sorting  Division,  Washington,  D.  C;  when  record  is 
kept  of  payments  at  both  main  ofhce  and  branch  oflice  return  sln)ul(I  be  filed  by 
former;  wliou  no  address  is  available,  last  known  post-oftice  address  must  be  given, 
as  well  as  street  and  number,  when  possible;  information  as  to  whether  employee  is 
single,  head  of  a  family,  or  married,  sliould  be  given,  when  possible.  (T.  D.  2670; 
Mar.  11,  1918.) 

Bills  paid  to  employees  for  board  and  lodging  while  traveling  under  orders  or 
wlien  employee  is  employed  on  a  salary  basis  do  not  require  reports  of  information. 
(T.  D.2670;  Mar.  11,  1918.) 

Returns  of  information  will  not  be  required  from  disbursing  officers  of  payments 
made  to  sailors,  soldiers,  or  civilian  employees  of  the  United  States  Government. 
(T.  D.  2670;  Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  paying  compensation,  wages,  etc.,  of  S800  or 
more  in  any  taxable  year,  or,  in  case  of  such  payment  made  by  the  United  States, 
tlie  officers  or  employees  of  the  United  States  ha\'ing  information  as  to  such  pay- 
ments, authorized  and  required  to  render  due  and  accurate  return,  setting  forth 
the  amount  of  such  compensation,  wages,  etc.,  and  the  name  and  address  of  the 
recipients  thereof.     (T.  D.  2690;  art.  34.) 

Wliere  a  person  receives  a  cash  compensation  for  services  rendered  and  in  addi- 
tion tliereto  living  quarters,  the  value  to  such  person  of  the  quarters  furnished  con- 
stitutes income  subject  to  tax,  and  return  under  section  28  is  required  in  each  case 
where  cash  compensation  received  plus  the  value  of  li\'ing  (quarters  furnished 
equals  or  exceeds  $800  for  a  tax  year.     (T.  D.  2690;  art.  34.) 

Foreign  items. 

Returns  of  information  required,  regardless  of  amount,  in  case  of  payments  of 
interest  upon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  and  insur- 
ance companies,  and  in  the  case  of  foreign  items;  original  ownership  certificates, 
when  duly  filed,  sliall  constitute  and  be  treated  as  returns  of  information.  (T.  D. 
2759;  Oct.  2,  1918.) 

The  term  "foreign  item,"  as  used  in  article  35  of  Regulations  No.  33,  Revised, 
means  any  dividend  upon  stock  of  foreign  corporation  or  any  item  of  interest  upon 
bonds  of  foreign  countries  or  foreign  corporations,  whether  such  dividend  or  inter- 
est is  paid  in  tlie  United  States  or  by  check  drav\'n  on  a  domestic  bank. 
(T.  D.  2759;  Oct.  2,  1918.) 

WhereA^er  a  foreign  country  or  foreign  corporation  issuing  bonds  has  appointed  a 
paying  agent  in  this  country',  charged  with  duty  of  paying  interest  upon  such  bonds, 
such  agent  shall  be  source  of  information;  if  such  country  or  corporation  has  no  such 
agent  then  last  bank  or  collecting  agent  in  this  country  shall  be  source  of  information ; 
in  case  of  dividends  on  stock  of  foreign  corporation,  (irst  bank  or  collecting  agent 
accepting  such  item  for  collection  shall  be  source  of  information.  (T.  D.  2759;  Oct, 
2,  1918.) 

Banks  or  agents  collecting  foreign  items  recjuired  to  obtain  license  from  Commis- 
eioner  of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such  regu- 
lations for  furnishing  of  information  as  the  Commissioner,  with  apiiroval  of  Secretary 
of  the  Treasury,  shall  prescribe,  and  to  penalties  prescribed  by  failure  to  obtain  such 
license.     (,T.  D.  2759;  Oct.  2,  19J8.) 


378  INCOME    TAXES    (INDIVIDUALS). 

Information  at  source — Continued. 

Foreign  items — Continued. 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of  in- 
formation, ownership  certificate  shall  accompany  coupon  to  such  agent  or  source  of 
information,  v/ho  shall  forward  ownership  certificate  to  Commissioner  of_  Internal 
Revenue,  in  manner  provided  where  duty  is  placed  upon  licensee,  provided  that 
in  case  ownership  certificate.  Form  1000,  is  used,  pajnng  agent  shall  make  return  on 
Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

The  terra  "foreign  corporation."  as  used  in  article  S5  of  Regulations  No.  33, 
Revised,  means  one  not  organized  and  existing  under  the  laws  of  the  United  States 
or  of  any  State  or  Territory  thereof,  or  of  the  District  of  Columbia,  Porto  Rico,  or  the 
Philippine  Islands.     (T.  D.  2759;  Oct.  2,  1918.) 

All  persons,  corporations,  etc.,  undertaking  as  matter  of  business  or  for  profit, 
collection  of  foreign  payments  of  interest  on  dividends  by  means  of  coupons,  checks, 
or  bills  of  exchange,  shall  obtain  license  from  Commissioner  of  Internal  Revenue, 
as  prescribed  by  section  9  (b)  of  the  act  of  September  8,  1916,  as  amended;  such 
licensee  shall  write  or  stamp  on  the  face  of  the  item:  "Information  obtained  and 
furnished  by (name  of  collecting  agent)."     (T.  D.  2690;  art.  48.) 

• Insurance. 

Payments  of  premiums  made  to  insurance  companies  for  annual  protection  do 
not  require  reports  of  information.     (T.  D.  2670;  Mar.  11,  1918.) 

Payments  to  insurance  companies  for  the  vear  1917  do  not  require  reports  of  in- 
formation.    (T.  D.  2670;  Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  pa^dng  insurance  premiums  of  $800  or  more  in 
any  taxable  year,  or,  in  case  of  such  payment  made  by  the  United  States,  the 
officers  or  employees  of  the  United  States  having  information  as  to  such  payments, 
authorized  and  required  to  render  due  and  accurate  return,  setting  forth  the  amount 
of  such  insurance  premiums  and  the  name  and  address  of  the  recipients  thereof. 
(T.  D.  2690;  art.  34.) 

■ Interest. 

Interest  accrued  on  bank  deposits  before  it  has  been  passed  to  the  credit  of  the 
individual  depositor  need  nqt  be  reported.     (T.  D.  2670;  Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  paying  interest  of  §800  or  more  in  any  taxable 
year,  or,  in  case  of  such  payment  made  by  the  United  States,  the  officers  and  em- 
ployees of  the  United  States  having  information  as  to  such  payments  authorized 
and  required  to  render  due  and  accurate  return,  setting  forth  the  amount  of  such 
interest  and  the  name  and  address  of  the  recipients  thereof.  (T.  D.  2690;  art. 
34.) 

Requirements  for  information  at  source  do  not  apply  to  pavmeuts  of  interest  on 
obligations  of  the  United  States.     (T.  D.  2690;  art.  37.) 

Returns  of  information  required,  regardless  of  amount,  in  case  of  payments  of 
interest  upon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
domestic  or  resident  corporations,  joint-stock  conrpanies,  associations,  and  insur- 
ance companies,  and  in  the  case  of  foreign  items;  original  ownership  certificates, 
when  duly  filed,  shall  constitute  and  be  treated  as  returns  of  information.  (T.  D. 
2716;  May  28,  1918.) 

• Letter  of  transmittal. 

Returns  of  information  for  preceding  calendar  year  shall  be  filed  with  Commis- 
sioner of  Internal  Revenue  on  or  before  March  1  of  each  year,  accompanied  by 
letter  of  transmittal,  under  oath  (Form  1096),  which  will  show  number  of  returns 
filed  and  aggregate  amount  represented  by  the  payments.     (T.  D.  2690;  art.  34.) 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed,  or  accompanied  by  proper  ownership  certificate, 
giving  all  information  called  for  by  such  certificate;  where  first  licensed  bank  or 
collecting  agent  is  source  of  information,  licensee  shall  attach  ownership  certificate 
and  indorse  on  item  the  words  "Certificate  attached  and  information  furnished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue 
(Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of  month  following  that 
during  which  items  Avere  accepted,  accompanied  by  letter  of  transmittal,  showing 
number  of  certificates  and  aggregate  amount  of  foreign  items  disclosed  therein. 
(T.  D.  2759;  Oct.  2,  1918.) 

Wliere  interest  coupon  is  received  for  collection,  ownership  certificate  shall 
accompany  coupon  to  paying  agent  iu  this  country,  or  if  there  is  no  such  agent,  then 


INCOME   TAXES    (INDIVIDUALS).  379 

Information  at  source — Continued. 

Letter  of  transmittal — Continued. 

to  last  bank  or  collecting  agent  handling  itoin  in  this  country;  when  more  than  one 
c-oupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from  Bamo 
issue  of  bonds,  single  certificate  may  be  used;  when  foreign  items  have  been  prop- 
erly indorsed,  certificates  shall  be  attached  and  forwarded  to  Comraiasioner  of 
Internal  Ilcvenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of 
month  following  that  during  which  items  were  accepted,  accompanied  by  letter  of 
transmittal,  showing  number  of  certificates  and  aggregate  amount  of  foreign  items 
disclosed  thereon.     (T.  D.  275U;  Oct.  2,  1918.) 

0-«mersh.ip  certificates. 

When  person  receiving  x>ayment  falling  within  provisions  of  law  for  information 
at  source  is  not  actual  owner  of  income  received,  name  and  address  of  actual  owner 
shall  be  furnished  upon  demand  of  person,  corporation,  etc.,  paying  income,  and 
in  default  of  compliance  vnth  such  demand,  payee  becomes  liable  to  nenalty  of 
not  less  than  $20  nor  more  than  ?1,000.     (T.  D.  2690;  art.  36.) 

Returns  of  information  required,  regardless  of  amount,  in  case  of  payments  of 
interest  upon  l)onds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  and  insur- 
ance companies,  and  in  the  case  of  foreign  items;  original  ownership  certificates, 
when  duly  filed,  shall  constitute  and  be  treated  as  returns  of  information,  (T.  D. 
2759;  Oct.  2,  1918.) 

Professional  fees. 

Fees  paid  to  lawyers,  doctors,  and  similar  payments  aggregating  less  than  $800 
for  the  year,  do  not  require  reports  of  information.     (T.  D.  2670;  Mar.  11,  1918.) 

Bent  payments. 

Payments  of  rent  made  to  real  estate  agents  do  not  require  reports  of  information 
(but  agents  must  report  payments  to  landlord  if  the  same  amounts  to  $800  or  more 
during  1917.)     T.  D.  2670;  Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  paying  rent  of  $800  or  more  in  any  taxable  year, 
or,  in  case  of  such  payment  made  by  the  United  States,  the  ofTicers  or  employeea 
of  the  United  States  ha^dng  information  as  to  such  payments,  authorized  and 
required  to  render  due  and  accurate  return,  setting  forth  the  amount  of  such  rent 
and  the  name  and  address  of  the  recipients  thereof.     (T.  D.  2690;  art.  34.) 

Intent  of  law. 

Intent  and  purpose  of  income-tax  law  is  that  all  gains,  profits,  and  income  of  a 
taxable  class  shall  be  charged  and  assessed  with  the  corresponding  income  tax, 
normal  and  additional,  and  such  tax  shall  be  paid  by  such  owner  of  such  income 
or  proper  representative  thereof  having  receipt,  custody,  control,  or  disposal  of 
same.     (T.  D.  2690;  art.  49.) 

Net  income — Alimony. 

Alimony  or  allowance  based  on  separation  agreement  is  not  income  to  recipient 
thereof,  nor  is  it  an  allowable  deduction  for  the  person  paying  same.  (T.  D.  269o'; 
art.  4.) 

Allowances  to  minor  children. 

As  a  rule,  allowances  which  father  gives  to  his  minor  children,  whether  said  to 
be  in  consideration  of  service  or  otherwise,  are  not  allowable  deductions  in  return 
of  income.     (T.  D.  2690;  art.  8.) 

Army  officers. 

Pay  and  allowance  of  Armj*  ofhcers  are  based  on  obligation  of  officer  to  provide 
equipment  and  mounts  as  personal  expense ;  cost  of  mounts  and  equipment  is  not 
therefore  a  deductible  expense.     (T.  D.  2690;  art.  8.) 

Bad  debts— Bankruptcy.  j 

Actual  determination  of  worthlessness  of  debt  in  case  of  bankruptcy  is  possible 
only  v,'hen  settlement  in  bankruptcy  shall  have  been  had;  only  difference  between 
amount  received  in  distribution  of  assets  of  bankrupt  and  amount  of  approved 
claim  may  be  considered  for  purpose  of  deduction.     (T.  D.  2090;  art.  8.) 

Where  settlement  is  had  by  way  of  compromise  whereby  amount,  less  than  debt 
claimed,  is  accepted  in  full  payment  and  satisfaction,  difference  between  amount 


380  INCOME   TAXES    (INDIVIDUALS). 

Net  income — Continued. 

■ Bad  debts — Continued. 

• Compromise. 

paid  and  that  claimed  is  not  allowable  as  deduction  for  bad  debts;  where  settle- 
ment consists  of  promise  to  pay  amount  less  than  debt,  amount  promised  forms 
basis  of  new  transa(;tion,  and  upon  failure  to  make  good  such  promise  question  will 
arise  as  to  deductibility  of  new  amount  only.     (T.  D.  2690;  art.  8.) 

Definition. 

Bad  debt  or  worthless  debt,  v/hich  may  be  deducted  in  return  of  income,  is  debt 
which  has  been  actually  ascertained  to  be  worthless  and  charged  off  within  taxable 
year.     (T.  D.  2690;  art.  8.) 

-^  Mortg^age  foreclosure  sale. 

AVhere  mortgagee  buys  in  property  and  credits  indebtedness  with  purchase  price, 
difference  between  price  and  indebtedness  not  allowable  as  deductions;  only  where 
purchaser  for  less  than  debt  is  another  than  mortgagee  may  difference  between  debt 
and  net  from  sale  credited  be  deducted  as  bad  debt.     (T.  D.  2690;  art.  8.) 

Showing  of  worthlessness. 

AVhere  all  surrounding  and  attendant  circumstances  indicate  that  debt  is  worth- 
less and  imcollectible  and  that  legal  action  to  enforce  payment  would  in  all  proba- 
bility not  result  in  satisfaction  of  execution  on  judgment,  showing  of  such  facts  will 
be  sufficient  showing  of  worthlessness  of  debt  for  purposes  of  deduction.  (T.  D. 
2690;  art.  8.) 

■ Unpaid  wages,  rents,  etc. 

Debts  arising  from  unpaid  wages,  salary,  rents,  and  items  of  similar  taxable  in- 
come, not  allowed  as  deduction  luiiess  income  they  represent  has  been  included  in 
return  of  gross  income  for  year  in  Avhich  deduction  as  Vjad  debt  is  sought  to  be  made 
or  in  previous  year,  and  debts  themselves  have  been  actually  ascertained  to  be 
worthless  and  charged  off.     (T.  D.  2G99;  art.  8.) 

Basis. 

Dealers  in  merchandise  and  dealers  in  securities  authorized  to  make  returns  on 
basis  of  inventories  taken  at  cost  or  market  price,  whichev?r  is  lower.  (T.  D.  2609; 
Dec.  19,  1917.)  Pending  decision  by  Supreme  Court  of  United  States  as  to  legality 
of  authorization  of  T.  D.  2609,  returns  made  upon  basis  of  T.  D.  2609  will  be  tenta- 
tively accepted.  (T.  D.  2649;  Jan.  30,  1918.  Affirmed,  T.  D.  2744;  July  5,  1918.) 
Dealer  in  securities,  for  purposes  of  T.  D.  2609,  is  a  merchant  of  securities  whether 
an  individual,  partnership,  or  corporation  with  an  established  place  of  business,  and 
whose  principal  business  is  the  purchase  of  securities  and  their  resale  to  customers; 
one  who,  as  a  merchant,  buys  securities  and  sells  them  to  customers  with  a  view  to 
the  gains  and  profits  that  may  be  derived  therefrom.  (T.  D.  2649;   Jan.  30,  1918.) 

Citizens  and  resident  aliens. 

Citizens  and  resident  aliens  are  given  the  deductions  and  credits  provided  by  sec- 
tion 5  of  the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3,  1917; 
deductions  provided  by  such  section  stated.     (T.  D.  2690;  arts.  7,  8.) 

• Credits — Dividends. 

For  purpose  of  normal  tax  only,  income  embraced  in  personal  return  shall  be 
credited  with  amount  received  as  dividends  upon  stock  or  from  net  earnings  of  any 
corporation,  joint-stock  company  or  association,  trustee,  or  insurance  company, 
which  is  taxable  upon  its  net  income;  applicable  to  nonresident  aliens.  (T.  D. 
2690;  arts.  9,  11.) 

Amount  of  dividends  received  by  partners  shall  be  allowed  as  a  credit  for  purpose 
of  computing  normal  income  tax.     (T.  D.  2690;   art.  30.) 

■ Excess  profits  tax. 

After  net  income  shall  have  been  ascertained,  it  shall  be  credited  with  amount  of 
any  excess  profits  tax,  assessed  for  same  calendar  or  fiscal  year  upon  taxpayer,  and, 
in  case  of  member  of  partnership,  with  his  proportionate  share  of  the  excess-profits 
tax  imposed  upon  the  partnership.     (T.  D.  2690;   art.  2.) 

Although  excess  profits  tax  payment  is  not  an  allowable  deduction  in  ascertaining 
net  income,  net  income  shown  on  any  return  will  be  credited  with  amount  of  excess 
prolito  tax  for  which  taxpayer  will  be  liable  for  same  year.     (T.  D.  2690;  art.  8.) 


INCOME   TAXES    (INDIVIDUALS).  381 

Net  income — Continued. 

Credits — Continued. 

— — Excess  profits  tax — Continued. 

Net  income  embraced  in  return  shall  be  credited  with  amount  of  any  excess 
prolits  tax  imposed  and  assessed  for  same  calendar  or  fiscal  year  upon  taxpayer,  and 
in  case  of  member  of  parlnfrship  with  his  proportionate  share  of  such  excess  profits 
tax;  applicable  to  nonresident  aliens.     (T.  D.  2G90;  arts.  9,  11.) 

Interest. 

Where  it  is  clearly  established  that  debtor  corporation  has  a.ctually  -withhekl  and 
paid  to  i)roper  oOicers  of  the  United  States  the  tax  on  interest  on  bonds  containing 
tax-free  covenant,  recipient,  having  returned  such  interest  as  income,  may  take 
credit  against  any  tax  to  which  subject  on  the  basis  of  the  return,  for  tax  so  paid  by 
debtor  corporation.     (T.  D.  2690;  art.  122.) 

• Nonresident  aliens. 

In  order  that  nonresident  alien  may  have  benefit  of  deductions  and  credits  pro- 
vided by  Article  11  of  Regulations  No.  33,  he  must  file  or  cause  to  be  filed  true  and 
accurate  return  of  total  income  from  all  sources  in  United  States,  and  in  case  of  failure 
to  lile  return  tax  will  be  collected  on  gross  income  from  all  such  sources.  (T.  D. 
2b90;  art.  12.) 

Tax  withlield. 

For  purpose  of  normal  tax  only,  credit  shall  be  allowed  as  to  amount  of  income, 
normal  tax  upon  which  has  been  paid  or  withheld  for  payment  at  source  of  income 
under  Title  1  of  the  act  of  September  8,  1916,  as  amended,  or  the  act  of  October  3, 
1917;   applicable  to  nonresident  aliens.     (T.  D.  2690;  arts.  9,  11.) 

Definition. 

Net  income  is  difference  between  gross  income  and  the  sum  of  allowable  deduc- 
tions.    (T.  D.  2G90;  art.  6.) 

Depletion — Mining  properties. 

Every  individual  claiming  and  making  deduction  for  depletion  of  natural  deposits 
shall  keep  accurate  ledger  account  in  which  shall  be  charged  fair  market  value  as  of 
March  1,  1913,  or  the  cost,  if  property  was  acquired  subsequent  to  that  date,  of 
mineral  deposits  involved,  account  to  be  credited  with  amount  of  depletion  deduc- 
tion claimed  and  allowed  each  year,  or  amount  of  depletion  shall  be  credited  to 
depletion  reserve  account,  to  end  that  when  sum  of  credits  for  depletion  equals 
value  of  cost  of  property,  no  further  deduction  for  depletion  will  be  allowed ;  the 
fair  markei  value  or  cost  of  property,  as  case  may  be,  will  be  basis  for  determining 
depletion  deduction  for  all  subsequent  year.s  during  ownership  i;nder  which  value 
was  fixed,  and  during  such  ownership  there  may  be  no  revaluation  if  it  should  be 
found  that  estimated  quantity  of  deposit  was  understated;  where  quantity  of  min- 
eral deposit  prior  to  ]\Iarch  1,  1913,  can  not  be  accurately  estimated,  necessary  if 
depletion  deductions  are  to  be  taken,  for  individual  owning  deposits,  mth  best  in- 
formation available,  to  arrive  at  fair  market  value  of  property  as  of  March  1,  1913, 
which  value  during  period  of  ownership  shall  be  final;  then  on  basis  of  most  probable 
number  of  units  in  property,  the  per  unit  value  shall  be  determined  as  basis  for 
computing  annual  depletion  allowances;  this  method  and  allowances  to  be  con- 
tinued imtil,  but  not  beyond,  time  when  value  as  of  March  1,  1913,  shall  have  been 
extinguished.     (T.  D.  2690;  art.  172.) 

Original  cost  of  mineral  deposit  may  be  taken  as  basis  for  computing  annual  deple- 
tion deductions  if  fair  market  value  as  of  March  1,  1913,  can  not  be  ascertained  other- 
wise, allowance  being  made  for  minerals  which  mav  have  been  removed  prior  to  that 
date;  where  property  was  acquired  subsequent  to  that  date,  same  rule  for  computing 
annual  depletion  deduction  will  applv,  except  that  basis  of  computation  will  be 
actual  cost  rather  than  value  as  of  March  1,  1913.     (T.  D.  2690;  art.  172.) 

Where  property  was  acquired  by  purchase  or  otherwise  (other  than  by  lease)  prior 
to  March  1,  1913,  amount  of  invested  capital  which  may  be  extiuguished  through 
annual  depletion  deductions  from  gross  income  will  be  the  market  value  of  mine 
property  so  acquired,  as  of  March  1,  1913;  value  contemplated  as  basis  for  depletion 
deductions  must  not  be  based  upon  assumed  salable  value  of  output  under  current 
operative  conditions,  less  cost  of  production,  for  reason  that  value  so  determined 
would  comprehend  profits  to  be  realized  from  operation  of  property;  value  must  not 
be  speculative  but  must  be  determined  upon  basis  of  salable  value  en  bloc  as  of 
March  1, 1913,  of  entire  deposit  of  minerals,  exclusive  of  improvements  and  develop- 
ment work;    en  bloc  value  having  been  ascertained,  estimate  of  number  of  units 


382  INCOME    TAXES    (INDIVIDUALS). 

Net  income — Continued. 

Depletion — Mining  properties — Continued. 

(tons,  pounds,  etc.)  should  be  made,  and  en  bloc  value  divided  by  estimated  num- 
ber of  units  will  be  determined  per  unit  value,  which,  multiplied  by  number  of 
units  mined  and  sold  during  any  one  year,  v/ill  determine  sum  which  ^vill  constitute 
deduction  of  that  year;  deductions  computed  on  like  basis  may  be  made  from  year  to 
year  during  ownership  under  which  value  v."as  detennined  until  aggregate  en  bloc 
value  as  of  March  1,  1913,  of  mine  or  mineral  deposit  shall  have  been  extinguished. 
(T.  D.  2690;  art.  172.) 

Precise  manner  in  which  estimated  fair  market  value  of  mineral  deposits,  as  of 
March  1, 1913,  shall  be  made,  must  be  determined  by  owner  upon  such  basisas  must 
not  comprehe-ud  any  openxting  profits,  estimate  to  be  subject  to  approval  of  Com- 
missioner; in  passing  upon  accuracy  and  fairness  of  estimate  due  v/eight  to  market 
value  of  stock  of  corporation  on  March  1,  1913,  and  also  to  sworn  statements  as  to 
value  of  stock  filed  at  any  time  thereafter  for  purposes  of  special  excise  tax  based 
on  value  of  capital  stock  imposed  by  Title  I  of  the  act  of  Septemiber  8,  1916,  will  be 
attached.     (T.  D.  2690;  art.  172.) 

Where  depletion  deduction  is  computed  on  basis  of  co.st  or  price  at  which  any 
mine,  mineral,  lands  or  j^roperties  were  acquired,  corporation  upon  recjuest  of  Com- 
missioner must  show  that  cost  or  price  at  which  property  was  brought  was  fixed  for 
purposes  of  bona  fide  purchase  or  sale  by  which  property  passed  to  owner  in  fact 
as  well  as  in  form,  different  from  vendor;  in  determining  whether  or  not  price  or  cost 
at  which  any  purchase  or  sale  v/as  made  represented  actual  market  value,  due  weight 
will  be  given  to  relationship  or  connection  existing  between  party  or  parties  selling 
property  and  buyer  thereof.     (T.  D.  2690;  art.  172.) 

Lesse;?  corporation  not  entitled  to  any  deduction  as  such,  but  if  lessee,  in  addi- 
tion to  royalties,  pays  stipulated  sum  for  right  to  explore,  develop,  and  operate  mine, 
such  sum  may  be  §pread  ratably  over  estimated  number  of  units  in  mine,  and  thus 
ascertain  amount  of  invested  capital  or  bonus  payment  apialicable  to  each  unit;  per 
unit  cost  thus  ascertained  -Rail  be  multiplied  by  number  of  units  removed  from  mine 
during  any  one  year,  arid  result  will  be  amount  that  may  be  deducted  from  gross 
income  of  that  year  as  return  of  capital  invested;  in  case  of  both  m.ine  owner  and 
lessee,  no  deduction  for  depletion  or  return  of  capital  will  be  allov\'ed  when  invested 
capital  has,  through  the  aggregate  of  all  such  deductions,  been  extinguished;  for  pur- 
pose of  computing  this  deduction  in  case  of  lessee  company  actual  amount  of  bonus 
paid  and  not  value  as  of  March  1,  1913,  will  be  considered  capital  invested  to  be 
returned  through  aggregate  of  annual  deductions.     (T.  D.  2690;  art.  172.) 

Both  owner  and  lesfxje  will  keep  accurate  ledger  accounts  to  which  will  be  charged 
capital  invested  in  mJjie  or  lease,  and  in  machinery,  equipment,  etc.,  crediting  such 
accounts  or  a  depletion  reser\e  account  vnth  amount  claimed  and  allowed  as  a 
deduction  each  year  until,  as  result  of  such  credits,  the  capital  charge  shall  bo 
extinguished,  after  vrhich  no  further  deduction  on  this  account  will  be  allowed. 
(T.  D.  2690;  art.  172.) 
Oil  and  ga'3  properties. 

As  to  both  fee  owner  and  lessee,  capital  invested  in  physical  property,  upon  which 
depreciation  deduction  is  computed,  should  be  segregated  in  books  of  account  from 
that  invested  in  oil  or  gas  territory  or  in  lease  or  leases,  with  respect  to  which  deduc- 
tion for  depletion  or  return  of  capital  is  claimed,  and  credits  for  depreciation  may  ho 
made  in  same  manner  as  provided  for  depletion.     (T.  D.  2690;  art.  170.) 

Where  operator  is  owner  of  fee,  value  determined  and  set  up  as  of  March  1,  1913,  or 
cost  of  property  if  acquired  subsequent  to  that  date,  or,  if  operator  is  lessee,  actual 
amount  paid  for  lease,  plus,  in  case  of  both  owner  and  lessee,  cost  of  subsequent 
development,  exclusive  of  physical  property,  if  such  cost  is  capitaiizx'd,  will  be 
basis  for  determining  depletion  deduction  or  deduction  for  return  of  capital  for  all 
subsequent  year/;  during  continuance  of  ownership  under  which  value  was  fixed 
or  Ijy  which  investment  was  made;  during  such  ownership  there  can  be  no  revalua- 
tion for  property  of  deduction  if  it  should  be  found  that  quantity  of  oil  or  gas  was 
underestimated  at  time  value  was  fixed  or  property  was  acquired,  or  at  lime  lease 
co.'itract  was  entered  into  or  purchased.     {T.  D.  2690;  art.  170.) 

lioth  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition  to  and 
separate  from  deduction  allowable  for  depletion  or  return  of  capital,  be  permitted 
to  deduct  reasonable  allowance  for  depreciation  of  physical  property,  such  as  ma- 
chinery, tools,  equipment,  pipes,  etc.,  amount  deductible  on  this  "account  to  be 
such  an  amount,  based  upon  its  capitalized  value  (cost)  equitably  distributed  over 
its  useful  life,  as  vidll  bring  it  to  its  true  salvage  value  when  no  longer  useful  for 
purpose  for  whicJi  property  was  acquired.  (T.  I).  2690;  art.  170.) 


INCOME   TAXES    (INDIVIDUALS^  .  383 

Het  income — Contiuued. 

■ ^  Depletion — Conlinued. 

Oil  and  gas  properties — Contiuued. 

If  quantity  of  oil  or  ,£;as  can  not  be  determined  with  certainty,  depletion  deduction 
will  be  computed  in  accordance  with  rules  set  out  in  T.  D.  2447,  except  that  lessees 
may  compute  deductions  for  return  of  capital  (cost  of  lease  and  development)  in 
same  manner  as  owners  in  fo(!;  that  is,  they  may  extinguish  such  capital  on  basis 
of  reduction  in  tlow  and  production  as  compared  vith  preceding  year,  or,  in  case  of 
leasehold  ])roperties  brought  in  or  developed  during  year,  depletion  deduction  may 
be  compuicr-d  on  basis  of  decline  in  settled  flow  and  production,  as  evidenced  by 
tests  and  gauges  made  at  end  of  year  as  compared  with  similar  tests  and  gauges  made 
at  time  settled  flow  was  determined;  for  purpose  of  computing  depletion  territory 
comprehended  in  given  lease  will  be  considered  unit  v«ith  respect  to  which  deple- 
tion deduction  may  be  claimed  and  allowed.     (T.  D.  2690;  art.  170.) 

Every  individual  or  corporation  eiititled  to  deduction  on  account  of  depletion  or 
for  return  of  cayiital  invested  shall  keep  accurate  ledger  account,  in  which,  in  case 
of  fee  owner,  shall  be  charged  fair  market  value  as  of  March  1,  1913,  or  the  cost,  if 
acquired  subsequent  to  that  date,  of  the  oil  or  gas  property,  plus  cost  of  development, 
or,  in  case  of  lessee,  amount  actually  originally  invested  in  lease  and  its  develop- 
ment; this  amount  shall  be  credited  as  amount  claimed  each  year  as  deduction  on 
account  of  depletion  or  as  return  of  capital,  to  end  that  v.-hen  credits  to  account 
equal  debits  no  further  deductions  on  either  account,  with  respect  to  this  property 
and  capital  invested  therein,  will  be  allowed;  or,  in  lieu  of  direct  credit  to  property 
account,  amoimts  so  claimed  and  allowed  as  deduction  may  be  credited  to  depletion 
reserve  account.     (T.  D.  2690;  art.  170.) 

In  case  of  lessee,  capital  to  be  returned  is  a^mount  paid  in  cash  or  its  equivalent  as 
boniis  or  otheiTvdse  by  lessee  for  lease,  plus  expenses  incurred  in  developing  pro})- 
erty  (exclusive  of  physical  property)  prior  to  receipt  of  income  therefrom  sufficient 
to  meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and  lessee,  such 
incidental  expenses  as  are  yjaid  for  wages,  fuel,  etc.,  in  connection  with  drilling 
of  wells  and  further  dcA-elopment  of  property  may  be,  at  option  of  operator,  deducted 
as  operating  expense  or  charged  to  capital  account.     (T.  D.  2G90;  art.  170.) 

In  case  of  operating  fee  owner,  amount  returnable  through  depletion  deductions  is 
fair  market  value  of  property  (exclusive  of  cost  of  physical  property)  as  of  March  1 , 
1913,  if  acquired  prior  to  that  date,  or  actual  cost  of  property  if  acquired  subsequent 
to  that  date,  plus,  in  either  case,  cost  of  development  (other  than  cost  of  physical 
property  incident  to  such  development)  iip  to  point  at  which  income  from  devel- 
oped territory  equals  or  exceeds  deductible  expenses.     (T.  D.  2690;  art.  170.) 

Essence  of  sections  5  and  12  of  the  act  of  September  8,  1916,  as  amended  by  the  act 
of  October  3,  1917,  is  that  owner  or  operator  of  gas  or  oil  properties  shall  secure 
through  an  aggregate  of  annual  depletion  deductions  the  raturn  of  amount  of  capital 
actually  invested,  or  amount  not  in  excess  of  fair  market  value  as  of  March  1,  1913, 
of  properties  owned  prior  to  that  date.     (T.  D.  2690;  art.  170.) 

Estimate,  subject  to  approval  of  Commissioner  of  Internal  Revenue,  required  to 
be  made  of  probable  quantity  of  oil  or  gas  contained  in  or  to  be  recovered  from 
territory  with  respect  to  which  investment  is  made;  invested  capital  will  be  divided 
by  number  of  units  of  oil  or  gas  so  estimated,  and  quotient  will  be  per  unit  cost  or 
amount  of  capital  invested  in  each  unit  recoverable;  this  quotient  when  multi- 
plied by  number  of  units  removed  from  territory  in  one  year  wall  determine  amount 
which  will  be  allowably  deducted  from  gross  income  for  that  year  on  account  of 
depletion  or  as  return  of  invested  capital  until  total  of  such  deductions  shall  equal 
capital  invested .  (T .  1 ) .  2690 ;  art .  1 70 . ) 
Timberlands. 

In  case  of  timberlands,  fair  market  price  or  value  of  timber  standing  March  1, 
1913,  or  cost  of  timber  when  purchased  was  made  subsequent  to  that  date,  will  be 
basis  for  calculation  of  depiction,  and  this  value  as  of  March  1,  1913,  or  cost  when 
subsequently  purchased,  is  not  to  be  exceeded  for  purposes  of  deduction  in  returns 
of  income;  whole  of  such  value  is  to  be  distributed  over  entire  amount  of  standing 
timber  on  those  respective  dates;  rule.^  governing  timber-owming  companies.  fT.  D. 
2690;  arts.  8,  173.) 
Depreciation — Computation. 

Reasonable  allowance  for  wear  and  tear  of  property  arising  out  of  its  us3  or  employ- 
ment in  business  or  trade  is  to  be  based  upon  cost  of  sucli  prop^-rty  or  on  its  fair 
market  price  or  value  as  of  March  J,  1913,  if  acquired  prior  thereto;  in  absenc?  of 
proof  to  contrary  it  will  be  assumed  that  such  value  as  of  March  1,  1913,  is  cost  of 
proi)?rty,  less  depreciation  up  to  that  date.     (T.  D.  2754;  Aug.  23,  1918.) 


384  INCOME    TAXES    (INDIVIDUALS). 

Net  income — Continued. 

Depreciation — Continued. 

Costumes. 

Costumes  purchased  and  used  exclusively  in  production  of  a  play  and  which  arc 
not  adapted  for  occasional  personal  use  and  are  not  so  used  are  part  of  the  equipment 
of  a  business,  and,  as  such,  subject  to  depreciation  in  value  on  account  of  wear  and 
tear  arising  from  their  use  in  the  business;  reasonable  allowance  for  such  deprecia- 
tion may  be  claimed.     (T.  D.  2690;  art.  8.) 

■ Mining  properties. 

Operator  will  be  ]>ermitted  to  deduct  from  gross  income  of  each  year  reasonable 
allowance  for  depreciation  of  all  physical  property  used  in  connection  with  opera- 
tion of  mine  and  owned  by  operator;  for  this  purpose  the  actual  cost  (not  value)  will 
be  equitably  distributed  over  useful  life  of  such  property  until  true  salvage  value 
has  been  reached;  both  owner  and  lessee  will  keep  accurate  ledger  accounts  to  which 
will  be  charged  capital  invested  in  mine  or  lease,  and  in  machinery,  equipment,  etc., 
crediting  such  accounts  or  a  depreciation  reserve  account  wdth  amount  claimed  and 
allowed  as  a  deduction  each  year  until,  as  result  of  such  credits,  the  capital  charge 
shall  be  extinguished,  after  which  no  further  deduction  on  this  account  will  be 
allowed.     (T.  D.  2090;  art.  172.) 

Oil  and  gas  properties. 

If  individual  or  corporation  charges  expense  of  drilling  wells  or  further  develop- 
ment to  capital  account,  the  same,  in  so  far  as  expense  is  represented  by  physical 
property,  may  be  taken  into  account  in  determining  reasonable  allowance  for  de- 
preciation during  each  year  until  property  account  thus  augmented  has  been  extin- 
guished through  annual  depreciation  deductions,  after  which  no  further  deduction 
on  this  account  will  be  allowed;  in  case  of  a  going  or  producing  business,  cost  of 
drilling  nonproductive  wells  may  be  deducted  from  gross  income  as  operating 
expense.     (T.  D.  2G90;  art.  170.) 

■ Destruction  of  property. 

Property  destroyed  by  order  of  authorities  of  State  or  of  United  States  may  be 
claimed  as  a  loss;  if  reimbursement  is  made,  amount  received  shall  be  reported  as 
income  for  year  in  which  reimbursement  is  made.     (T.  D.  2690;  art.  4.) 

— —  Excess  profits  tax. 

Although  excess  profits  tax  payment  is  not  an  allowable  deduction  in  ascertaining 
net  income,  net  income  shown  on  any  return  will  be  credited  with  amount  of  excess 
profits  tax  for  which  taxpayer  will  be  liable  for  same  year.     (T.  D.  2690;  art.  8.) 

• Excise  taxes. 

Excise  taxes  may  be  deducted  either  as  taxes  or  items  of  expense,  but  not  under 
both  heads.     (T.  D.  2690;  art.  8.) 

Expenses — •Administration. 

Expenses  of  administration  of  estate,  such  as  court  costs,  attorneys'  fees,  execu- 
tor's commissions,  etc.,  are  chargeable  against  corjjus  of  estate  and  are  not  allowable 
deductions.     (T.  D.  2690;  art.  8.) 

• Capital  investments. 

Amounts  expended  in  development  of  orchards  prior  to  time  when  productive 
Btageis  reached,  constitute  investments  of  capital.     (T.  D.  2690;  art.  4.) 

Where  leasehold  is  sold  for  specified  sum,  purchaser  may  take  as  deduction  an 
aliquot  part  of  such  sum,  each  year,  based  on  number  of  years  lease  has  to  run.  (T. 
1).  2690;  art.  8.) 

Amounts  to  be  assessed  and  paid  under  mutual  agreement  between  bondholders 
or  stockholders  of  corporation  to  be  used  in  reorganization  of  corporation  are  invest- 
ments of  capital  and  not  deductible.     (T.  D.  2690;  art.  8.) 

Amount  expended  for  architectural  Rer\dce  is  part  of  cost  of  building  and  is  not  a 
deductible  business  expense;  cost  of  defending  title  or  perfecting  title  to  property 
constitutes  j)art  of  the  cost  of  property,  and  is  not  a  business  expense.  (T.  D.  2690; 
art.  8.) 

Amounts  expended  for  securing  copyright  and  plates  which  remain  in  possession 
of  and  as  property  of  person  making  payments  are  investments  of  capital  and  can 
not  be  allowed  as  deductions.     (T.  D.  2<390;  art.  8.) 


INCOME   TAXES    ( INDIVIDUALS ).  385 

Net  income — Contimiod. 

Expenses — Continupd. 

Commissions  paid. 

Commissions  paid  in  piiicha'^ing  and  selling  securities  are  a  part  of  the  cost  of  sell- 
ing piiee  of  the  securities  and  not  oiherwise  deductible;  they  do  not  consliuite 
expense  deductions.     (T.  D.  2690;  art.  8.) 

Compensation  payments. 

Amounts  expended  by  corporations,  partnerships,  or  individuals  engaged  in 
business,  in  paving  all  or  portions  of  regular  compensation  of  oflicers  or  employees, 
who  have  tor  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces  of 
the  L'nited  States,  or  have  undertaken  services  for  the  Government  at  reduced  or 
nominal  compensation,  constitute,  during  the  continuance  of  the  war,  ordinary 
and  necessary  expenses  of  doing  business  and  are  allowable  as  deductions  in  com- 
puting net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

Amounts  paid  for  salary  received  for  all  services  rendered  are  deductible  as  busi- 
ness expense  when  expenditures  are  occasioned  bv  the  ser\ice  in  respect  of  which 
salary  is  paid.     (T.  D.  2690;  art.  8.) 

Reimbursements. 

Amounts  paid  out  for  expense  incident  to  serxice  rendered  and  which  are  reim- 
bursihle.  are  not  deductible  as  expense,  nor  are  they  to  be  returned  as  income  when 
received  in  reimbursements.     (T.  D.  2690;  art.  8.) 

Rental  payments. 

In  case  of  professional  man  who  rents  property  for  residential  purposes  but  receives 
there  clients,  patients,  or  callers  in  connection  with  his  professional  work  (^place 
of  business  lieing  elsewhere),  no  part  of  rent  is  deductible  as  business  expense. 
(T.  D.  2690;  art.  8.) 

Farms. 

Cost  of  farm  machinery  is  not  an  allowable  deduction  as  item  of  expense,  but  cost 
of  ordinary  tools  may  be  included  under  this  item.     (T.  D.  2690;  art.  4.) 

T'nder  paragraph  7  of  section  5  (a)  of  the  act  of  1916  there  may  be  claimed  a  reason- 
able allowance  for  depreciation  on  farm  buildings  (other  than  dwelluig  occupied  by 
owner"),  farm  machinery,  and  other  physical  property,  including  stock  purchased 
for  breeding  purposes,  but  no  claim  for  depreciation  on  stock  raised  or  purchased 
for  resale  will  be  allowed.     (T.  D.  2690;  art.  4.) 

Where  expenses  incurred  in  operating  a  farm  for  recreation  or  pleasure  are  in 
excess  of  receipts  therefrom,  entire  receipts  from  sale  of  products  may  be  ignored  in 
rendering  return  of  income,  and  expenses  will  not  constitute  allowable  deductions 
in  return  of  income  derived  from  other  sources.     (T.  D.  2690;  art.  4.) 

Money  expended  for  stock  for  breeding  purposes  is  regarded  as  capital  invested 
and  where  stock  dies  from  disease  or  injury  or  is  killed  by  order  of  authorities  of 
State  or  United  States  and  cost  thereof  has  not  been  claimed  as  item  of  expense, 
amounts  so  expended,  less  any  depreciation  which  may  have  been  previously 
claimed,  may  be  deducted  as  a  loss;  if  reimbursement  is  made  by  State  or  United 
States,  amount  received  shall  be  reported  as  income  for  year  in  which  reimburse- 
ment is  made.     (T.  D.  2690;  art.  4.) 

IndiAidual  engaged  in  raising  and  selling  stock  may  not  claim  as  loss  value  of 
euch  animals  raised  as  die;  in  case  of  animals  purchased,  Avhich  die,  amount  of  pur- 
chase money  will  be  an  allowable  deduction,  if  not  preNiously  deducted  as  business 
expense.     (T.  D.  2690;  art.  4.) 

\Mien  farm  products  are  held  for  favorable  market  prices,  no  deduction  on  account 
of  shrinkage  in  weight  or  physical  value  or  losses  b\-  reason  of  such  shrinkage  or 
deterioration  in  storage  shall  be  allowed.     (T.  D.  2690;  art.  4.) 

Gifts  or  bonuses. 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made  in  good 
faith  and  as  additional  compensation  for  services  actually  rendered;  if,  when  added 
to  salaries,  they  do  not  exceed  reasonable  compensation  for  services,  they  will  be 
regarded  as  part  of  the  wage  or  hire  and  therefore  an  ordinary  and  necessary  expense 
of  operation  and  maintenance  and  as  such  will  be  deductible.     (T.  D.  2690;  art.  8.) 

70420°— 21 25 


386  INCOME   TAXES    (INDIVIDUALS). 

Net  income— Continued. 

Insurance  premiums. 

Premiums  paid  on  life  insurance  policies  covering  lives  of  oflScers,  employees,  or 
those  financially  interested  in  any  business  conducted  as  a  partnership,  or  by  an 
individual,  shall  not  be  deducted  in  computing  net  income  of  such  individual  or  in 
computingprofitsof  such  partnership  for  purpose  of  paragraph  (e)  of  section  8  of  the 
act  of  September  8,  1916,  as  amended.     (T.  D.  2690;  art.  30.) 

Premium  paid  for  insurance  on  property  used  for  business  purposes  is  an  allow- 
able deduction;  insurance  paid  on  dwelling  owned  and  occupied  by  taxpayer  is 
personal  exi)ense  and  not  deductible,  nor  is  premium  paid  for  life  insurance  by 
insured;  premiums  paid  in  advance  covering  period  of  several  years  are  to  be  taken 
as  deduction  on  basis  of  one  or  two  methods:  when  books  are  kept  on  cash  basis 
entire  amount  is  deductible  in  year  in  which  premium  is  paid,  but  where  books 
are  kept  on  accrual  basis  premium  is  to  be  prorated  over  period  covered  by  insur- 
ance.    (T.  D.2690;art.  8.) 

License  taxes. 

License  taxes  may  be  deducted  either  as  taxes  or  items  of  expense,  but  not  under 
both  heads.     (T.  D.  2690;  art.  8.) 

Losses. 

For  purpose  of  income  tax  good  will  is  capable  of  neither  appreciation  nor  depre- 
ciation, and  amount  claimed  to  represent  its  decline  in  value  is  not  an  allowable 
deduction  in  computing  tax  liability  of  an  individual  or  corporation.  (T.  D.  2690; 
art.  8.) 

Difference  between  losses  proidded  for  in  paragraph  4  of  section  5  of  the  income- 
tax  act  and  that  provided  for  in  paragraph  5  is  illustrated  by  difference  between 
definitions  of  "avocation"  and  "vocation;"  losses  under  paragraph  4  come  under 
the  head  of  vocation,  while  those  under  paragraph  5  come  under  the  head  of  avoca- 
tion, and  losses  under  the  latter  head  may  be  deducted  to  an  amount  not  exceeding 
profits  arising  from  transactions  under  that  head.     (T.  D.  2690;  art.  8.) 

The  language  "losses  *  *  *  incurred  in  trade,"  as  used  in  Section  II,  subdi\dsion 
B,  act  of  October  3,  1913,  means  losses  incurred  in  the  actual  business  of  the  tax- 
payer as  distinguished  from  isolated  transactions.  (T.  D.  3029;  June  19,  1920, 
Ct.  Dec.) 

Member  of  firm  engaged  in  business  of  manufactming  is  not  entitled  under  Sec- 
tion II,  subdivision  B,  act  October  3,  1913,  to  deduct  from  his  gross  income  loss 
sustained  from  sale  of  shares  of  stock.     (T.  D.  3029;  June  19,  1920.     Ct.  Dec.) 

Nonresident  aliens. 

Nonresident  aliens  are  given  deductions  and  credits  as  provided  by  section  6  of 
the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3,  1917;  deductions 
provided  for  by  such  section  stated.     (T.  D.  2690;  arts.  7,  10.) 

Where  income  is  such  as  to  call  for  additional  tax  and  return  is  not  filed  com- 
missioner will  cause  return  to  be  made  and  include  income  from  all  sources  con- 
cerning which  he  has  information  and  shall  assess  tax  and  collect  same  from  one  or 
more  or  all  of  the  sources  of  income  within  United  States  without  allowance  for 
deductions  and  credits  under  section  6  of  the  income-tax  act.     (T.  D.  2690;  art.  32.) 

Nonresident  alien  is  not  entitled  to  benefit  of  the  several  deductions  and  credits 
provided  by  section  6  of  the  act  of  September  8,  1916,  as  amended,  unless  return 
of  net  income  is  filed  by  him  or  his  authorized  agent.     (T.  D.  2690;  art.  32.) 

Nonresident  alien  is  not  entitled  to  any  specific  exemption  as  a  deduction  from 
net  income  from  sources  within  United  States.    (T.  D,  2690;  art.  32.) 

Occupational  taxes. 

Business  or  privilege  taxes  may  be  deducted  either  as  taxes  or  items  of  expense, 
but  not  under  both  heads.     (T,  D.  2690;  art.  8.) 

Reimbursements. 

In  case  of  per  diem  allowance  in  lieu  of  subsistence  while  under  traveling  orders, 
total  allowance  is  income,  and  there  may  be  taken  as  a  deduction  for  expense  the 
amount  actually  expended  from  such  allowance  for  actual  necessary  traveling 
expenses.    (T.  D.  2690;  art.  4.) 


INCOME   TAXES    (INDIVIDUALS).  387 

Net  income — Continued. 

Rentals. 

WTiere  leasehold  is  sold  for  specified  sum,  purchaser  may  take  as  deduction  an 
aliquot  part  of  such  sum  each  year  based  onnumber  of  years  lease  has  to  run.  (T.  D. 
2G90;  art.  8.) 

Stock  trust  certificates  or  leased  line  certificates,  as  case  may  be,  issued  by  lessee 
for  purpose  of  securing  or  holding  control  of  stock  of  lessor  are  held  to  be  issued  in 
lieu  of  certificates  of  capital  stock,  and  they  will  be  treated  as  capital  stock  and 
amounts  received  by  holders  are  dividends  to  them  to  be  treated  as  rentals  by 
both  lessee  and  lessor  and  constitute  allowable  deduction  in  one  case  and  item  of 
income  in  other,  accordingly  as  they  are  paid  and  received.     (T.  D.  2690;  art.  104.) 

Royalties. 

Owner  of  patent  may  deduct  from  gross  income  each  year,  until  capital  invested 
therein  is  extinsjuished,  sum  ascertained  by  dividing  cost  of  patent  by  number  of 
years  constituting  its  life  or  by  number  representing  years  of  its  life  remaining 
after  date  of  acquirement.     (T.  D.  2690;  art.  113.) 

Taxes. 

Taxes  on  bank  stock  paid  under  legal  requirement  by  bank  forits  stockholders 
are  deductible  by  stockholders  and  not  by  bank;  where  bank  stock  is  sold  and  trans- 
ferred between  date  of  assessment  and  payment  of  tax,  in  absence  of  statute  govern- 
ing, stockholder  liable  for  tax  (if  tax  was  actually  paid)  will  have  benefit  of  tax 
deduction;  this  is  question  of  fact  and  to  be  determined  as  such.     (T.  D.  2690;  art.  8.) 

All  taxes  levied  by  general  taxing  authority,  including  tax  imposed  and  paid 
under  act  of  October  3,  1917,  except  war  excess-profits,  income  taxes,  and  taxes 
assessed  against  local  benefits,  are  allowable  deductions.     (T.  D.  2690;  art.  8.) 

Taxes  paid  by  tenant  to  or  for  landlord  for  business  property  are  additional  rent 
and  constitute  deductible  item  to  the  tenant  and  taxable  income  to  landlord,  and 
amount  of  such  tax  will  be  deductible  by  the  landlord.     (T.  D.  2690;  art.  8.) 

Tax  upon  right  to  receive  an  interest  in  the  estate  of  a  decedent  is  not  a  charge 
either  against  the  person  recei\  ing  the  interest  or  the  property  or  right  accruing  to 
him;  the  legatee  or  distributee  merely  recei-\^es  the  balance  due  after  payment  of 
the  tax — he  does  not  receive  the  entire  interest  and  then  pav  the  tax — and  he  is 
consequently  not  entitled  to  deduct  the  amount  as  a  tax  paid  by  him.  (T.  D. 
2933;  Oct.  9,  1919.     T.  D.  3050;  July  27,  1920.     Ct.  Decs.) 

Tax  imposed  by  laws  of  New  York  upon  transfer  of  property  by  will  or  under 
interstate  laws  is  not  deductible  in  ascertaining  net  income  of  legatee  or  distributee 
under  act  of  October  3,  1913;  it  is  not  a  tax  within  the  meaning  of  paragraph  B, 
Section  II,  permitting  deduction  of  all  National,  State,  county,  school,  and  municipal 
taxes  paid  dming  the  year.  (T.  D.  2933;  Oct.  9,  1919.  T.  D.  3050;  July  27,  1920. 
Ct.  Decs.) 

Tenants'  expenditures. 

Amounts  expended  by  tenants  for  taxes  and  necessary  repairs  under  agreement, 
in  addition  to  stipulated  cash  rental,  mav  be  deducted  by  the  landlord.  (T.  D. 
2690;  art.  4.) 

- —  Warrants  of  city,  etc. 

In  cases  wherein  warrants  are  issued  by  a  city  or  other  political  subdidvision  of 
a  State  and  are  accepted  b^  contractor  in  payment  for  public  work  done,  face 
value  of  such  warrants  must  be  returned  as  income  for  year  in  which  they  are 
received;  if  contractor  does  not  receive  and  can  not  recover  full  face  value  of  such 
warrants  he  may  deduct  from  gross  income  for  year  in  which  warrants  are  converted 
into  cash  any  loss  sustained,  which  loss  will  be  measured  by  difference  between  face 
value  of  warrants  returned  as  income  and  amount  actually  received  for  them  in 
cash  or  its  equivalent.     (T.  D,  2690;  art.  108.) 

Payment. 

See  "Collection  and  payment,"  ante. 
Penalties — Delay  in  filing  returns. 

If  return  is  made  and  placed  in  the  United  States  mail,  properly  addressed,  and 

Sostage  paid,  in  ample  time,  in  due  course  of  mail,  to  reach  office  of  collector  or 
eputy  collector,  on  or  before  last  due  date,  no  penalty  will  attach  should  return 
not  be  actually  received  by  such  officer  until  subsequent  to  that  date.  (T.  D. 
2690;  art.  52.) 


388  INCOME    TAXES    (IXDIVIDUALS) . 

Penalties— Delay  in  filing  returns— Continuefl. 

Penalties  for  failure  to  make  return  within  time  fixed  by  law  are  50  per  cent  of 
the  amount  of  tax  shown  by  correct  return,  besides  the  specific  penalty  of  not  Icsa 
than  $20  nor  more  than  $1,000;  specific  penalties  attach  to  person,  and  in  case  of 
death  of  such  person  are  nonenforceable;  ad  A'alorem  penalties  attach  to  income 
and  are  to  be  enforced  regardless  of  the  death  of  the  owner  of  the  income  by  which 
penalty  is  measiu-ed.     (T.  D.  2690;  art.  52.) 

Where  limitation  of  statute  as  to  assessment  has  run  and  written  waiver  of  exemp- 
tion from  assessment  is  given  by  taxpayer,  the  ad  valorem  penalties  of  50  per  cent, 
addition  to  tax,  is  not  to  be  assessed  for  delinquency  in  filing  return.  (T.  D.  2690; 
art.  52.) 

Fraudulent  returns. 

Penalties  for  false  or  fraudulent  return  or  statement,  wilfully  made  with  intent  to 
defeat  or  evade  assessment  of  tax,  are  100  per  cent  to  be  added  to  amount  of  tax  shown 
oy  correct  return,  and  the  specific  penalty  of  a  fine  as  for  misdemeanor,  not  exceed- 
ing $2,000,  or  imprisonment  not  exceeding  one  year,  or  both,  in  discretion  of  court, 
with  costs  of  prosecution.     (T.  D.  2690;  art.  53.) 

Any  person  or  officer  of  any  corporation  required  by  law  to  make,  render,  sign, 
or  verify  any  return,  who  makes  any  false  or  fraudulent  return  or  statement  with 
the  intent  to  defeat  or  evade  the  assessment  required  by  Parts  II  and  III  of  Title  I 
of  the  act  of  September  8,  1916,  shall  be  guilty  of  a  misdemeanor  and  shall  be  fined 
not  exceeding  $2,000,  or  be  imprisoned  not  exceeding  one  year,  or  both,  at  the 
discretion  of  the  court,  with  costs  of  prosecution.     (T.  D.  2690;  art.  232.) 

Information  at  source. 

When  person  receiving  payment  falling  within  provisions  of  law  for  information 
at  source  is  not  actual  ownerof  income  received,  name  and  address  of  actual  owner 
shall  be  furnished  upon  demand  of  person,  corporation,  etc.,  paying  income,  and 
in  default  of  compliance  with  such  demand,  payee  becomes  liable  to  penalty  of 
not  less  than  $20  nor  more  than  $1,000.     (T.  D.  2690;  art.  36.) 

• Nonpayment  of  tax. 

Tax  is  to  be  paid  upon  notice  from  collector  of  internal  revenue  of  amount  of  tax 
due,  and  at  all  events  not  later  than  June  15;  as  to  tax  unpaid  on  June  15,  and  for 
10  days  after  notice  and  demand  therefor  penalty  is  5  per  cent  of  amount  of  tax 
unpaid  and  interest  at  rate  of  1  per  cent  per  month  upon  such  tax  from  time  same 
became  due,  except  from  estates  of  insane,  deceased,  or  insolvent  persons;  collec- 
tors should  issue  Form  17  for  purpose  of  fixing  definitely  date  when  penalty  accrues 
and  interest  begins  to  run,  and  copy  of  notice  should  be  filed.  (T.  D.  2690;  arts. 
39,  41.) 

There  shall  be  added  to  tax  5  per  cent  on  amount  of  tax  unpaid  and  interest  at 
rate  of  1  per  cent  per  month  from  time  same  became  due,  except  from  estates  of 
insane,  deceased,  or  insolvent  persons,  and  delinquents  shall  also  be  liable  for 
epecific  penalty  of  not  less  than  $20  nor  more  than  $1,000.     (T.  D.  2690;  art.  51.) 

Specific  penalties. 

The  specific  penalty,  siibject  to  authority  of  the  Commissioner  of  Internal  Reve- 
nue to  entertain  offers  in  compromise,  is  fixed  at  not  less  than  $20  nor  more  than 
$1,000,  and  is  asserted  for  refusal  or  neglect  to  pay  tax,  to  make  return,  or  supply 
information  required  under  the  income-tax  law  and  atthe  time  required,  and  is  to 
be  asserted  independently  of  the  penalty  by  way  of  '  'addition  to  the  tax.' '  (T.  D. 
2690;  art.  54.) 

Persons  liable. 

Di\ddends  on  stock  of  domestic  corporations  or  resident  alien  corporations  are, 
prima  facie,  income  of  record  oAvner  of  the  stock,  and  such  record  owner  will  be 
liable  for  income  tax,  normal  or  additional,  according  to  his  or  its  individual  or 
corporate  status  unless  disclosure  of  actual  ownership  is  made  to  commissioner 
which  shall  show  who  the  owner  is  and  his  address,  and  that  record  owner  is  not  the 
actual  owner.     (T.  D.  2690;  art.  32.) 

Rate  of  taxation. 

The  normal  tax  upon  net  income  in  excess  of  allowable  deductions,  credits, 
and  exemptions  is  2  per  cent  under  both  the  acts  of  September  8,  1916,  and  October 
3,  1917,  on  total  net  income  from  all  sources  received  by  a  citizen  or  resident  alien 


IXCOME   TAXES    (INDIVIDUALS).  389 

Rate  of  taxation — Continued, 
in  the  preceding  calendar  year,  and  2  per  cent  on  the  net  income  of  nonresident 
aliens  (under  act  of  September  8,  iOlli.  as  amended,  only)  received  by  them  in 
preceding  calendar  year  from  all  sources  in  L'nited  States.     (T.  D.  2690;  art.  3.) 

The  income  of  estates  in  process  of  administration  or  in  trust  for  accumulation 
of  income  is  taxed  as  for  an  unmarried  person.     (T.  D.  2090;  art.  3.) 

(-'orporation  declaring  and  paying  dividends  out  of  surplus  of  earnings  accumu- 
lated over  period  of  years  should  make  record  in  its  books  of  amount  of  dividends 
paid  out  of  each  year's  undistributed  surplus  or  profits  and  ad\dse  stockholders 
accordingly,  in  order  that  di\ddends  received  by  them  ma\-  be  taxed  at  respective 
rates  prevailing  during  vears  in  which  surplus  or  profits  so  distributed  were  earned. 
(T.  D.  2690;  art.  107.) 

Additional  tax  is  levied  at  graduated  rates  upon  net  income  in  excess  of  $5,000; 
under  act  September  8:  1916,  the  additional  tax  is  levied  upon  amount  of  net  income 
in  excess  of  $20,000,  and  under  the  act  of  (October  3,  1917,  such  tax  is  levied  upon 
amount  of  net  income  in  exce:^s  of  $5,000.  so  that  above  $20,000  the  combined  rates 
of  the  two  acts  apply  to  the  same  income.  (T.  D.  2690;  art.  3.)  Table  showing 
rates  will  be  found  under  article  20. 

Refund  claims. 

See  "Claims." 

Regulations  published. 

Kegulations  No.  33,  governing  collection  of  income  taxes  imposed  by  act  of  Sep- 
tember 8,  1916,  as  amended  by  act  of  October  3,  1917,  published.     (T.  D.  2690.) 

Retroactive  operation  of  act. 

The  retroacti\-ity  of  the  act  of  October  3,  1913,  to  March  1,  1913,  a  date  not  prior 
to  the  adoption  of  "the  i6th  amendment  to  the  Constitution,  is  permissible.  (T.  D. 
2731;  June  11,  1918.     Ct.  Dec.) 

An  income  tax  may  be  and  Avas  imposed  by  retrospective  law.  (T.  D.  3043;  July 
2,  1920.     Ct.  Dec.) 

Returns — Agents. 

Tlcturn  may  be  made  by  an  agent  when  by  reason  of  illness,  absence,  or  nonrc^i- 
dence,  person  liable  for  return  is  unable  to  make  same,  agent  assuming  responsibil- 
ity of  making  return  and  incurring  penalties  provided  for  intentional  false  or  fraudu- 
lent return.     (T.  D.  2690;  art.  22.) 

Amendment. 

\Miere  further  tax  is  found  to  be  due  as  result  of  audit  of  return  or  agent's  report, 
an  amended  return  or  waiver  will  not  be  required,  except  where  discovery  of  tax 
is  made  subsequent  to  expiration  of  three-year  period  of  limitation.  (T.  D.  2690; 
art.  38.) 

■ Basis. 

Indi\-idual  keeping  accoimts  upon  any  basis  other  than  that  of  actual  receipts 
arid  disbursements,  unless  such  other  basis  does  not  clearly  reflect  his  income  may, 
may  subject  to  regulations  made  by  the  Commissioner  of  Internal  Revenue,  with 
a])proval  of  Secretarv  of  the  Treasury,  make  his  return  upon  the  basis  on  which  his 
accounts  are  kept.     (T.  D.  2690;  art.  24.) 

Returns  should  be  made  on  basis  of  receipt  unless  indi\ddual  liable  for  return 
keeps  account  on  some  other  basis  which  will  clearly  reflect  his  income.  (T.  D. 
2690;  art.  26.) 

Returns  of  indi^dduals  can  not  be  accepted  prior  to  close  of  calendar  year;  ex- 
ception, in  cases  of  closed  administration,  is  matter  of  convenience  to  those  con- 
cerned, and  is  granted  because  period  to  be  covered  by  return  has  completely 
elapsed.     (,T.  D.  2690;  art.  26.) 

Copies. 

See  "Inspection,"  post. 

Original  income  return  or  Ci-py  thereof  may  be  furnished  by  Commissioner  to 
United  States  attorney  for  use  as  evidence  before  United  States  grand  jury  or  in 
litigation  in  any  court,  where  the  United  States  is  interested  in  the  result,  or  for 
use  in  preparation  for  such  litigation,  or  to  attorney  connected  with  Department 
of  Justice  designated  by  Attorney  General  to  handle  such  matters  if  and  when 
Attorney  General  states  to  Commissioner  in  writing  that  eiich  attorney  is  so  desig- 


390  INCOME   TAXES    (INDIVIDUALS). 

R  e  turns — Continued . 

■ Copies — Continued. 

nated;  return  or  copy  thereof  thus  furnished  must  be  limited  in  use  to  purpose  for 
which  furnished  and  is  under  no  conditions  to  be  made  public,  except  where  pub- 
licity necessarily  results  from  such  use;  where  original  return  is  necessary,  it  shall 
be  placed  in  evidence  by  the  Commissioner  for  that  purpose,  and  after  being  placed 
in  evidence  it  shall  be  returned  to  files  in  ofiice  of  Commissioner  in  Washington; 
original  retiu^n  will  be  furnished  only  in  exceptional  cas&s,  and  then  only  when  it 
is  made  to  appear  that  ends  of  justice  may  otherwise  be  defeated;  neither  the  origi- 
nal nor  a  copy  desired  for  use  in  litigation  where  United  States  Government  is  not 
interested  and  where  such  use  might  result  in  making  public  the  information  con- 
tained therein  will  be  fm-nished,  except  as  otherwise  provided  in  the  next  succeed- 
ing paragraph.     (T.  D.  29G2;  Jan.   7,   1920.) 

(!opy  of  income  return  may  be  furnished  by  the  Commissioner  to  person  who 
made  the  return  or  to  his  duly  constituted  attorney,  or  if  person  is  deceased,  to  his 
executor  or  administrator,  or,  if  entity  is  in  hands  of  receiver,  trustee  in  bank- 
ruptcy, guardian,  or  similar  legal  custodian,  to  the  receiver  or  other  custodian  upon 
written  application  for  same,  accompanied  by  satisfactoiy  evidence  that  applicant 
comes  within  this  provision;  "person  who  made  the  return,"  as  herein  used,  refers 
in  case  of  an  individual  retiu-n  to  the  individual  whose  return  is  desired,  and  in 
case  of  return  of  corporation,  etc.,  or  fiduciaiy,  to  the  corporation,  etc.,  or  fiduciary 
a  copy  of  whose  return  is  desired;  corporation  may  also  designate  officer  or  individual 
to  whom  copy  made  by  corporation  may  be  furnished,  and  upon  sufficient  evidence 
of  such  action  and  of  identity  of  officer  or  individual,  copy  may  be  furnished  to 
such  person;  copy  of  partnership  retiuri  will  be  furnished  to  partners  only  in  case 
all  the  partners  join  in  the  request  therefor,  and  if  partnership  has  been  dissolved 
the  members  surviving  may  be  furnished  a  copy  if  all  the  mfmbera  surviving  join 
in  the  request.     (T.  D.  2962;  Jan.  7,  1920.) 

Exemption. 

Under  act  of  September  8,  1916,  as  amended,  and  act  of  October  3,  1917,  returns 
required  in  case  of  net  incomes  equal  to  or  in  excess  of  $1,000  or  $2,000,  according 
to  marital  status  of  persons  making  return;  in  return  so  required  basic  personal 
exemption  will  be  11,000  under  act  of  October  3,  1917,  and  $3,000  under  act  of  Sep- 
tember 8,  1916,  as  amended;  exemption  allowed  husband  and  wife  living  together 
may  be  taken  by  one  or  divided  between  them  in  such  ratio  as  they  may  determine. 
(T.*D.  2690;  art.  26.) 

Wherever  income  of  individual  is  from  tax-exempt  bonds,  and  amount  of  income 
other  than  that  from  tax-exempt  securities  is  less  than  amount  of  income  for  which 
return  is  required,  no  return  is  to  be  made;  interest  from  securities  exempt  under 
section  4  of  the  law  is  not  to  be  included  in  returns.     (T.  D.  2690;  art.  26.) 

■ Farmers — Accounts. 

Farmers  who  keep  books  according  to  some  approved  method  of  accounting, 
which  clearly  show  net  income,  and  take  annual  inventories,  may  prepare  returns 
in  accordance  with  showing  made  'by  such  books  and  inventories;  ascertainment 
of  gross  income  where  inventory  method  is  adopted  by  farmer.  (T.  D.  2665 ;  Mar.  8, 
1918.) 

Deductions. 

Amount  expended  in  purchasing  stock  for  resale  is  an  investment  of  capital  and 
is  not  to  be  taken  as  an  item  of  expense  for  year  in  which  stock  was  purchased  or  for 
any  subsequent  year,  but  when  stock  so  purchased  is  sold  its  cost  is  to  be  deducted 
from  sales  price  in  ascertaining  amount  of  gain  or  profit  returnable  for  tax  purposes, 
retm-n  where  cost  of  stock  or  farm  products  purchased  in  1916  or  any  previous  year 
for  resale  has  been  claimed  as  a  deduction.     (T.  D.  2665;  Mar.  8,  1918.) 

All  items  of  expense  connected  with  the  planting,  cultivating,  harvesting,  and 
marketing  of  a  crop,  or  the  care,  feeding  and  marketing  of  live  stock,  may  be  claimed 
as  deductions  only  in  the  return  rendered  for  the  year  during  which  such  expendi- 
tures were  made;  this  applies  even  though  crop  or  stock  may  not  have  been  sold  or 
exchanged  for  money  or  money  equivalent  during  year  for  which  return  is  ren- 
dered.    (T.  D.  2665;  Mar.  8,  1918.) 

Definitions. 

The  term  "farm,"  as  used  in  instructions  governing  preparation  of  income  tax 
returns  by  farmers,  held  to  embrace  farm  in  the  ordinarily  accepted  sense,  and 
includes  plantations,  ranches,  stok  farms,  dairy  farms,  poultry  farms,  truck  farms, 
and  all  land  used  for  similar  purposes.    (T.  D.  2665;  Mar.  8,  1918.) 


INCOME   TAXES    (INDIVIDUALS).  391 

Returns — Continued . 

— • —  Farmers — Continued. 

Definitions — Continued. 

All  corporations,  partnerships,  or  individuals  who  cultivate,  operate,  or  manage 
farms  for  gain  or  profit,  either  as  owners  or  tenants,  are  farmers  for  the  purposes  of 
instruction  governing  preparation  of  income  tax  returns  by  farmers.  (T.  D.  2663; 
-Mar.  8,  1918.) 

Exchange  of  produce  for  merchandise. 

Where  farmer  exchanges  farm  produce  for  merchandise,  groceries,  or  mill  pr  xi- 
ucts,  the  market  value  of  the  article  or  product  received  in  exchange  is  to  be 
returned  as  income.     (T.  D.  2665;  Mar.  8,  1918.) 

Inventories. 

Where  farmer  has  adopted  inventory  method  of  keeping  accounts,  he  should,  i.i 
order  to  ascertain  gross  income,  add  to  amount  received  from  sales  during  year  the 
inventory  of  the  live  stock  and  products  on  hand  at  the  close  of  the  year,  and  theii 
deduct  amount  expended  in  purchasing  live  stock  and  products  plus  inventory  of 
live  stock  and  products  at  beginning  of  year;  no  deduction  can  be  made  for  stock  or 
products  lost  during  year;  stock  purchased  for  any  purpose  other  than  resnle  may 
be  included  in  inventory  for  each  year  at  a  figure  which  ^vill  reflect  reduction  in 
value  estimated  to  have  "occurred  through  increase  or  age  or  other  causes;  cost  price 
of  articles  sold  must  not  be  taken  as  additional  deduction.  (T.  D.  2665;  Mar.  8, 
1918.) 

— Produce  consumed  by  family. 

A  farmer  is  not  required  to  include  in  his  income  tax  return  the  value  of  farm 
produce  consumed  by  himself  and  family.     (T.  D.  2665;  Mar.  8,  1918.) 

Receipts  and  disbursements. 

Farmers  who  do  not  keep  books  of  account  and  ascertain  their  gross  income  by 
inventory  should  prepare  returns  of  annual  net  income  on  basis  of  actual  receipts 
and  disbursements  in  order  that  returns  may  be  susceptible  of  audit  for  purposes  of 
verification.     (T.  D.  2665;  Mar.  8,  1918.) 

■ Time  as  of  which  return  made. 

All  gains,  profits,  and  income  derived  from  sale  or  exchange  of  farm  products, 
whether  produced  on  the  farm  or  purchased  and  resold  by  the  farmer,  shall  be  in- 
cluded in  the  return  of  income  for  vear  in  which  products  were  actually  marketed 
and  sold.     (T.  D.  2665;  Mar.  8,  1918.) 

Rents  received  in  crop  shares  must  be  retm'ned  as  of  year  in  which  shares  are 
reduced  to  money  or  money  equivalent,  and  allowable  deductions  must  be  claimed 
in  return  of  income  for  tax  year  in  which  they  apply,  although  expenses  and  deduc- 
tions may  be  incident  to  products  which  remain  imsold  at  end  of  year.  (T.  D. 
2690;  art.  4.) 

■ Fiduciaries — Amount  of  income. 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returns,  in 
cases  arising  imder  section  2  (b)  of  the  act  of  September  8,  1916,  as  amended,  when 
income  of  estate  or  trust,  as  an  entity,  is  $1,000  or  over,  return  to  be  made  on  Form 
1040  or  1040A;  fiduciaries  must  make  returns  on  Form  1041  whenever  interest  of 
beneficiary  in  net  income  of  estate  or  trust  is  $1,000  or  over  for  an  unmarried  bene- 
ficiary, and  whenever  interest  of  married  beneficiary  is  $2,000  or  over.  (T.  D.  2690; 
art.  27.) 

Deed  of  trust. 

A  deed  of  trust  must  be  absolute  so  far  as  the  conveyance  of  title  is  concerned  and 
irrevocable  bj-  the  donor,  otherwise  income  from  property  in  question  ^vill  accrue  to 
donor  and  must  be  accounted  for  by  him.     (T.  D.  2690;  art.  29.) 

Definition. 

"Fiduciary"  is  a  term  which  applies  to  all  persons  or  corporations  that  occupy 
positions  of  peculiar  confidence  toward  others,  such  as  trustees,  executors,  or  admin- 
istrators; fiduciary  for  income-tax  purposes  is  any  person  or  corporation  that  holds 
in  trust  an  estate  of  another  person  or  persons;  there  may  be  fiduciary  relationship 
between  an  agent  and  a  principal,  but  the  word  "agent"  does  not  denote  a  "fi.du- 
ciary  "  vsdthin  meaning  of  income  tax  law.     (T.  D.  2690;  art.  29,) 


392  IXCOME    TAXES    ( IXDIVIDUALS) , 

Betums — Conlinued. 

Fiduciaries — Continued. 

Depreciation. 

AVliere  terms  of  will  or  trust  or  decree  of  court  pro^^de  for  keeping  corpus  of  trust 
estate  intact  and  where  physical  property  has  suffered  depreciation  through  its  em- 
ployment in  business,  deduction  from  gross  income  to  care  for  this  depreciation, 
Avhere  deduction  is  applied  or  held  by  fiduciary  for  making  good  such  depreciation 
may  be  claimed  by  fiduciary  in  his  return;  contents  of  return.  (T.  D.  2690;  art. 
29.) 

Executors  or  administrators. 

Where  net  income  of  decedent  from  January  1  to  date  of  death  within  year  was 
$1,000  or  over,  if  unmarried,  or  $2,000  or  over,  if  married,  return  must  be  made  by 
executor  or  administrator,  who  may  claim  all  deductions  and  exemptions  to  which 
decedent  would  have  been  entitled;  executors  and  administrators  whose  duty  con- 
sists of  administering  on  estate  for  purposes  of  its  distribution  stand,  during  period 
of  administration,  instead  of  their  principal,  and  must  make  returns  of  income  for 
estate,  and  pay  tax  due.     (T.  D.  2690;  art.  4.) 

Administrators  or  executors  may,  upon  final  accounting,  file  return  for  income  of 
estate  for  calendar  year  in  which  administration  was  closed,  attaching  thereto  copy 
of  certificate,  under  seal,  setting  forth  fact  of  final  accounting  and  discharge;  liabil- 
ity for  return  is  fixed  as  of  December  31,  and  return  will  be  required  in  accordance 
with  provisions  of  law  existing  on  that  date.     (T.  D.  2690;  art.  26.) 

An  executor  acts  for  his  principal  and  not  for  the  beneficiaries  of  the  estate  of  his 
principal,  and  beneficiaries  are  not  entitled,  as  such,  to  inspect  returns  filed  bv  such 
executor.     (T.  D.  2690;  art.  26.) 

Ancillary  administrator  is  merely  an  agent  of  the  domiciliary  administrator  and 
should  transmit  to  him  all  Information  as  to  income  of  estate  received  by  ancillary 
administrator,  so  that  original  administrator  may  make  return  covering  entire 
income  of  estate.     (T.  D.  2690;  art.  26.) 

Where,  during  period  of  administration,  executor  converts  estate  into  money  to 
settle  estate  and  close  administration,  realizing  a  profit  which  with  other  income 
exceeds  $1,000,  return  should  be  made  covering  period  of  administration,  in  which 
should  be  included  all  gains,  profits  and  income  during  such  period.  (T.  D.  2690; 
art.  29.) 

■ Incompetents. 

Committee  of  property  of  incompetent  person  to  be  fiduciary  for  purpose  of  income 
tax  and  required  to  make  return  on  Form  1040,  revised,  for  incompetent,  whenever 
amount  of  income  is  sufficient  to  require  same.     (T.  D.  2690;  art.  29.) 

Joint  fiduciaries. 

Return  by  one  of  two  or  more  joint  fiduciaries  in  form  prescribed,  filed  in  district 
in  which  such  fiduciary  resides,  shall  be  sufficient  compliance  with  requirement  for 
fiduciary  return.     (T.    D.  2690;  art.  29.) 

—  Marital  status  of  beneficiaries. 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returns 
according  to  marital  status  of  beneficiary;  whenever  interest  of  beneficiary  in  net 
income  of  estate  or  trust  is  $1,000  or  over  for  an  unmarried  beneficiary,  or  in  case  of 
married  beneficiary,  whenever  interest  is  $2,000  or  over,  fiduciaries  are  required  to 
make  return.     (T.  D.  2690;  art.  27.) 

Nonresident  alien  beneficiaries. 

Where  beneficiary  is  nonresident  alien  individual,  tax  is  to  be  accounted  for  by 
fiduciary  on  return  of  income  for  such  nonresident  alien  beneficiary,  on  income  tax 
Form  1040  or  1040A,  as  case  may  be.     (T.  D.  2690;  art.  28.) 

Where  fiduciary  in  United  States  is  recipient  of  trust  income  for  M^hich  a  nonresi- 
dent alien  is  the  sole  beneficiary,  fiduciary  required  to  make  full  and  complete  re- 
turn on  Form  1040  or  1040A,  as  case  may  be,  for  such  income  on  behalf  of  nonresident 
alien,  and  pay  any  and  all  normal  tax  found  by  such  return  to  be  due,  and  any 
and  all  surtax,  proAdded  the  income  is  not  returned  for  the  purpose  of  the  tax  by 
the  beneficiary;  where  there  are  two  or  more  beneficiaries,  one  or  all  of  whom  are 
nonresident  aliens,  fiduciary  shall  render  return  on  Form  1041.  and  personal  return 
on  Form  1040  or  1040A.  for  each  nonresident  alien  beneficiary.  (T.  D.  2690,  art.  29, 
as  amended  by  T.  D.  2988;  Mar.  3,  1920.) 


INCOME   TAXES    (INDIVIDUALS).  393 

Returns — rontimied. 

Fiduciaries — ("ontinued. 

Oath. 

Fiduciary  making  return  shall  make  oath  that  he  has  eufficient  knowledge  of 
affairs  of  person,  trust,  or  estate  lor  v,hon)  or  which  he  acts  to  enable  him  to  make 
return,  and  that  same  is  to  besi  of  his  knowledge  and  belief  true  and  correct.  (T. 
D.  2690;  art.  29.) 

■ Parent  and  child. 

In<(>nie  received  by  minor  child  from  sources  other  than  parent  should  be  in- 
cluded by  parent  in  his  return;  fact  that  .«uch  income  is  ni.t  appropriated  by  parent 
is  immaterial;  where  income  is  from  se]>arate  estate  and  [larent  has  been  appointed 
guaniiaa  and  conditions  are  .«uch  that  income  sn  received  is  to  be  held  for  use  of 
chil(!,  it  shall  not  be  included  in  parent's  return,  )>ut  shall  be  accounted  for  other- 
wise (nr  purposes  of  tax,  in  manner  and  form  as  called  iV.r  by  facts  of  particular  case. 
(T.  1).  2690;  art.  29.) 

Power  of  attorney. 

Fiduciary  relationship  for  purposes  of  income  tax  can  not  be  created  by  power  of 
attorney;  agent  with  authnrity  to  effect  leases  with  tenants  entirely  on  his  own 
res])onsibility,  paying  all  charges  in  connection  with  property  out  of  rent  funds, 
mt^rely  turning  over  net  profits  to  principal  by  virtue  of  authority  confererd  by 
power  of  attoinej^,  is  not  a  fiduciary  within  the  income-tax  law;  in  all  cases  where 
no  legal  trust  has  been  created  in  the  estate  controlled  by  the  agent  and  attorney 
liability  under  the  law  rests  M'ith  tlie  principal.     (T.  D.  2690;  art.  29.) 

— —  Several  estates. 

Fiduciary  acting  for  beneficiary  in  more  than  one  estate  or  trust  is  required  to 
account  for  each  estate  separateh'  when  amounts  are  such  as  to  require  filing  of  a 
return  and  also  a  return  of  information;  fiduciary  acting  for  minor  or  insane  person 
haA'ing  net  income  of  $1,000  or  $2,000,  according  to  marital  status  of  such  person, 
required  also  to  file  return  for  such  incompetent  on  Form  1040  or  1040A  and  pay 
tax  found  to  be  due,  when  there  is  more  than  one  beneficiary  of  the  income  of  the 
same  trust.     (T.  D.  2690;  art.  29.) 

Taxes  paid. 

All  fiduciaries  are  indemnified  against  claims  or  demands  of  their  beneficiary  for 
all  pajments  of  taxes  which  they  shall  be  required  to  make,  and  they  shall  be  cred- 
ited for  such  payments  in  any  accounting  which  they  make  as  euch  fiduciaries. 
(T.  D.  2690;  art.  29.) 

• Trust  estates  as  entities. 

^\^lere,  in  case  of  more  than  one  trust,  creator  in  each  instance  is  same  person 
and  trustee  in  each  instance  is  the  same,  trustee  should  make  single  return  on  Form 
1041  for  all  trusts  in  his  hands,  notwithstanding  fact  that  they  arise  from  different 
instruments;  when  trusts  are  created  by  different  persons  for  benefit  of  same  bene- 
ficiary, trustee  should  make  return  for  each  trust  separately  on  Form  1041.  (T.  D. 
2690;\xrt.  29.) 

Where  income  under  the  provisions  of  section  2  (b)  of  the  act  of  September  8, 
1916,  is  accounted  for  in  return  by  the  executor,  administrator,  or  trustee,  and  the 
tax  shall  have  been  assessed  and  paid,  income  is  therefore  freed  of  all  tax  liability; 
return  on  Form  1040  or  1040A,  subject  to  all  deductions  and  exemptions,  shall  be 
made  by  executor  or  administrator  for  estate  during  period  of  administration  and 
entire  tax  paid  thereon.     (T.  D.  2690;  art.  29.) 

■ Unascertained  beneficiaries. 

Income  accumulated  in  trust  for  unascertained  persons  or  persons  with  contingent 
interests  is  income  accruing  to  the  estate  and  is  taxable  to  the  estate.  (T.  D.  2690; 
art.  29.) 

Undistributed  income. 

Income  held  for  future  distribution  under  terms  of  will  or  trust  is  taxable  to  the 
estate  except  when  returned  by  the  beneficiary  for  the  purpose  of  the  tax.  (T.  D. 
2690;  art.  29.) 

• Forms. 

Forms  of  returns  are  provided  by  Commissioner  of  Internal  Revenue  and  are  to 
be  had  from  collectors  of  internal  revenue  of  the  several  collection  districts.  (T.  D. 
2690;  art.  23.) 


394  INCOME   TAXES    (INDIVIDUALS). 

B  e  turns — Continued . 

Forwarding. 

Annual  returns  \^^ll  be  forwarded  by  collectors  by  registered  mail  or  express  to 
Commissioner  of  Internal  Revenue,  with  list  for  month  in  which  returns  are  filed; 
collectors  must  provide  that  said  returns  and  all  forms  relating  thereto  are  securely 
sealed  in  envelopes  or  packages  before  forwarding  the  same.     (T.  D.  2690;  art.  25.) 

Fraud. 

In  cases  of  intentional  or  fraudulent  return,  Commissioner  shall,  upon  discovery 
thereof,  at  any  time  within  three  years  after  paid  return  is  due  or  has  been  made  make 
return  upon  information  obtained  as  provided  for  by  law,  or  require  necessary  cor- 
recti'-'us  to  be  made,  and  assessment  thereof  shall  be  paid  immediately  upon  noti- 
fication of  amount  thereof;  if  assessment  remains  unpaid  for  10  days  after  notice 
and  demand,  there  shall  be  added  stated  penalties  and  interest.  (T.  D.  2690; 
art.  42.) 

Penalties  for  false  or  fraudulent  return  or  statement,  wilfully  made  with  intent 
to  defeat  or  evade  assefsment  of  tax,  are  100  per  cent  to  be  added  to  amount  of  tax 
shown  by  correct  return,  and  the  specific  penalty  of  a  fine  as  for  misdemeanor,  not 
exceeding  $2,000,  or  imprisonment  not  exceeding  one  year,  or  both,  in  discretion 
of  court,  with  costs  of  prosecution.     (T.  D.  2690;  art.  53.) 

Any  person  required  by  law  to  make,  render,  sign,  or  verify  any  return,  who 
makes  any  false  or  fraudulent  return  or  statement  with  the  intent  to  defeat  or  evade 
the  assessment  required  by  Parts  II  and  III  of  Title  I  of  the  act  of  September  8, 
1916,  shall  be  guilty  of  a  misdemeanor  and  shall  be  fined  not  exceeding  $2,000,  or 
be  imprisoned  not  exceeding  one  year,  or  both,  at  the  discretion  of  the  court,  vnth 
costs  of  prosecution.     (T.  D.  2690;  art.  232.) 

Gifts. 

In  connection  with  claim  for  deduction  of  contributions  or  gifts  on  returns  of  in- 
come there  shall  be  stated  name  and  address  of  each  organization  to  which  gift  was 
made,  and  the  date  and  amount  of  the  gift  in  each  case;  where  gift  is  other  than  money 
basis  for  calculation  of  value  shall  be  fair  market  value  of  property  subject  to  gift 
at  time  of  gift.     (T.  D.  2690;  art.  8.) 

Husband  and  wife. 

Unless  wife  has  separate  estate  requiring  her  to  file  separate  return  or  to  join  with 
her  husband  in  return  which  shall  set  forth  hor  income  separately,  husband  should 
include  in  return  income  accruing  to  wife  for  services  rendered  by  her,  or  sale  of 
product  of  her  labor;  actual  proceeds  coming  into  wife's  possession  during  tax  year 
constitute  income  to  be  included,  and  n-.it  amount  estimated  upon  acceptance  prior 
to  payment  for  articles  sold.     (T.  D.  2690;  art.  26.) 

^\^iere  husband  and  wife  file  separate  returns,  one  being  filed  in  time  and  other 
delinquent,  such  returns  are  not  supplemental  of  each  other  and  delinquency 
must  be  answered  for  by  one  in  connection  with  whose  return  it  occurred.  (T.  D. 
2690;  art.  26.) 

Exemption  allowed  husband  and  wife  living  together  may  be  taken  by  one  or 
divided  between  them  in  such  ratio  as  they  may  determine.  (T.  D.  2690;  art. 
26.) 

• Illness  or  absence. 

Return  may  be  made  by  an  agent  when  by  reason  of  illness,  absence,  or  nonresi- 
dence  person  liable  for  return  is  unable  to  make  same,  agent  assuming  reppon.^i- 
bility  of  making  return  and  incurring  penalties  provided  for  intentional  false  <  r 
fraudulent  return;  in  case  of  sickness  or  absence  of  citizens  and  residents  extension 
not  exceeding  30  days  may  be  granted.     (T.  D.  2690;  art.  22.) 

Inspection. 

Except  as  otherwise  provided.  Commissioner  may,  in  his  discretion,  upon  written 
application  setting  forth  fully  reasons  for  request,  grant  permission  for  inspection 
of  returns;  application  will  be  considered  by  Commissioner  and  decision  reached  l)y 
him  whether  applicant  has  met  conditions  imposed  by  regulations  and  whether 
reasons  advanced  for  permission  to  inspect  are  sufficient  to  permit  the  inspection; 
such  written  application  is  not  required  of  officers  and  employees  of  the  Treasury 
Department  whose  official  duties  require  inspection  of  a  return,  or  of  the  Solicitor 
of  Internal  Revenue.     (T.  D.  2961;  Jan.  7,  1920.) 

When  head  of  executive  department  (other  than  Treasury  Department)  or  any 
other  United  States  Government  establishment,  desires  inspection  of  return  in 


INCOME   TAXES    (INDIVIDUALS).  395 

Returns — Continued . 

Inspection — Continued. 

connection  with  some  matter  officially  before  him,  the  inspection  may,  in  discretion 
of  Secretary  of  the  Treasury,  be  permitted  upon  written  application  to  him  by 
head  of  such  department  or  other  Government  establishment,  such  application  lo 
be  signed  by  such  head  and  to  show  why  inspection  is  desired,  name  and  addre=^==  ^if 
taxpayer  who  made  return,  and  name  and  oflicial  designation  of  one  it  is  do--iieil 
shall  inspect  the  return;  the  reason  submitted  for  permission  to  inspect  the  return 
shall  be  considered  by  the  Secretary  and  decision  reached  by  him  whether  reason? 
are  sufficient  to  permit  inspection.     (T.  D.  2901;  Jan.  7,  1920.) 

Return  of  partnership  shall  be  open  to  inspection  by  officers  and  employees  of 
Treasury  Department  whose  official  duties  require  such  inspection  and  by  tl  o 
Solicitor  of  Internal  Revenue;  and  by  any  individual  (or  his  duly  constituted 
attorney  in  fact  or  legal  representative)  who  was  member  of  such  partnership  during 
any  part  of  time  covered  by  the  return,  upon  satisfactory  evidence  of  such  fact 
being  furnished.     (T.  D.  2961;  Jan.  7,  1920.) 

Joint  return  of  husband  and  wife  shall  be  open  to  inspection  by  officers  and 
employees  of  Treasury  Department  whose  official  duties  require  such  inspection, 
and  by  the  Solicitor  of  Internal  Revenue;  and  by  either  spouse  for  whom  return 
was  made  or  his  or  her  dulv  constituted  attorney,  upon  satisfactory  evidence  of  such 
relationship  being  furnished.     (T.  D.  2961;  Jan.  7,  1920.) 

Return  of  individual  is  open  to  inspection  by  officers  and  employees  of  Treasury 
Department  whose  official  duties  require  such  inspection  and  by  the  Solicitor  of 
Internal  Revenue;  by  person  who  made  return,  or  by  his  duly  constituted  attorney 
in  fact;  by  administrator,  executor  or  trustee  of  taxpayer's  estate,  or  by  duly  con- 
stituted attorney  in  ^nct  of  such  administrator,  executor  or  trustee,  where  maker  of 
return  has  died;  and.  in  discretion  of  Commissioner,  by  one  of  the  heirs  at  law  or 
next  of  kin  of  such  di-ceased  person  upon  shomng  that  he  has  a  material  interest 
which  will  be  affected  by  information  contained  in  return.  (T.  D.  2961;  Jan.  7, 
1920.) 

A  person  who,  under  the  Regulations,  is  permitted  to  inspect  a  retvirn  may  make 
and  take  copy  thereof  or  memorandum  of  data  contained  therein.  (T.  D.  2961; 
Jan.  7,  1920.) 

Except  as  to  retiu-ns  or  copies  thereof  for  use  in  legal  proceedings,  returns  may 
be  inspected  only  in  the  ofiice  of  Commissioner  of  Internal  Revenue,  Washington, 
D.  C.     (T.  D.  2961;  Jan.  7,  1920.) 

When  it  becomes  necessary  for  the  department  to  furnish  returns  or  copies  thereof 
for  use  in  legal  proceedings,  inspection  of  such  returns  or  copies  that  necessarily 
results  from  such  use  is  permitted.     (T.  D.  2961;  Jan.  7,  1920.) 

Written  statement  filed  with  Commissioner  designed  to  be  supplemental  to  and 
to  become  part  of  tax  return  shall  be  subject  to  same  rules  and  regulations  as  to 
inspection  as  are  tax  returns  themselves.     (T.  D.  2961;  Jan.  7,  1920.) 

Interest. 

\Mierever  income  of  individual  is  from  tax-exempt  bonds,  and  amount  of  income 
other  than  that  from  tax-exempt  securities  is  less  than  amount  of  income  for  which 
return  is  required,  no  return  is  to  be  made;  interest  from  securities  exempt  under 
section  4  of  the  law  is  not  to  be  included  in  returns.     (T.  D.  2690;  art.  26.) 

Mineral  properties. 

Operator  of  mining  properties,  or  lessee  thereof,  required  to  attach  to  his  return 
statement  setting  out  certain  specified  data.     (T.  D.  2690;  art.  172.) 

• Nonresident  aliens. 

In  order  that  nonresident  alien  may  have  benefit  of  deductions  and  credits  pr;- 
vided  by  article  11  of  Regulations  No.  33,  he  must  file  or  cause  to  be  filed  true  and 
accurate  return  of  total  income  from  all  sources  in  United  States,  and  in  case  of 
failure  to  file  return  tax  will  be  collected  on  gross  income  from  all  such  sources. 
(T.  D.  2690;  art.  12.) 

When  all  income  tax  to  which  income  of  nonresident  alien  is  subject  is  not  with- 
held at  source,  return  will  be  required  to  be  filed  by  or  on  behalf  of  said  alien,  and 
penalty  for  failure  to  make  return  in  time  will  attach.     (T.  D.  2690;  art.  13.) 

Agent  of  nonresident  alien  is  responsible  for  correct  return  of  all  income  accruing 
to  his  principal  within  purview  of  the  agency,  and  agent  will  be  responsible  for  com- 
plete return;  agency  appointment  will  determine  how  completely  the  agent  is 
substituted  for  the  principal  for  income-tax  purposes.     (T.  D.  2690;  art.  32.) 


396  INCOME   TAXES    (INDIVIDUALS). 

Returns — Continued . 

Nonresident  aliens — Continiied. 

In  all  cases  proper  repvesentatlAe  in  United  States  of  a  nonresident  alien,  with 
respect  to  income  derlAed  by  sucli  alien  from  sources  \dthin  the  United  States,  shall 
make  reuirn  for  such  nonresident  of  all  such  income  coming  into  his  custody  or  con- 
trol.    (T.  D.  2690;   art.  32.) 

Responsible  heads  or  representatives  of  nonresident  aliens  in  connection  with  any 
sources  which  said  aliens  may  have  in  United  States  shall  make  full  and  complete 
return  of  income  and  shall  pay  any  and  all  tax,  normal  and  additional,  assessed  upon 
income  received  by  them  in  behalf  of  their  principals,  in  all  cases  where  tax  on  in- 
come so  in  their  receipt,  custody,  or  control  shall  not  have  been  withheld  at  source. 
(T.  D.  2690;   art..  32.) 

■^liere  amount  of  income  is  such  as  to  call  for  additional  tax  and  return  shall  not 
be  filed,  commissioner  will  cause  return  to  be  made,  and  include  therein  income  of 
nonresident  alien  from  all  sources  concerning  which  he  has  information.  (T.  D. 
2690;   art.  32.) 

Where  actual  owner  of  stock  of  domestic  corporation  or  resident  alien  corporation 
is  nonresident  alien  individual  or  corporation,  and  record  owner  is  an  individual, 
Jirm,  or  corporation  in  the  United  States  (citizen  or  resident  alien)  and  showing  of 
actual  ownership  is  made,  record  owner  will  be  held  to  have  receipt,  custody,  control, 
and  disposal  of  di\-idend  income  and  ^\'ill  be  required  to  make  return  for  actual 
owner.     (T.  D.  2690;   art.  32.) 

\Miere  actual  owner  of  stock  of  domestic  corporation  or  resident  alien  corporation  is 
nonresident  alien  corjioration,  return  will  be  made  legardless  of  amount  of  dividend 
and  normal  income  tax  will  be  paid,  and  when  actual  owner  is  nonresident  alien  in- 
dividual return  will  be  made  regardless  of  amount  of  income.     (T.  D.  2690;  art.  32.) 

\\'hen  it  shall  appear  from  disclosure  that  actual  owner  of  stock  of  domestic  cor- 
poration or  resident  alien  corporation  is  nonresident  alien  partnership,  all  certif  cates 
making  disclosure  shall  be  transferred  to  the  commissioner  for  information  of  col- 
lector, but  no  return  will  be  made  by  such  partnership,  and  no  amount  will  be  re- 
tained by  the  representative  of  such  partnership  in  the  United  States,  unless  and 
until  such  representative  shall  be  so  instructed  by  the  commissioner.  (T.  D.  2690; 
art.  32.) 

When  nonresident  alien  record  owner  of  stock  of  domestic  or  resident  corporation 
is  an  organization  subject  to  ^dthholding  at  source  of  dividend  payments,  but  is  not 
actual  owner  of  stock,  such  record  owner  may  make  disclosure  of  actual  ownership, 
in  which  case  said  domestic  or  resident  corporation  will  be  governed  by  the  estab- 
lished facts.     (T.  D.  2690;  art.  32.) 

]f  record  owner  does  not  exercise  right  to  disclose  actual  ownership  for  purpose  of 
claiming  exemption  from  haA'ing  tax  withheld  at  source,  debtor  corporations  and 
their  withholding  agents  in  United  States  will  be  held  liable  on  their  stock  records  of 
ownership  for  tax  required  t«  be  withheld  by  section  13  (f )  of  the  act  of  September 
8,  1916.     (T.  D.  2690;   art.  32.) 

In  absence  of  disclosure  of  actual  ownership  filed  with  debtor  corporations  or  their 
withholding  agents,  normal  tax  required  to  be  ^\ithheld  in  accordance  with  stock 
records  of  ownership  can  only  be  released  to  record  owner  not  liable  for  tax  upon 
proper  showing  to  Commissioner  of  record  and  actual  ownership  names  and  post- 
oiiice  addresses  of  debtor  corporations  and  withholding  agents,  and  amounts  with- 
held.    (T.  D.  2690;  art.  32.) 

Xonresident  aliens  not  required  to  make  return  of  any  of  the  cla.sses  of  income 
specified  by  section  4  of  the  act  of  September  8.  1916,  as  amended,  and  received  by 
them  from  sources  within  the  United  States.     (T.  I).  2690;  art.  32.) 

"ITie  record  owner  is  held  to  be  "the  proper  representative  having  the  receipt, 
custody,  control  or  disposal "  of  income  of  the  actual  owner,  and  is  required  to  file 
return  for  or  on  behalf  of  the  actual  owner  for  purpose  of  assessment  of  tax  not  with- 
held at  the  source ;  when  return  is  not  required  to  be  filed  by  or  on  behalf  of  actual 
owner,  showing  may  be  made  upon  certification  of  the  record  owner.  (T.  D.  2690; 
art.  32.) 

Nonresident  alien  shall  make  full  and  accurate  return  of  all  net  income  received 
from  sources  within  United  States,  regardless  of  amount,  unless  tax  on  such  income 
has  been  fully  paid  at  source.     (T.  D.  2690;  art.  32.) 
— —  Notice. 

In  cases  of  refusal  or  neglect  to  make  return  and  in  cases  of  intentional  or  fraudu- 
lent return.  Commissioner  shall,  upon  discovery  thereof,  at  any  time  within  three 
years  after  said  return  is  due  or  has  been  made  make  return  upon  information 
obtained  as  Dro\ided  for  by  law.  or  require  necessary  corrections  to  be  made,  and 


INCOME   TAXES    (INDIVIDUALS).  39.7 

Returns — Continued . 

Notice — Continued. 

assepsment  thereon  shall  be  paid  immediately  upon  notification  of  amount 
thereof;  if  assessment  remains  unpaid  for  10  days  after  notice  and  demand  there 
t*hall  be  added  stated  penalties  and  interest.     (T.  D.  2690;   art.  42.) 

The  noticG'from  the  collector,  provided  for  in  subsection  3176  of  section  16  of  the 
act  of  8epteml)er  8.  1916.  is  the  note  or  memorandum  prescribed  by  eubsection  3173 
of  said  section.     (T.  D.  2690;  art.  54.) 

Oil  and  gas  properties. 

Individual  or  coip  iralion  owning  and  operating  oil  or  gas  properties  required  to 
attach  to  each  return  a  statement  sho\ving  certain  specified  dat/i:  if  operator  is  lessee 
that  fact  should  be  stated,  and  to  return  made  by  such  lessee  there  should  be  attached 
a  statement  showing  certain  specified  matters.'    (T.  D.  2690;  art.  170.) 

Partners. 

Income  of  partnership  accrues  to  indi^'idllal  partner  at  time  hie  distributive  in- 
terest is  determined;  returns  by  individuids  shcaild  include  incomes  accruing  from 
business  of  partnerships  for  business  years  i>\  p.irtnerships  as  may  have  been  defi- 
nitely ascertained  by  means  of  book  balance,  whether  distributed  or  not;  partnera 
must  make  returns  of  income  as  indiAiduals,  for  calendar  >'ear,  and  should  include 
their  interest  in  profits  ascertaiTied  at  end  of  business  year  falling  M-ithin  calendar 
year  for  which  indi\idual  return  is  being  rendered.     (T.  I>.  2690;   art.  4.) 

WTiere  result  of  partnership  operation  is  net  loss,  loss  will  be  divisible  between 
partners  in  same  proportion  as  net  income  would  have  been  di\'i8ible,  and  may  be 
used  by  individual  partners  in  their  returns  of  income.     (T.  D.  2690;   art.  30.  f 

Iudi^•iduals  entitled  to  share  in  partnership  net  income  required  to  include  in 
their  returns  their  respective  shares  of  such  net  income,  whether  distributed  or  not; 
partners  will  exclude  such  part  of  net  income  as  may  have  fceen  received  by  partner- 
ship from  sources  exempt  from  tax  under  section  4  of  the  act  of  September  8,  1916,  as 
amended,  and  which  shall  have  been  included  by  partnership  in  its  statement  of  net 
income  distributed  to  partners;  partners  shall  include  proportionate  share  of  part- 
nership net  income  derived  from  dividends.     (T.  D.  2690;  art.  30.) 

Partnership  shall  have  pri^ilege  of  fixing  and  making  return  on  basis  of  tiscal 
year;  if  fiscal  year  (other  than  calendar  year  i  ends  in  a  calendar  year  for  which  the-e 
is  a  rate  of  tax  different  from  the  rate  for  p-eceding  calendar  year,  each  partner's 
share  of  partnership  profits  shall  be  divided  m  proportion  of  different  calendar  \ear8 
composing  said  fiscal  year,  and  rate  of  tax  for  respective  calendar  years  shall  apply 
to  that  part  of  such  profits  as  thus  falls  Mithin  said  calendar  years;  partnership  may 
designate  last  day  of  any  month  as  close  of  fiscal  year,  and  in  each  case  where  fiscal 
year  differs  from  calendar  year  partnership  shall,  not  less  than  30  days  prior  to  March 
i,  giA'e  notice  in  writing  to  collector  that  day  thus  designated  is  closing  day  of  fiscal 
year.     (T.  D.  2690;  art.  31.) 

Income  received  by  members  out  of  earnings  of  limited  partnerships  will  be 
treated  in  their  personal  returns  in  same  manner  as  if  it  were  dividends  on  stock  of 
corporations  and  will  be  subject  to  additional  or  surtaxes  in  hands  of  recipient. 
(T.  D.  2690;   art.  62.) 

• Penalties — Delay  in  filing. 

\Mien  all  income  tax  to  which  income  of  nonresident  alien  is  s\ibject  is  not  with- 
held at  source,  return  will  be  required  to  be  filed  by  or  on  behalf  of  said  alien,  and 
penalty  for  failure  to  make  return  in  time  will  attach.     (T.  D.  2690;  art.  13.) 

In  cases  of  intentional  or  fraudulent  return,  Commissioner  shall,  upon  discovery 
thereof,  at  any  time  within  three  vears  after  said  return  is  due  or  has  been  made 
make  return  upon  information  obtained  as  pro\dded  for  by  law,  or  require  necessary 
corrections  to  be  made,  and  assessment  thereon  shall  be  paid  immediately  upon 
notification  of  amount  thereof;  if  assessment  remains  unpaid  for  10  days  after  no- 
tice and  demand  there  shall  be  added  stated  penalties  and  interest.  (T.  D.  2690; 
art.  42.) 

If  return  is  made  and  placed  in  the  United  States  mail,  properly  addressed,  and 
postage  paid,  in  ample  time,  in  due  course  of  mail,  to  reach  office  of  collector  or 
deputy  collector,  on  or  before  last  due  date,  no  penally  will  attach  should  return  not 
be  actually  received  by  such  officer  until  subsequent  to  that  date.  (T,  D.  2690;  art. 
52.) 

AMiere  limitation  of  statute  as  to  assessment  has  run.  and  written  waiver  of  exemp- 
tion from  assessment  is  given  by  taxpayer,  the  ad  valorem  penalties  of  50  per  cent, 
addition  to  tax,  is  not  to  be  assessed  for  delinquency  in  filing  return.  (T.  D.  2690; 
art.  52.) 


398  INCOME   TAXES    (INDIVIDUALS), 

Returns — Continued . 

Penalties — Delay  in  filing — Continued. 

Penalties  for  failure  to. make  return  within  time  fixed  by  law  are  50  per  cent  of  the 
amount  of  tax  shown  by  correct  return,  besides  the  specific  penalty  of  not  less  than 
$20  nor  more  than  $1,000;  specific  penalties  attach  to  person,  and  in  case  of  death  of 
such  person  are  nonenforceal)le;  ad  valorem  penalties  attach  to  income  and  are  to 
to  be  enforced  regardless  of  the  death  of  the  owner  of  the  income  by  which  penalty 
is  measu-ed.     (T.  D.  2G90;  art.  52.) 

In  cases  of  refusal  or  neglect  to  make  return  Commissioner  shall,  upon  discovery 
thereof,  at  any  time  within  three  years  after  said  return  is  due  or  has  been  made 
make  return  upon  information  obtained  as  provided  for  by  law,  or  require  necessary 
corrections  to  be  made  and  assessment  thereon  shall  be  paid  immediately  upon 
notification  of  amount  thereof;  if  assessment  remains  unpaid  for  10  days  after  notice 
and  demand  there  shall  be  added  stated  penalties  and  interest.     (T.  D.  2690;  art.  42.) 

Penalties  for  false  or  fraudulent  return  or  statement,  wilfully  made  with  intent 
to  defeat  or  evade  assessment  of  tax  are  100  per  cent  to  be  added  to  amount  of  tax 
Bhown  by  correct  return,  and  the  specific  penalty  of  a  fine  as  for  misdemeanor,  not 
exceeding  one  year,  or  both,  in  discretion  of  court,  with  costs  of  prosecution.  (T.  D. 
2690;  art.  53.) 

Any  person  required  by  law  to  make,  render,  sign,  or  verify  any  return,  who 
makes  any  false  or  fraudulent  return  or  statement  with  the  intent  to  defeat  or  evade 
the  asi^essment  required  by  Parts  II  and  III  of  Title  I  of  the  act  of  September  8, 
1916,  shall  be  guilty  of  a  misdemeanor  and  shall  be  fined  not  exceeding  $2,000,  or  be 
imprisoned  not  exceeding  one  year,  or  both,  at  the  discretion  of  the  court,  with 
costs  of  prosecution.     (T.  D.  2690;  art.  232.) 

Persons  required  to  make. 

In  case  of  citizens  and  resident  aUens  returns  are  required  of  all  unmarried  per- 
sons of  lawful  age  ha\ing  net  income  of  $1,000  or  over;  of  all  married  persons  having 
net  income  of  $2,000  or  over;  heads  of  families  who  are  married  having  net  income 
of  $2,000  or  over;  heads  of  families  who  are  unmarried,  ha^dng  net  income  of  $1,OGO 
or  over,  though  basic  exemption  which  may  be  claimed  in  return  of  income  will 
be  $2,000.     (T.  D.  2C90;  art.  26.) 

Place  of  filing. 

Returns  must  be  filed  with  collector  for  district  in  which  person  has  legal  resi- 
dence or  principal  place  of  business,  or,  in  absence  of  same  in  the  United  States, 
then  with  collector  of  internal  revenue  at  Baltimore,  Md.;  returns  shall  be  in  such 
form  as  shall  be  prescribed  by  Commissioner  of  Internal  Revenue  with  approval 
of  Secretary  of  Treasury.     (T."D.  2690;  art.  26.) 

Persons  in  military  or  naval  service  of  United  States  may  file  their  returns  with 
collector  of  district  in  which  they  have  a  legal  residence  or  with  collector  at  Balti- 
more, Md.     (T.  D.  2690;  art.  26'.) 

• Receivers. 

Receivers  who  as  officers  of  court  stand  in  the  stead  of  some  principal  must  account 
for  income  tax  as  principal  would  have  been  required  to  account.  (T.  D.  2690; 
art.  26.) 

Stock  dividends. 

Stock  dividends  declared  from  surplus  created  from  revaluation  of  capital  assets 
or  value  placed  upon  trade-mark,  good  will,  etc.,  do  not  represent  distribution  of 
earnings  or  profits  subject  to  tax  in  hands  of  shareholder;  entire  proceeds  derived  by 
shareholder  from  sale  of  such  stock  is  income  subject  to  both  normal  and  additional 
tax  and  must  be  accounted  for  in  shareholder 's  return  for  year  in  which  sold.  (T.  D. 
2690;  art.  4.) 

Time. 

Pro\dsions  of  T.  D.  2581  made  applicable  to  returns  by  American  citizens  residing 
or  traveling  abroad,  including  persons  in  military  or  naval  establishments,  sta- 
tioned or  on  duty  beyond  limits  of  the  States  and  Territories  of  Hawaii  and  Alaska; 
any  such  person  filing  return  after  April  1,  1918,  but  on  or  before  October  1,  1918, 
embodying  therein  or  attaching  thereto  written  statement  showing  that  he  comes 
within  classes  designated  by  T.  D.  2581,  need  not  file  supporting  affidavit  required 
by  that  decision.    (T.  D,  2672;  Mar.  16,  1918.) 


INCOME   TAXES    (INDIVIDUALS).  399 

E.  e  turns — Continued . 
• Time — Continued . 

When  all  income  tax  to  which  income  of  nonresident  alien  ia  subject  is  not  mth- 
held  at  source,  return  will  be  required  to  be  filed  by  or  on  behalf  of  said  alien  and 
penalty  for  failure  to  make  return  in  time  mil  attach.     (T.  D.  2690;  art.  13.) 

Return  must  be  filed  at  close  of  calendar  year  and  on  or  before  March  1,  annually. 
(T.  D.  2690;  art.  21.) 

Where  husband  and  wife  file  separate  returns,  one  being  filed  in  time  and  other 
delinquent,  such  returns  are  not  supplemental  of  each  other  and  delinquency  must 
be  answered  for  by  one  in  connection  with  whose  return  it  occurred.  (T.  D.  2690; 
art.  26.) 

In  cases  of  refusal  or  neglect  to  make  return,  Commissioner  shall,  upon  discovery 
thereof,  at  any  time  within  three  years  after  said  return  is  due  or  has  been  made 
make  return  upon  information  obtained  as  provided  for  by  law  or  require  necessary 
corrections  to  be  made,  and  assessment  thereon  shall  be  paid  immediately  upon 
notification  of  amount  thereof;  if  assessment  remains  unpaid  for  10  days  after  notice 
and  demand  there  shall  be  added  stated  penalties  and  interest.     (T.  D.  2690;  art.  42.) 

Penalties  for  failure  to  make  return  within  time  fixed  by  law  are  50  per  cent  of 
the  amount  of  tax  shown  by  correct  return,  besides  the  specific  penalty  of  not  less 
than  $20  nor  more  than  $1,000;  specific  penalties  attach  to  person,  and  in  case  of 
death  of  such  person  are  nonenforceable;  ad  valorem  penalties  attach  to  income 
and  are  to  be  enforced  regardless  of  the  death  of  the  owner  of  the  income  by  which 
penalty  is  measured.     (T.  D.  2690;  art.  52.) 

Where  limitation  of  statute  as  to  assessment  has  run  and  written  waiver  of  exemp- 
tion from  assessment  is  given  by  taxpayer,  the  ad  valorem  penalties  of  50  per  cent 
addition  to  tax  is  not  to  be  assessed  for  delinquency  in  filing  return.  (T.  D.  2690; 
art.  52.) 

If  return  is  made  and  placed  in  the  United  States  mail,  properly  addressed  and 
postage  paid,  in  ample  time  in  due  course  of  mail  to  reach  ofiice  of  deputy  collector 
on  or  before  last  due  date,  no  penalty  will  attach  should  return  not  be  actually 
received  by  such  officer  until  subsequent  to  that  date.     (T.  D.  2690;  art.  52.) 

Extension. 

Time  for  making  returns  pursuant  to  requirements  of  Titles  I  and  II  of  the  act  of 
October  3,  1917,  in  case  of  corporations  whose  income  tax  returns  have  been  made, 
or  shall  be  made  upon  basis  of  fiscal  vear  ending  during  calendar  year  1917,  extended 
to  January  1,  1918.  (T.  D.  2561;  Oct.  16,  1917.)  Time  extended  to  February  1, 
1918.  Extension  applies  also  to  returns  of  annual  net  income  due  subsequent  to 
October  16,  1917,  but  prior  to  February  1, 1918.  (T.  D.  2615;  Dec.  13,  1917.)  Time 
extended  to  March  1,  1918.  Extension  also  applies  to  returns  of  annual  net  income 
due  subsequent  to  October  16,  1917,  but  prior  to  March  1,  1918.  (T.  D.  2633;  Jan. 
22, 1918.)  Time  extended  to  April  1, 1918,  and  extension  made  applicable  to  returns 
whether  made  on  basis  of  calendar  year  or  of  fiscal  year  ending  during  year  1917. 
(T.  D.  2650;  Feb.  9,  1918.) 

Extension  of  time  granted  for  such  period  as  may  be  necessary,  not  exceeding 
90  days  after  proclamation  by  President  of  end  of  war  with  Germany,  for  filing 
returns  of  income  for  1917  and  subsequent  years,  under  sections  6  (c),  8  (b)  (c),  and 
13  (b)  (c),  of  act  of  September  8, 1916,  as  amended,  and  under  war  income-tax  act  of 
October  3,  1917,  by  or  for  enemies  or  allies  of  enemies,  as  defined  by  section  2  of  the 
trading  with  the  enemy  act  of  October  6,  1917,  not  holding  license  granted  under 
such  act;  return  of  information  required;  duties  of  persons  controlling  money  or 
property  for  any  such  enemy  or  ally  of  enemy.     (T.  D.  2673;  Mar.  18,  1918.) 

Commissioner  of  Internal  Revenue  may,  in  his  discretion,  upon  application  there- 
for and  upon  satisfactory  showing,  grant  reasonable  extension  of  time  for  filing 
returns  by  persons  residing  or  traveling  abroad  who  are  unable  to  file  on  or  before 
March  1  of  each  year;  in  case  of  sickness  of  citizens  and  residents,  extension  not 
exceeding  30  days  may  be  granted.     (T.  D.  2690;  art.  22.) 

Reasonable  cause  for  delay. 

Delinquent  returns  must  be  accompanied  by  an  affirmative  showing  of  fact 
alleged  as  reasonable  cause  for  excuse  from  50  per  cent  penalty;  Commissioner  of 
Internal  Revenue  will  pass  upon  validity  of  the  showing  which  must  be  in  the  form 
of  an  affidavit,  under  oath,  and  should  be  attached  to  the  return;  the  penalty  of  50 
per  cent  "addition  to  tax"  will  be  asserted  in  all  cases  where  the  snowing"  made 
18  not  approved  by  the  Commissioner.     (T.  D.  2690;  art.  54.) 

The  words  "reasonable  cause,"  as  used  in  section  3176,  Revised  Statutes,  as 
amended  by  the  act  of  September  8,  1916,  providing  that  if  after  delinquency  has 


400  INCOME    TAXES     ( IKDIVJDUALS) . 

R  etums — rontinued . 

Time — Continued. 

Reasonable  cause  for  delay — Continued. 

ensued  and  before  receiving  notice  from  collector  of  such  delinquency  and  request 
for  return,  delinquent  shall  have  filed  his  return,  accompanied  with  showing  that 
failure  to  tile  in  time  was  due  to  reasonable  cause,  no  such  addition  sliall  be  made  to 
the  tax,  is  held  to  be  such  a  condition  of  fact  as  had  the  taxpayer  in  default  exer- 
cised ordinary  business  care  and  prudence  it  would  have  been  impracticable  or 
impossible  for  him  to  have  filed  return  on  prescribed  time.     (T.  D.  2690;  art.  54.) 

Verification. 

All  returns  must  be  verified  under  oath  or  affirmation;  persons  in  military  or  naval 
service  of  the  United  States  may  verify  returns  before  any  official  of  those  services 
authorized  to  administer  oaths  for  purposes  of  those  services;  returns  executed 
abroad  may  be  attested  free  of  charge  before  I'nited  States  consular  officers;  where 
foreign  notary  or  other  official  having  no  seal  shall  act  as  attesting  officer,  his  author- 
iiy  should  be  certified  to  by  some  judicial  official  or  other  proper  officer  having 
knowledge  of  appointment  and  official  character  of  attesting  officer.  (T.  D.  2690; 
art.  26.) 

Status  of  tax. 

Tax  due  on  income  has  status  of  a  debt  due  to  the  United  States;  persons  receiving 
property  charged  with  such  indebtedness  must  answer  for  the  debt.  (T.  D.  2690; 
art.  39.) 

Treasury  decisions — Date  effective. 

Treasury  decisions  promulgating  rulings  of  internal  revenue  bureau  become  effec- 
tive upon  "date of  approval,  unless  otherwise  stated  therein;  cases  pre^^ously  adjusted 
in  contravention  of  law  as  pronounced  in  such  decisions  are  subject  to  readustment 
in  accordance  with  the  decision.     (T.  D.  2690:  art.  38.) 

Withholding — Act  applicable. 

Until  January  1,  1918,  withholding  was  required  under  act  of  September  8,  1916, 
as  amended,  at  rate  of  2  per  cent;  on  and  after  January  1,  1918,  withholding  provi- 
sions of  law  as  to  citizens  and  resident  aliens  (sec.  9  (c),  act  Sept.  8,  1916,  as 
amended)  extended  to  normal  tax  imposed  by  section  1  of  the  act  of  October  3, 
1917;  thereafter  exemption  wliich  may  be  claimed  by  citizens  and  resident  aliens 
from  withholding  is  such  as  is  allowable  under  section  3  of  the  act  of  October  3,  1917. 
(T.  D.  2690;  art.  44.) 

Amount. 

Withholding  will  at  all  times  be  limited  to  2  per  cent,  except  in  case  of  interest  on 
corporate  bonds  owned  by  foreign  corporations  haA'ing  no  office  or  place  of  business 
in  the  United  States,  in  which  case  deduction  will  be  at  rate  of  6  per  cent.  (T.  D. 
2690;  art.  45.) 

Citizens  and  resident  aliens. 

Withholding  pro\'isions  of  sections  9  (h)  and  (c)  of  the  income  tax  law  apply  to  nor- 
mal income  tax  of  citizens  and  resident  aliens,  only  when  derived  from  interest  on 
bonds  and  mortgages,  deeds  of  trust,  or  other  similar  obligations  of  corporations, 
associations,  etc.,  which  have  a  "tax-free  covenant  clause,"  regardless  of  amount 
and  period  of  payment;  on  and  after  January  1,  1918,  normal  tax  of  2  per  cent  im- 
posed by  the  act  of  October  3,  1917,  is  the  tax  to  be  deducted  and  withheld  from 
citizens  or  residents  of  the  United  States  in  accordance  with  section  9  (c).  (T.  D. 
2690;  art.  43.) 

■ Foreign  items. 

See  "Ownership  certificates,"  under  this  subhead. 

• Forms. 

Forms  on  which  tax  withheld  from  income  is  to  be  accounted  for  and  those  used 
when  personal  exemption  is  claimed  and  when  no  personal  exemption  is  claimed, 
etc.,  stated.     (T.  D.  2690;  art.  43.) 

— —  Interest. 

Interest  received  from  deposits  in  banks  located  within  the  United  States  paid  to 
nonresident  alien  indi^iduals  and  corporations  constitutes  income  received  from 
resources  within  the  United  States  and  is  subject  to  withholding  proAisions  of  act  of 
October  3,  1917.     (T.  D.  2623;  Dec.  28,  1917.     T.  D.  2652;  Feb.  G.  1918.) 


INCOME   TAXES    (INDIVIDUALS).  401 

Withholding — Conliiuied. 
■ Nonresident  aliens. 

The  withholding  pro\^isions  of  sections  0  (b)  and  (c)  of  the  income  tax  law  apply  to 
the  normal  tax  levied  upon  entire  net  incoraeof  nonresident  aliens  of  a  fixed  or  deter- 
minable annual  or  periodical  class,  as  interest,  rent,  wages,  etc.,  received  by  them 
from  all  sources  within  United  States;  tax  to  be  deducted  and  withheld  from  indi- 
viduals for  1917  and  subserpieat  tax  years  is  the  2  per  cent  normal  tax  imposed  by 
the  act  of  September  8,  19LG,  as  amended.     (T.  D.  2693;  art.  4:3.) 

"Nonresident  alien  individual"  mexns  an  indi^dduxl  (a)  whose  residence  is  not 
within  the  United  States  and  (b)  who  is  not  a  citizen  of  the  United  States;  rules  for 
determining  residence  stated.     (T.  D.  2791;  Feb.  21,  1919.) 

Aliens  employed  in  the  Unite  1  States  are  prima  facie  regarded  as  nonresidents; 
if  wages  are  paid  without  withholding  tax,  the  employer  should  be  provided  with 
^vritten  proof  of  facts  which  overcome  the  presumption  that  such  alien  is  a  nonresi- 
dent.    (T.  D.  2794;  Feb.  21,  1919.) 

It  will  be  presumed  that  an  alien  who  has  established  a  residence  in  the  United 
States  continues  to  be  a  resident  until  he  or  his  family  evidence  an  intention  to 
change  residence  to  another  country  by  starting  to  remove.  (T.  D.  2794;  Feb.  21, 
1919.) 

Any  alien  living  in  United  States  who  is  not  a  mere  transient  is  a  resident  of  the 
United  States  for  purposes  of  the  income  tax;  whether  he  is  a  transient  or  not  is 
determined  by  his  intentions  with  regard  to  his  stay;  if  he  lives  in  the  United 
States  and  has  no  definite  intention  as  to  his  stay,  he  is  a  resident;  mere  floating 
intention,  indefinite  as  to  time,  to  return  to  another  country,  is  not  sufficient  to 
constitute  him  a  transient.     (T.  D.  2794;  Feb.  21,  1919.) 

An  alien's  statements  as  to  his  intention  with  regard  to  residence  are  not  con- 
clusive, but  when  une^iuivocal  will  determine  the  question  of  his  intention,  unless 
his  conduct,  acts,  or  other  surrounding  circumstances  contradict  the  statements; 
fact  that  alien's  family  is  abroad  does  not  necessarily  indicate  that  he  is  a  transient 
rather'than  a  resident;  alien  entering  this  country  intending  to  make  his  home  in 
foreign  country  as  soon  as  he  has  accumulated  money  sufficient  to  provide  for  his 
joiu'ney  abroad  is  to  be  considered  a  transient  provided  his  expectation  in  this 
regard  may  reasonably  be  fulfilled  within  comparatively  .short  time.  (T.  D.  2794; 
Feb.  21,  1919.) 

— —  Ownership  certificates. 

Where  substitute  certificate  (Form  1059)  has  been  used  in  connection  with  coupons 
from  bonds  which  do  not  contain  "tax-free"  or  "no-deduction"  clause,  withholding 
agent  shall  request  bank  or  collection  agency  to  disclose  name  and  address  of  owner 
of  bonds,  and  it  is  duty  of  such  bank  or  agency  to  make  such  disclosures;  if  owner  is 
citizen  or  resident  of  United  States,  withholding  agent  shall  refund  amount  of 
tax  deducted,  and  if  nonresident  alien,  no  refundment  shall  be  made  but  agent  shall 
make  return  thereof  on  or  before  March  1,  and  on  or  before  time  fixed  for  payment  of 
tax  shall  pay  amount  withheld  to  officer  of  United  States  authorized  to  receive 
same.     (T.  D.  2635;  Jan.  24,  1918.) 

•  Where  debtor  corporation  or  its  duly  authorized  withholding  agent  has  made  no 
payments  of  interest  to  nonresident  alien  individuals  or  foreign  corporations  having 
no  office  or  place  of  business  in  the  United  States,  or  has  withheld  no  tax  from 
citizens  or  residents  of  United  States,  whether  or  not  bonds  upon  which  such  interest 
accrued  contain  tax-free  covenant  clause,  exemption  certificates  filed  in  connection 
with  such  interest  payments  shall  be  transmitted  direct  to  Commissioner  of  Internal 
Revenue  (.Sorting  Division),  Washington,  D.  C,  accompanied  by  return  on  Form 
1096,  which  form  shall  be  filed  monthly,  and  need  not  be  sworn  to;  if  a  corporation 
or  withholding  agent  has  withheld  tax  and  is  therefore  required  to  render  return 
on  Form  1012,  revised,  all  certificates  received  shall  be  accounted  for  on  such  monthly 
return,  as  directed  by  instructions  thereon.     ^T.  D.  2687;  Apr.  1,  1918.) 

In  absence  of  disclosure  of  actual  ownership  filed  with  debtor  corporations  or 
tlieir  withholding  agents,  normal  tax  required  to  be  withheld  in  accordance  with 
stock  records  of  ownership  can  only  be  released  to  record  owner  not  liable  for  tax 
upon  proper  showing  to  commissioner  of  record  and  actual  ownership,  names  and 
post-otfice  addresses  of  debtor  corporations  and  withholding  agents,  and  amounts 
withheld.     (T.  D.  2690;  art.  32.) 

If  record  owner  does  not  exercise  right  to  disclose  actual  ownership  for  purpose  of 
claiming  exemption  from  having  tax  withheld  at  source,  debtor  corporations  and 
their  withholding  agents  in  United  States  will  be  held  liable  on  their  stock  records 

70420"— 21 2G 


402  INCOME   TAXES    (INDIVIDUALS).       . 

•.VithliolcUng — Continued . 

Ov/nership  certificates — Continued. 

of  ownership  for  tax  required  to  be  wiihlield  by  section  13  (f)  of  the  act  of  September 
8,  1916.     (T.  D.  2G90;  art.  32.) 

Collecting  agents,  responsible  banks  and  bankers  receiving  coupons  for  collection 
with  ownership  certificates  attached  may  present  coupons  with  original  certificates 
to  debtor  corporation  or  withholding  agent  for  collection,  or  original  certificates  may 
be  detached  and  forwarded  direct  to  Commissioner  of  Internal  Revenue,  pro\'iding 
such  agent  shall  substitute  for  such  certificate  its  0T.^n  certificate  and  shall  keep 
complete  record  of  each  transaction  showing  specified  data;  identification  of  sub- 
stitute certificate;  substitute  certificates  discontinued  with  respect  to  ownership 
certificates  presented  with  coupons  for  collection  by  nonresident  alien  individuals, 
coi-porations,  etc.     (T.  D.  2690;  art.  43.) 

Owners  of  bonds  of  domestic  and  resident  corporations  shall,  when  presenting  in- 
terest coupons  for  payment,  file  certificate  of  ownership  for  each  issue  of  bonds 
shoAving  name  and  address  of  debtor  corporation,  name  and  address  of  owner  of 
bonds,  whether  payee  is  married  or  head  of  a  family,  and  amount  of  interest.  (T.  D. 
2690;  art.  43.) 

Where  fiduciaries  have  control  and  custody  of  more  than  one  estate  or  trust,  and 
said  estates  and  trusts  have  as  assets  bonds  of  corporations,  etc.,  certificate  of  owner- 
ship must  be  executed  for  each  estate  or  trust,  regardless  of  fact  that  bonds  are  of 
same  issue;  when  bonds  are  owned  jointly  by  several  persons,  one  of  the  owners  may 
execute  certificate  in  behalf  of  others,  and  indorse  on  back  thereof  their  names  and 
addresses,  and  proportion  of  ownership  of  each.     (T.  D.  2709;  May  2,  1918.) 

"Wliere  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  citizens  or  residents  of  United  States,  individual  or  fiduciary,  or  by 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  insurance 
companies,  or  partnerships,  ownership  ceitificate  lOOlA  shall  be  executed  by 
actual  owner,  or  by  his  duij  authorized  agent,  when  presenting  item  for  collection, 
Avhether  item  is  dividend  or  interest  payment,  except  in  case  of  foreign  country  or 
foreign  corporation  having  paying  agent  in  this  country  and  issuing  bonds  con- 
taining "  tax-free  "  covenant  clause;  in  such  cases  paying  agent  will  withhold  normal 
tax  upon  interest  on  such  bonds,  and  ownership  certificate.  Form  1000,  properly 
modified  to  show  that  debtor  has  paying  agent  in  this  countr>-,  should  be  used, 
unless  owner  desires  to  claim  exemption,  when  Form  1001 A  should  be  used.  (T.  D. 
2759;  Oct.  2,  1918.) 

Where  bonds  of  foreign  countiies,  or  bonds  or  stocks  of  foreign  corporations, 
are  owned  by  nonresident  alien  indi\'iduals,  or  foreign  corporations,  associations,  or 
partnerships,  ownership  certificate  Form  1071,  revised,  shall  be  used  for  and  on 
behalf  of  such  owner  bv  anv  resnonsible  bank  or  banker,  either  foreign  or  domestic. 
(T.  D.  2759;  Oct.  2,  1918.)" 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting  ageiit 
unless  indorsed  as  prescribed,  or  accompanied  by  proper  ownership  certificate, 
giving  all  information  called  for  by  such  certificate;  where  fii-st  licensed  bank  or 
collecting  agent  is  source  of  information,  licensee  shall  attach  ownerehip  certificate 
and  indorse  on  item  tbe  words  "Certificate  attached  and  information  furnished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue 
(Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of  month  folloAving 
that  during  which  items  were  accepted,  accompanied  by  letter  of  transmittal, 
showing  number  of  certificates  and  aggregate  amount  of  foreign  items  disclosed 
thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall 
accompany  coupon  to  paAang  agent  in  this  country,  or  if  there  is  no  such  agent,  then 
to  last  bank  or  collecting  agent  handling  item  in  this  country;  when  more  than  one 
coupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from  same 
issue  of  bonds,  single  certificate  may  be  used;  when  foreign  items  have  been  prop- 
erly indorsed,  certificate  shall  be  attached  and  foi-warded  to  Commissioner  of  In- 
ternal Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of 
month  _following  that  during  which  items  were  accepted,  accompanied  by  letter  of 
transmittal,  showing  number  of  certificates  and  aggregate  amoimt  of  foreign  item:j 
disclosed  thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of 
information,  ownership  certificate  shall  accompany  coupon  to  such  agent  or  soiu-c(f 
of  information,  who  .shall  forward  ownership  certificate  to  Commissioner  of  Internal 
Revenue,  in  manner  provided  vv'here  duty  is  placed  upon  licensee,  provided  that 


INDEMNITY   BONDS — INDUSTRIAL   DISTILLERIES.  403 

Withliolding — Conliuucd. 

■ Ownership  certificates — Continued. 

in  case  ownership  certificate,  Form  1000,  U  Uiod,  paying  agent  shall  make  return 

on  Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

Refund. 

Where,  upon  filin'i;  return,  it  appears  that  nonresident  alien  is  not  liable  for  tax, 
but,  neverthele.!!?,  tax  shall  have  been  witlibeld  at  source  in  order  to  obtain  refund  on 
basis  of  showing  made  by  return,  there  shall  be  attached  to  the  return  a  statement 
showing  accurately  the"  amounts  of  tax  withheld,  with  names  and  post-ofBcc 
addresses  of  all  withholding  agents.     (T.  D.  2690;  art.  32.) 

Release. 

Any  income  withheld  from  citizen  or  resident  alien  in  19]  7  prior  to  Oc-tober  3, 
1917,  except  in  case  covered  by  section  9  (c)  of  the  act  of  September  8,  lOlfi,  as 
amended,  shall  be  released  by  withholding  agent  and  paid  over  to  individual  from 
whom  it  was  withheld  or  his  proper  legal  representative;  income  upon  which  such 
tax  was  so  deducted  and  released  required  to  be  included  in  return,  if  any,  of  such 
individual  for  the  pur2:)sc  of  assessment  and  collection  of  income  tax.  (T.  D.  2690; 
art.  47.) 

Ret'oira. 

Return  is  to  be  made  for  tax  withheld  in  manner  and  on  form  prescribed  by  Com- 
missioner of  Internal  Revenue,  mth  approval  of  Secretary  of  Treasury,  such  return 
to  be  made  after  February  1,  and  on  or  l^efore  March  1,  annually;  return  shall  show 
name  and  address  of  withholding  agent,  character  of  income,  name  and  address  of 
recipient  or  his  agent,  amount  of  income,  exemption  claimed,  and  amount  of  tax 
and  2  per  cent  withheld  thereon.     (T.  D.  2690;  art.  46.) 

Tax  not  paid  at  source. 

Form  1001,  re\dsed,  shall  be  used  when  personal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  United 
States,  and  when  presenting  coupons  from  bonds  not  containing  tax-free  covenant; 
by  domestic  partnerships,  coipoiations,  or  associations;  by  noiiresideut  alien  part- 
nershij^s;  ana  by  foreign  corporations  having  office  or  place  of  business  in  United 
States,  whether  or  not  such  bonds  contain  tax-free  eoA'enant.  In  case  citizen  or  resi- 
dent individual  receives  interest  on  bond  containing  tax-free  covenant  in  excess  of 
amount  of  personal  exemption  which  individual  mav  claim,  any  such  excess  must 
be  reported  on  Form  1000,  revised.     (T.  D.  2690;  art.  43.) 

Tax  paid  at  source. 

Form  1000,  revised,  shall  be  used  when  no  personal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  the  United 
States;  by  nonresident  alien  individuals,  foreign  coiporations  having  no  office  or 
place  of  business  in  the  United  States,  whether  or  not  such  bonds  contain  a  tax-free 
covenant;  and  in  case  where  coupons  are  received  not  accompanied  by  certificates 
of  ownership.  First  bank  receiving  coupons  not  accompanied  by  ownership  certifi- 
cates will  make  certificate,  crossing  out  "owner"  and  inserting  '"paj^ee,"  and  will 
enter  amount  of  interest  on  line  4.     (T.  D.  2690;  art.  43.) 

INDSMNITY   BONDS. 
See  "Bonds." 

INDICTMENT. 
Narcotic  lav/,  violation  of. 

Indictment  charging  conspiracy  to  violate  section  2  of  the  act  of  December  17, 
1914,  need  not  negative  exceptions  found  in  such  statute;  demurrer  to  indictment 
overruled  in  case  of  United  States  v.  O'Hara.     (T.  D.  2392;  Nov.  6,  1916.) 

Illegal  dispensing  of  narcotics  may  be  made  separate  count  in  indictment  as  to 
each  addict  involved,  and  evidence  may  he  admitted  tending  to  prove  sales  by 
ph\'sician  to  persons  other  than  those  mentioned  in  the  indictment.  (T.  D.  2887; 
July  12,  1019.     Ct.  Doc.) 

INDUSTRIAL  DISTILLERIES. 

See  "Distilled  Spirits." 


404  INFANTS — INHERITANCE   TAXES. 

INFANTS, 
Admissions. 

Children  under  12  years  of  a»e  when  admitted  free  are  not  taxable  under  section 
700  of  the  act  of  October  3,  19i'7.     (T.  D.  2681;  Mar.  26,  1918.) 

Tax  imposed  by  section  700  of  the  act  of  October  3, 1917,  on  the  admission  of  chil- 
dren under  12  years  of  age,  must  be  collected  in  all  cases  at  the  full  rate  of  1  cent  for 
each  10  cents  or  fraction  thereof,  except  where  distinctive  tickets  are  issued  for 
children  under  12  years  or  tickets  for  their  use  are  indelibly  stamped  to  show  that 
they  are  good  only  for  the  admission  of  children  under  12  years,  or  where,  in  absence 
of  tickets,  tax  is  paid  at  time  of  admission  of  children  uncler  12  years;  children  under 
12  years  of  age  when  admitted  free  are  not  taxable.     (T.  D.  2681;  Mar.  26,  1918.) 

Income  taxes — Deduction  of  allowances. 

As  a  rule,  allowances  which  father  gives  to  his  minor  children,  whether  said  to  be 
in  consideration  of  service  or  otherwise,  are  not  allowable  deductions  in  return  of 
income,  nor  are  they  income  to  the  children.     (T.  D.  2690;  art.  8.) 

Exemptions. 

Exemption  of  $200  for  each  dependent  child  provided  by  section  7  of  act  of  Sep- 
tember 8,  1916,  as  amended,  is  given  in  respect  of  .income  tax,  and  is,  therefore, 
applicable  under  both  the  act  of  September  8,  1916,  as  amended,  and  the  act  of 
October  3,  1917,  under  same  conditions  of  fact.     (T.  D.  2690;  art.  14.) 

• Returns. 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returns,  in 
cases  arising  under  section  2  (b)  of  the  act  of  September  8,  1916,  as  amended,  when 
income  of  estate  or  trust,  as  an  entity,  is  $1,000  or  over,  return  to  be  made  on  Form 
1040  or  1040A;  fiduciaries  must  make  returns  on  Form  1041  whenever  interest  of 
beneficiary  in  net  income  of  estate  or  trust  is  $1,000  or  over  for  an  unmarried  bene- 
ficiary, and  whenever  interest  of  married  beneficiary  is  $2,000  or  over.  (T.  D. 
2690;' art.  27.) 

Fiduciaries  acting  for  minors  or  other  incompetents,  required  to  make  returns 
according  to  marital  status  of  beneficiary;  whenever  interest  of  beneficiary  in  net 
income  of  estate  or  trust  is  $1,000  or  over,  for  an  unmarried  beneficiary,  or  in  case  of 
married  beneficiary,  whenever  interest  is  $2,000  or  over,  fiduciaries  are  required  to 
make  return.     (T.  D.  2690;  art.  27.) 

Income  received  by  minor  child  from  sources  other  than  parent  should  be  in- 
cluded by  parent  in  his  return;  fact  that  such  income  is  not  appropriated  by  parent 
is  immaterial;  where  income  is  from  separate  estate  and  parent  has  been  appointed 
guardian,  and  conditions  are  such  that  income  so  received  is  to  be  held  for  use  of 
child,  it  shall  not  be  included  in  parent's  return,  but  shall  be  accounted  for  other- 
wdse  for  purposes  of  tax,  in  manner  and  form  as  called  for  by  facts  of  particular  case. 
(T.  D.  2690;  art.  29.) 

INFORMATION  AT  SOURCE. 
Income  taxes. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 
INHERITANCE  TAXES. 

Estate  tax — Deductions. 

Amounts  paid  to  States  on  account  of  inheritance,  succession,  or  legacy  taxes, 
are  not  "such  other  charges  against  the  estate  as  are  allowed  by  the  laws  of  the  juris- 
diction," and  are  not  deductible  in  arriving  at  amount  of  Federal  estate  tax.  (T.  D. 
2524;  Sept.  10,  1917.) 

Inheritance  tax  imposed  by  laws  of  Pennsylvania  is  estate  tax  assessed  against 
transfer  of  estate  as  a  whole  and  not  legacy  tax  imposed  on  transfer  of  any  par- 
ticular interest;  it  is,  therefore,  a  charge  against  the  estate  of  a  decedent  in  that 
jurisdiction  within  the  meaning  of  section  203  of  the  act  of  September  8.  1910, 
and  is  deductible  from  gi'oss  estate  in  computing  value  of  net  estate  subject  to 
tax.     (T.  D.  3027;  June  2,  1920.     Ct.  Dec.) 


INHERITANCE   TAXES.  405 

Income  taxes — Deduction. 

Tiix  imposed  by  laws  of  New  York  upon  transfer  of  property  by  will  or  under 
interstate  laws  is  not  deductible  in  ascertaining  net  income  of  legatee  or  distributee 
under  act  of  October  :^,  1913;  it  is  not  a  tax  within  the  meaning  of  paragraph  B, 
•Section  II,  permitting  deduction  of  all  national,  State,  county,  school,  and  mu- 
nicipal taxes  paid  during  the  year.  (T.  D.  2933;  Oct.  9,  1919.  T.  D.  3050;  July 
27,  1920.     Ct.  Decs.) 

Tax  upon  right  to  receive  an  interest  in  the  estate  of  a  decedent  is  not  a  charge 
either  against  the  person  receiving  the  interest  or  the  property  or  right  accruing 
to  him;  the  legatee  or  distributee  merely  receives  the  balance  due  after  payment 
of  the  tax — he  does  not  receive  the  entire  interest  and  then  pay  the  tax — and  he 
is  consequently  not  entitled  to  deduct  the  amount  as  a  tax  paid  by  him.  (T.  D. 
2933;  Oct.  9,  1919.     T.  D.  3050;  July  27,  1920.     Ct.  Decs.) 

Payment — Receipt  of  Liberty  bonds. 

Circular  132,  issued  under  date  of  January  30,  1019,  with  reference  to  receipt  of 
Liberty  bonds  in  payment  of  estate  or  inheritance  taxes,  published.  (T.  D.  2802; 
Mar.  12,  1919.     See  also  T.  Ds.  2878,  2898,  2904,  2905.) 

Refund. 

A  tax  demanded  and  paid  under  section  29  of  the  war-revenue  act  of  June  13, 

1898.  on  a  contingent  beneficial  interest  not  vested  prior  to  July  1,  1902,  contrary 
to  the  refunding  act  of  June  27,  1902,  is  a  tax  "erroneously  collected"  within 
meaning  of  the  act  of  July  27,  1912,  although  payment  was  without  protest  or 
reservation,  and  under  that  act  right  to  refund  is  barred  if  claim  was  not  presented 
to  the  Commissioner  of  Internal  Revenue  on  or  before  January  1,  1914.  (T.  D. 
3007;  Apr.  22,  1920.     Ct.  Dec.) 

Remote  possibility  that  funds  turned  over  to  legatees  before  July  1 ,  1902,  by  an 
executor  might  have  to  be  returned  does  not  prevent  their  being  vested  and  taxable 
under  the  war-revenue  act  of  1898;  for  purj^oses  of  that  act  the  interest  transferred 
before  July  1,  1902,  from  an  estate  to  a  trustee  for  ascertained  persons  is  vested  in 
possession  no  less  than  when  it  is  conveyed  directly  to  them.  (T.  D.  3008;  Apr. 
22,  1920.     Ct.  Dec.) 

Suits  to  recover  back. 

Judgment  in  suit  against  collector  to  recover  succession  tax  collected  under  act 
of  Jime  13,  1898,  for  part  of  claim  only,  certain  interests  involved  being  erroneously 
held  to  be  taxable  as  being  vested  in  possession  or  enjoyment  before  July  1,  1902, 
which  judgment  was  satisfied  by  the  United  States,  is  no  bar  to  suit  against  United 
States  in  Court  of  Claims  to  recover  unpaid  residue.  (T.  D.  2885;  July  10,  1919. 
Ct.  Dec.) 

Claim  for  refund  filed  in  August,  1903,  with  Commissioner  of  Internal  Revenue 
as  prerequisite  to  suit  against  collector  to  recover  succession  tax  collected  under 
act  of  June  13,  1898.  is  sufficient  to  meet  requirements  of  act  of  July  27,  1912; 
effect  of  claim  was  not  extinguished  by  judgment  in  suit  and  it  is  not  necessary 
that  claim  be  filed  under  the  1912  act.     (T.^D.  2885;  July  10,  1919.     Ct.  Dec.) 

WTiere  application  was  made  on  Septeml)er  7. 1916,  to  the  Secretary  of  the  Treasury 
for  repayment  of  tax  collected  under  act  of  June  13,  1898,  and  claim  was  rejected 
on  October  30,  1916,  suit  brought  in  Court  of  Claims  on  January  23,  1917,  under 
the  act  of  July  27,  1912,  was  within  the  six-year  period  allowed  by  section  1069, 
Revised  Statutes.     (T.  D.  2885;  July  10,  1919.     Ct.  Dec.) 

The  bar  of  section  3226,  Revised  Statutes,  making  appeal  to  Commissioner  and 
decision  by  him  a  necessary  condition  precedent  to  action  to  recover  tax  illegally 
collected,  and  of  section  3228,  ReAdsed  Statutes,  fixing  two  years  as  time  within 
which  to  bring  such  an  action,  is  removed  as  to  inheritance  taxes  imposed  by  act  of 
June  13,  1898,  if  taxpayer  has  complied  with  section  3  of  the  act  of  June  27,  1902, 
and  section  2  of  the  act  of  July  27,  19J2,  and  presented  to  Commissioner  claim  for 
refund  of  the  tax.     (T.  D.  2886;  July  10,  1919.     Ct.  Dec.) 

Fact  that  tax  was  voluntarily  paid — that  is,  without  protest — is  no  impediment 
to  the  application  of  act  of  July  27,  1912.     (T.  D.  2886;  July  10,  1919.     Ct.  Dec.) 

C'laim  for  refund  filed  by  the  attorney  for  trust  company,  trustee  under  will,  and 
claim  filed  for  and  in  behalf  of  administrator  de  bonis  non  of  decedent,  can  not 
be  ascribed  to  cestui  que  trust  on  Avhose  behalf  the  original  executrix  paid  the 
tax  without  prote-st,  and  hence  did  not  satisfy  provision  of  act  of  July  27,  1912, 


406  INITIATION   FEES — INSOLVENCY. 

Suits  to  recover  back — Continued, 
that  repavnient  shall  bo  made  to  "such  claimants  as  have  presented  or  shall  here- 
after so  present  their  claims."     (T.  D.  2886;  July  10,  1919.     Ct.  Dec.) 

Inutility  of  filing  clakn  by  the  cestui  que  trust,  based  on  fact  that  she  knew 
precise  facts  of  demands  that  had  been  made,  and  that  she  knew  also  that  claims 
of  the  class  to  which  hers  belonged  had  been  uniformly  rejected,  can  not  Ijo  urged 
a:s  an  excuse  for  failure  to  fde  another  claim  in  her  ovm  name.  (T.  D.  2886;  July 
10,  1919.     Ct.  Dec.) 

INITIATION  FEES. 
Taxability. 

See  "Dues." 

INSANE  PERSONS. 

Income  taxes — Collection  and  payment. 

Tax  is  to  be  paid  upon  notice  from  collector  of  internal  revenue  of  amount  of  tax 
due,  and  at  all  events  not  later  than  June  15;  as  to  tax  unpaid  on  June  15,  and  for 
10  days  after  notice  and  demand  therefor  penalty  is  5  per  cent  of  amount  of  tax 
unpaid  and  interest  at  rate  of  1  per  cent  per  month  upon  such  tax  from  time  same 
became  due,  except  from  estates  of  insane,  deceased,  or  insolvent  persons;  collect- 
ors should  issue  Form  17  for  purpose  of  fixing  definitely  date  when  penalty  accrues 
and  interest  begins  to  run,  and  copy  of  notice  should  be  filed.  (T.  D.  2690;  arts.  39, 
41.) 

• Exemptions. 

Fiduciaries  acting  for  minors  or  incompetent  persons  are  permitted  to  take  per- 
sonal exemption  as  to  income  derived  from  property  of  which  they  have  charge  in 
favor  of  each  ward  or  bencficiarj-.     (T.  D.  2690;  art.  14.) 

■ Returns. 

Fiduciaries  acting  for  minors  or  other  incompetents,  required  to  make  returns 
according  to  marital  status  of  beneficiary;  whenever  interest  of  beneficiary  in  net 
income  of  estate  or  trust  is  |1,000  or  over,  for  an  unmarried  beneficiary,  or  in  case 
of  married  beneficiarv.  whenever  interest  is  $2,000  or  over,  fiduciaries  are  required 
to  make  return.     (T.'D.  2690;  art.  27.) 

Fiduciaries  acting  for  minors  or  other  incompetents  reqiiired  to  make  returns,  in 
cases  arising  under  section  2  (b)  of  the  act  of  September  8,  1916,  as  amended,  when 
income  of  estate  or  trust,  as  an  entity,  is  $1,000  or  over,  return  to  be  made  on  Form  1040 
or  1040A ;  fiduciaries  must  make  returns  on  Form  1041  whenever  interest  of  benefi- 
ciary in  net  income  of  estate  or  trust  is  $1,000  or  over  for  an  unmarried  beneficiary 
and  whenever  interest  of  married  beneficiary  is  $2,000  or  over.     (T.  D.  2690;  art.  27.) 

Committee  of  property  of  incompetent  person  held  to  be  fiduciary  for  purpose 
of  income  tax  and  required  to  make  return  on  Form  1040,  revised,  for  incompetent, 
whenever  amount  of  income  is  sufficient  to  require  same.     (T.  D.  2G90;  art.  29.) 

INSOLVENCY. 
See  "Bankruptcy." 

Income  taxes — Abatement. 

Under  section  3218,  Revised  Statutes,  collectors  are  entitled  to  credit  for  tax 
assessed  against  parties  who  may  have  absconded  or  become  insolvent  prior  to  day 
v/heu  tax  ought  to  have  been  collected,  provided  due  diligence  was  used  by  the 
collector,  but,  as  obligation  to  pay  still  remains  upon  the  parties  assessed,  collectt;rs 
required  to  keep  record  (No.  23)  of  all  taxes  thus  credited  and  of  j^erson  from  whom 
they  are  due,  and  to  enforce  payment  v.-henever  it  is  in  their  power  so  to  do;  if  t.ix 
reported  as  uncollectible  on  account  of  insolvency  or  absconding  of  party  is  paid 
after  credit  has  been  given  for  it,  it  should  be  returned  upon  Form  58.  (T.  D.  2690; 
arts.  247,  248.) 

— —  Collection  and  payment. 

Tax  is  to  be  paid  upon  notice  from  collector  of  internal  revenue  of  amount  of  tax 
due,  and  at  all  events  not  later  than  June  15;  as  to  tax  unpaid  on  June  15,  and  for  10 
days  after  notice  and  demand  therefor  penalty  is  5  per  cent  of  amount  of  tax  unpaid 
and  interest  at  rate  of  1  per  cent  per  month  upon  such  tax  from  time  same  became 
due,  except  from  estates  of  insane,  deceased,  or  insolvent  x^ersons;  collectors  should 
issue  Form  17  for  purpose  of  fixing  definitely  date  when  penalty  accrues  and  interest 
begins  to  run,  and  copy  of  notice  should  be  filed.     (T.  D.  2690;  arts.  39,  41.) 


INSPECTION.  407 

Income  taxes — Continued. 

— —  Retiims. 

Corporation  going  into  liquidation  during  any  tax  period  may,  at  time  of  such 
liquidation,  prepare  final  return  covering  income  received  or  accrued  to  it  during 
fractional  part  of  year  during  which  it  was  engaged  in  business,  and  immediately 
file  same  with  collector  of  district  in  v.hich  corporation  has  ]5rincipal  place  of  busi- 
ness; before  distributing  assets  dissolving  corporation  should  reserve  funds  suffi- 
cient to  pay  any  income  tax  assessable  against  it;  otherwise  tax  may  be  collected 
by  suit  against  stockholders.     (T.  D.  2690;  art.  205.) 

INSPECTION. 

Beverages — ^Books  of  manufacturers. 

Books  of  every  person  liable  to  tax  imposed  by  section  313  of  the  act  of  October 
3,  1917,  shall  be  open  at  all  times  for  inspection  by  examining  internal  revenue 
officers.     (T.  D.  2719;  Art.  XXXIY.) 

Excise  taxes — Books  of  persons  liable. 

Wliere  a  laboratory  simply  does  the  mechanical  work  of  producing  the  positive 
print,  charging  the  owner  of  the  negative  for  materials  used  and  services  rendered, 
such  laboratory  will  not  be  regarded  as  the  manufacturer  of  the  film;  the  tax  is 
upoaa  the  sale  or  lease  by  the  owner  of  the  film;  the  laboratory,  however,  shall  keep 
a  record  of  all  such  films  jiroduced  \\dth  name  of  owner  and  length  of  film,  such 
record  to  be  available  for  examination  by  internal  revenue  officers,  and  shall 
furnish  monthly  to  collector  of  district  in  which  it  is  located  a  signed  statement, 
giving  such  information.     (T.  D.  2719;  Art.  XII.) 

Books  of  every  person  liable  to  tax  shall  be  open  at  all  times  for  inspection  by 
examining  internal  revenue  officers.     (T.  D.  2719;  Art.  XXVI.) 

Income  tax  returns. 

When  assessments  shall  have  been  made,  returns  shall  be  filed  in  office  of  com- 
missioner and  shall  constitute  public  records,  subject  to  inspection  upon  order  of 
the  President,  under  rules  and  regulations  prescribed  by  the  Secretary  of  the 
Treasury  and  approved  by  the  President;  copies  of  returns  on  file  in  Commissioner's 
office  may  not  be  sent  to  any  person  except  corporation  itself  or  to  its  duly  authorized 
attorney;  duly  authorized  attorney  for  this  purpose  is  one  possessing  properly 
executed  power  of  attorney  in  writing  by  corporation,  v/hich  designation  shall  be 
signed  by  two  officers  of  corporation  and  bear  the  impress  of  the  seal.  (T.  D.  2690; 
art.  226.) 

When  the  head  of  a  bureau  or  office  in  the  Treasury  Department,  not  a  part  of  the 
Internal  Revenue  Bureau,  desires  to  inspect  return  in  connection  with  some  matter 
officially  before  him,  other  than  an  income,  profits  tax  or  corporation  excise  tax 
matter,  the  inspection  may,  in  the  discretion  of  the  Secretary,  be  permitted  upon 
■sviitten  application  to  him  by  the  head  of  such  bureau  or  ofiice,  showing  in  detail 
why  inspection  is  desired;  reason  submitted  for  permission  to  inspect  return  yhall 
be  considered  by  the  Secretary  and  decision  reached  by  him  whether  the  reasons 
are  sufficient  to  permit  such  inspection.     (T.  D.  29G1:  Jan  7,  1920.) 

Return  of  partnership  shall  be  open  to  inspection  by  officers  and  emploj'ees  of 
Treasury  Department  whose  official  duties  require  such  inspection  and  by  the 
Solicitor  of  Internal  Revenue;  and  by  any  indi\ddual  (or  his  duly  constituted 
attorney  in  fact  or  legal  representative)  who  was  member  of  such  i)artnership  during 
any  part  of  time  covered  bv  the  return,  upon  satisfactory  evidence  of  such  fact 
being  furnished.     (T.  D.  296*1;  Jan.  7,  1920.) 

When  it  becomes  necessary  for  the  department  to  furnish  returns  or  copies  thereof 
for  use  in  legal  proceedings,  inspection  of  such  returns  or  copies  that  necessarily 
results  from  such  use  is  permitted.     (T.  D.  2961;  Jan.  7,  1920.) 

Written  statement  filed  Avith  Commissioner  designed  to  be  supi^lemental  to  and 
to  become  part  of  tax  returns  is  subject  to  same  rules  and  regulations  as  to  insiiection 
as  are  tax  returns  themselves.     (T.  D.  2961;  Jan.  7,  1920.) 

Except  as  to  returns  or  copies  thereof  for  use  in  legal  proceedings,  returns  may  be 
inspected  only  in  the  office  of  Commis.sioner  of  Internal  Revenue,  Washington, 
D.  C.     (T.  D.  2961;  Jan.  7,  1920.) 

Return  of  corporation  shall  be  open  to  inspection  by  officers  and  employees  of 
Treasury  Department  whose  official  duties  require  such  inspection  and  by  the 
Solicitor  of  Internal  Revenue;  upon  satisfactory  evidence  of  identity  and  official 
position,  by  the  president,  vice  president,  secretary,  or  treasurer  of  such  corpora- 


408  INSTALLMENTS. 

Income  tax  returns — Continued, 
tion.  or,  if  none,  its  principal  officer;  and  by  a  stockholder  of  such  corporation  under 
certain  circumstances.     (T.  D.  29G1;  Jan.  7,  1920.) 

A  person  who,  under  the  regulations,  is  permitted  to  inspect  a  return  may  make 
and  take  copy  thereof  or  memorandum  of  data  contained  therein.  (T.  D.  2961; 
Jan.  7,  1920.) 

Stockholder  of  record  owning  1  per  cent  or  more  of  the  stock  of  the  outstanding 
stock  of  a  corporation  may  be  permitted  to  inspect  its  return;  permission  will 
only  be  granted  upon  application  in  writing  to  (_'ommissioner  accompanied  by 
affidavit  showing  certain  facts;  this  privilege  of  inspection  is  personal  and  will  be 
granted  only  to  the  stockholder.     (T.  D.  2961;  Jan.  7,  1920.) 

When  head  of  executive  department  (other  than  Treasuiy  Department)  or  any 
other  United  States  Government  establishment,  desires  inspection  of  return  in 
connection  with  some  matter  officially  before  him,  the  inspection  may,  in  discre- 
tion of  Secretary  of  the  Treasury,  be  permitted  upon  written  application  to  him  by 
head  of  such  department  or  other  Government  establishment,  such  application  to 
be  signed  by  such  head  and  to  show  why  inspection  is  desired,  name  and  address 
of  taxpayer  who  made  return,  and  name  and  official  designation  of  one  it  is  desired 
shall  inspect  the  return;  the  reason  sulnnitted  for  permission  to  inspect  the  return 
shall  be  considered  by  the  Secretary  and  decision  reached  by  him  whether  reasons 
are  sufficient  to  permit  inspection.     (T.  D.  2961;  Jan.  7,  1920.) 

Except  as  otherwise  provided,  Commissioner  may,  in  his  discretion,  upon  written 
ajiplication  setting  forth  fully  reasons  for  request,  grant  permission  for  inspection 
of  returns;  application  will  be  considered  by  Commissioner  and  decision  reached 
by  him  whether  applicant  has  met  conditions  imposed  by  regulations  and  whether 
reasons  advanced  for  permission  to  inspect  are  sufficient  to  permit  the  inspection; 
such  written  application  is  not  requii'ed  of  officers  and  employees  of  the  Treasury 
Department  whose  official  duties  requh-e  inspection  of  a  return,  or  of  the  Solicitor 
of  Internal  Revenue.     (T.  D.  2961;  Jan.  7,  1920.) 

Return  of  individual  is  open  to  inspection  by  officers  and  employees  of  Treasmy 
Department  whose  official  duties  require  such  inspection  and  by  the  Solicitor  of 
Internal  Revenue;  by  person  who  made  return,  or  by  his  duly  constituted  attorney 
in  fact;  by  administrator,  executor,  or  trustee  of  taxpayer's  estate,  or  by  duly 
constituted  attorney  in  fact  of  such  administrator,  executor,  or  trustee,  where  maker 
of  return  has  died;  and,  in  discretion  of  Commissioner,  by  one  of  the  heirs  at  law  or 
next  of  kin  of  such  deceased  person  upon  showing  that  he  has  a  material  interest 
which  will  be  affected  by  information  contained  in  return.  (T.  D.  2961;  Jan.  7, 
1920.) 

Joint  return  of  husband  and  wife  is  open  to  inspection  by  officers  and  employees 
of  Treasury  Department  whose  official  duties  require  such  inspection,  and  by  the 
Solicitor  of  Internal  R,evenue;  and  by  either  spouse  for  whom  return  was  made  or 
his  or  her  duly  constituted  attorney,  upon  satisfactory  evidence  of  such  relationship 
being  furnished.     (T.  D.  2061;  Jan.  7,  1920.) 

Proper  officers  of  State  imposing  income  tax  are  entitled  as  of  right  upon  request 
of  its  governor  to  have  access  to  income  and  profits  tax  returns  of  corporation,  etc., 
or  to  abstract  thereof,  showing  its  name  and  income;  proper  officers  in  this  con- 
nection are  only  those  officers  of  the  State  charged  with  enforcement  of  the  State 
income  tax  law  and  who  are  to  use  the  information  gained  by  the  access  only  in 
connection  with  such  enforcement;  contents  of  request  or  application  of  governor, 
which  must  be  in  writing,  signed  by  him  under  the  seal  of  his  State,  and  be  ad- 
dressed either  to  the  Secretary  of  the  Treasury  or  to  the  Commissioner  of  Internal 
Revenue,  stated;  access  shall  be  given  only  in  the  office  of  the  Commissioner,  and 
the  officers  designated  by  the  governor  will  not  be  permitted  to  name  another  person 
to  examine  the  returns  or  abstracts  for  them,  and  the  officers  designated  will  be 
given  access  only  to  returns  of  those  corporations,  etc.,  organized  and  doing  business 
in  their  State.     (T.  D.  2962;  Jan.  7,  1920.) 

INSTALLMENTS. 

Advance  payments  of  taxes. 

Instructions  with  reference  to  time  for  making  advance  payments  in  installments 
or  in  whole,  of  income  and  excess  profits  taxes  under  section  1009  of  act  of  October 
3,  1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to 
taxpayer;  refund  of  excess  payment;  entries  to  be  made  on  specified  forms;  inter- 
est taiile.  (T.  D.  2622;  Dec. '26,  1917.  T.  D.  2674;  Mar.  18,  1918.  T.  D.  2695; 
Apr.  IL  1918.) 


INSURANCE.  409 

Excise  tax. 

In  ease  of  conditional  sale,  where  title  is  reserved  until  payment  of  purchase 
price  in  full,  excise  tax  imposed  by  act  of  October  3,  1917,  attaches  upon  such 
payment  or  when  title  passes  if  before  completion  of  payments.  (T.  D.  2719; 
Art.  IV. 

Income  taxes — Gross  income. 

Where  corporation  sells  property  on  installment  plan,  title  passinp;  at  time  of 
sale,  gain  to  be  returned  as  income  for  year  in  which  sale  was  made,  will  be  excess 
of  contract  price  over  fair  market  price  or  value  as  of  March  1,  1913,  if  property  was 
acquired  prior  to  that  date,  or  of  contract  price  over  cost  if  acquired  subsequent  to 
that  date.     (T.  D.  2690;  art.  116.) 

Corporation  selling  merchandise  on  installment  basis,  title  passing  to  vendee  at 
time  of  sale,  will  treat  such  contracts  as  accounts  receivable  and  as  sales  during  the 
year  at  their  face  value,  accounting  for  as  income  the  diifereuce  between  the  cost 
and  sales  price.     (T.  D.  2690;  art.  120.) 

In  all  cases  where  inventories  are  taken  for  purpose  of  ascertaining  gain  or  los3 
resulting  from  business  of  the  year,  inventories  must  be  taken  in  accordance  with 
instructions  to  be  included  in  special  regulations  furnished  upon  application  to 
collector  of  internal  revenue.     (T.  D.  2690;  art.  120.) 

Dealers  in  merchandise  and  dealers  in  securities  authorized  to  make  returns  on 
basis  of  inventories  taken  at  cost  or  market  price,  whichever  is  lower.  (T.  D.  2609; 
Dec.  19,  1917.)  Pending  decision  by  Supreme  Court  of  United  States  as  to  legality 
of  authorization  of  T.  D.  2009.  returns  made  upon  basis  of  T.  D.  2609  will  be  ten- 
tatively accepted.  (T.  D.  2649;  Jan.  30,  1918.  Affirmed,  T.  D.  2744;  July  11, 
1918.) 

In  sale  or  contract  for  sale  of  personal  property  on  installment  plan,  whether  or 
not  title  remains  in  vendor  until  property  is  fully  paid  for,  income  to  be  returned 
by  vendor  will  be  that  proportion  of  each  installment  which  gross  profit  to  be  real- 
ized when  property  is  paid  for  bears  to  gross  contract  price;  if  for  any  reason  vendee 
defaults  and  vendor  repossesses  property,  entire  amount  received  on  installment 
payments,  less  profit  originally  returned,  will  be  income  to  vendor  to  be  so  returned 
for  year  in  which  property  was  repossessed.     (T.  D.  2707;  Apr.  25,  1918.) 

Net  income. 

Where  buyer  of  property  of  corporation  sold  on  installment  plan,  title  passing 
at  time  of  sale,  forfeits  his  contract  and  fails  to  meet  any  of  the  payments  contracted 
to  be  made,  selling  corporation  may  deduct  from  its  gross  income  as  a  loss  such  pro- 
portion of  defaulted  payments  as  was  previously  returned  as  gross  income.  (T.  D. 
2690;  art.  116.) 

There  should  be  reported  as  payments  on  policies  by  insurance  companies,  other 
than  mutuals,  but  including  mutual  life  and  mutual  marine,  all  death,  disability, 
or  other  policy  claims  (other  than  dividends)  paid  within  year,  including  fire, 
accident,  and  liability  losses,  matured  endowments,  and  annuities,  payments  on 
installm.ent  policies,  'surrender  values,  and  all  claims  actually  paid  under  the 
terms  of  policy  contracts.     (T.  D.  2690;  art.  240.) 

INSUHANCE. 
Age  of  insured. 

Tax  provided  for  by  section  504  of  the  act  of  October  3,  1917,  is  imposed  on  insur- 
ance without  regard  to  age  of  the  insured.     (T.  D.  2588;  Nov.  21,  1917.) 

Annuity  contracts. 

An  annuity  contract  is  not  taxable  as  a  policy  of  life  insurance,  since  it  does  not 
insure  a  life.     (T.  D.  2785;  Jan.  23,  1919.) 

Assignment  of  policy. 

No  stamp  tax  is  imposed  upon  power  of  attorney  in  transfer  by  assignment,  abso- 
lute or  as  collateral  security,  of  interest  in  contract  of  insurance,  if  power  of  attorney 
grants  authority  to  do  or  perform  only  such  acts  for  or  in  behalf  of  assignor  as  are 
otherwise  vested  in  assignee.     (T.  D.  2599;  Dec.  3,  1917.) 

Brokers. 

Brokers  who  place  risks  for  clients  with  insurance  companies  are  not  subject  to 
tax  under  section  504  of  act  of  October  3,  1917,  as  tax  is  imposed  upon  companies 
isi^uing  the  insurance.     (T.  D.  2588;  Nov.  21,  1917.) 


410  INSURANCE. 

Ca-pital  stock  tax  on  companies. 

Farmers'  or  other  mutual  hail,  cyclone,  or  fire  insurance  company  of  purely  local 
character,  income  of  which  consists  solely  of  assessments,  dues,  and  fees  collected 
from  members  for  sole  purpose  of  meeting  expenses,  is  exempt  from  tax  imposed 
by  section  407  of  the  act  of  September  8,  191G.  (T.  D.  2383;  Oct.  19,  1916.  T.  D. 
2750,  art.  12;  Aug.  9,  1918.) 

The  amount  of  capital  invested  in  transaction  of  business  in  United  States  by 
foreign  insurance  companies  is  the  amount  of  "surplus  due  policy  holders"  as 
sliown  by  convention  form  of  report  to  State  insurance  departments;  foreign  com- 
panies are  permitted  to  state  amounts  of  surplus  due  policy  holders  as  shown  by 
report  for  last  fiscal  year,  ending  December  31,  1916,  the  only  deduction  allowed 
being  amount  of  deposits  actually  required  by  States  in  which  company  is  trans- 
acting business.     (T.  D.  2503;  June  25,  1917.) 

Domestic  insurance  companies  are  not  permitted  to  deduct  reserves  or  deposits 
maintained  or  held  in  the  United  States  for  the  protection  of,  or  payment  to,  or 
apportionment  among,  policyholders,  as  such  reserves  and  deposits  are  reflected 
in  the  fair  value  of  the  stock  as  computed  under  Cases  I,  II,  and  III,  Form  707. 
(T.  D.  2503;  June  25,  1917.) 

Tax  imposed  by  act  September  8,  1916,  applies  to  insurance  companies  organized 
under  statute  or  deriving  from  that  source  some  quality  or  benefit  not  existing  at 
common  law,  irrespective  of  whether  or  not  they  are  organized  for  profit  or  have 
capital  stock  represented  by  shares;  mutual  and  i^articipating  plan  companies 
are  included,  and  mutual  protective  association  organized  under  statute,  whose 
only  source  of  revenue  is  assessments  paid  by  members  and  whose  net  income 
for  each  year  is  paid  into  reserve  fund  constituting  sole  resoiu'ce  of  company,  aside 
from  current  assessments,  for  pajTnent  of  losses,  is  insurance  company  within 
meaning  of  statute.     (T.  D.  2750,  art.  3;  Aug.  9,  1918.) 

In  ascertaining  value  of  capital  stock  for  purpose  of  tax,  such  deposits  and  reserve 
funds  of  insurance  companies  as  they  are  required  by  law  or  contract  to  maintain 
or  hold  for  protection  of  or  payment  to  or  apportionment  among  policy-holders 
are  to  be  omitted;  aside  from  such  legal  reserve  funds  the  capital  stock  of  mutual 
insurance  companies  consists  of  any  capital  or  siu'plus  or  contingent  reserves 
invested  in  real  estate  and  other  assets  or  maintained  for  the  general  use  of  the 
business.     (T.  D.  2750,  art.  8;  Aug.  9,  1918.) 

Tax  is  payable  by  every  corporation,  joint-stock  company  or  association,  or  insur- 
ance company,  now  or  hereafter  organized  for  profit  under  laws  of  any  foreign  coun- 
try and  engaged  in  business  in  the  United  States;  in  general,  same  kinds  of  com- 
panies and  associations  are  included  as  in  case  of  domestic  corporations,  except 
that  to  be  taxable  they  must  be  organized  under  some  statute  or  derive  from  that 
soiu'ce  some  quality  or  benefit  not  existing  at  the  common  law;  foreign  corporation 
is  engaged  in  business  in  United  States  if  it  maintains  agents  or  an  office  or  ware- 
house here,  or,  in  case  of  insurance  company,  \vrites  insurance  policies  here,  or 
in  any  other  way  enters  the  United  States  for  purpose  of  its  business.  (T.  D.  2750, 
art.  13;  Appendix  B;  Aug.  9,  1918.) 

Tax  on  foreign  corporation  is  in  all  cases  to  be  computed  on  basis  of  average 
amount  of  capital  invested  in  transaction  of  its  business  in  the  United  States  during 
the  preceding  year,  except  for  deduction  of  legal  reserve  funds  in  case  of  insurance 
companies;  basis  of  tax  is  accordingly  different  from  that  in  case  of  domestic  cor- 
porations, which  pay  tax  measured  by  fair  value  of  their  capital  stock.  (T.  D.  2750, 
art.  14;  Appendix  B;  Aug.  9,  1918.)  ' 

Insurance  companies  organized  under  statute,  engaged  in  business  at  any  time 
during  preceding  year  July  1,  1917,  to  June  30,  1918,  and  not  specifically  exempt 
under  section  11,  Title  I,  act  September  8,  1916,  must  file  return;  mutual  and 
participating  plan  insurance  companies  are  included.  (T.  D.  2750,  Appendix  A; 
Aug.  9,  1918.) 

Every  insurance  company,  now  or  hereafter  organized  for  profit  under  the  laws 
of  any  foreign  country  and  engaged  in  business  in  the  United  States,  shall  be  liable 
to  special  excise  tax  of  50  cents  for  each  full  $1,000  (less  the  proportion  of  $99,000 
as  amount  of  capital  invested  in  United  States  bears  to  total  amount  invested  in 
transaction  of  business  in  the  United ,  States  or  elsewhere)  of  capital  invested  in 
transaction  of  its  business  in  the  United  States,  except  such  companies  and  asso- 
ciations as  arc  specifically  exempt  under  section  11,  Title  I,  act  September  8,  1916. 
(T.  D.  2750,  Appendix  B;  Aug.  9,  1918.) 


INSUSANCE.  411 

Casualty  insurance. 

Casualty  iusurauce  policies  written  on  and  after  November  1,  1917,  are  taxable. 
(T.  D.  2588;  Nov.  21,  1917.) 

Date  of  accrual  of  tax. 

So  far  as  tax  imposed  bj''  section  504  of  act  of  October  3,  1917,  ia  concerned,  issu- 
ance of  policy  is  considere'd  to  be  date  when  policy  is  delivered  to  insured  or  in  any 
other  manner  becomes  a  valid  claim  and  effective  for  insurance.  (T.  D.  25BS; 
Nov.  21,  1917.) 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 

Excise  tax  on  companies. 

The  words  "reserve  funds,"  as  used  in  act  of  August  5,  1909,  have  reference  to 
the  funds  ordinarily  held  as  against  the  contingent  liability  on  outstanding  policies. 
(T.  D.  2501;  June  iS,  1917.     Ct.  Dec.) 

According  to  the  decision  of  the  Supreme  Court  of  the  United  States  in  the  case 
of  McCoach  v.  Insurance  Co.  of  North  America,  decided  at  the  October  term,  1910, 
fii'c  insurance  companies  are  not  required  by  law  of  Pennsylvania  to  hold  a  reserve 
against  unpaid  losses,  within  the  meaning  of  the  act  of  August  5,  1909.  (T.  D.  2501; 
June  IS,  1917.     Ct.  Dec.) 

Insurance  companies  owning  securities  taken  at  market  value  may  not,  under 
section  38  of  the  act  of  August  5,  1909,  deduct  from  gross  income  as  depreciation 
the  net  decrease  in  market  value  of  such  securities;  sums  due  the  United  States  are 
a  valid  offset  as  against  amount  found  due  taxpayer  in  suit  ag-ainst  collector,  though 
included  therein  are  items  which  Commissioner  did  not  claim  to  be  due  the  United 
States  when  considering  the  return  for  assessment  purposes.  (T.  D.  2882;  July  3, 
1919.) 

Pteserve  frmds  required  by  rules  and  regulations  of  State  insurance  departments, 
promulgated  in  the  exercise  of  appropriate  power  confen-ed  by  statute,  are  reserve 
funds  "required  by  law"  within  meaning  of  taxing  acts.  (T.  D.  3013;  May  3,  1920. 
Ct.  Dec.) 

Premiums  paid  to  agents  of  insm-ance  company  but  not  remitted  to  company 
during  year  are  recei-\-ed  Ijy  the  company  and  should  he  returned  as  part  of  its  gross 
income'for  year  in  which  paid  to  its  agents.     (T.  D.  3013;  May  3,  1920.     Ct.  Dec.) 

Where  there  has  been  net  decrease  in  reserve  funds  required  to  be  maintained  by 
insurance  company,  so  much  of  decrease  as  is  released  to  general  uses  of  the  company 
and  increases  its  free  assets  is  income  to  the  company.  (T.  D.  3013;%lay  3,  1920. 
Ct.  Dec.) 

Assets  required  to  be  held  by  insurance  company  to  meet  ordinary  running 
expenses,  such  as  taxes,  salaries,  reinsurance,  and  unpaid  brokerage,  are  not  reserve 
funds  "required  bv  law"  for  purpose  of  determining  whether  there  has  been  net 
addition  to  reserve" funds  within  the  year.     (T.  D.  30l3;  May  3,  1920.     Ct.  Dec.) 

In  the  case  of  a  mutual  life  insurance  company,  transacting  business  on  the 
level-premium  plan,  the  surplus  out  of  which  dividends  are  paid  in  any  year  con- 
sists of  the  ascertained  overpayments  of  premiums  for  the  preceding  year.  There- 
fore surplus  for  the  year  1909  was  received  prior  to  the  time  the  act  liecame  effective 
and  di^ddends  paid  out  of  such  surplus  and  applied,  at  the  option  of  the  policy- 
holder, to  purchase  paid-up  additions  and  annuities  or  in  partial  payment  of  renewal 
premiums,  were  not  income  for  the  year  in  which  they  vrerc  applied.  The  surplus 
from  premiums  out  of  which  the  dividends  for  tlie  year  1910  wer"c  declared  was  a 
part  of  the  income  for  the  year  1909  and  formed  a  basis  for  taxation  for  that  year. 
(T.  D.  3057;  Aug.  16,  1920.     Ct.  Dec.) 

Premiums  due  and  deferred  and  interest  due  and  accrued  but  not  actually 
collected  in  cash  within  the  taxable  vear  are  not  income  ''received."  (T.  D. 
3057;  Aug.  IG,  1920.     Ct.  Dec.) 

Interest  on  policy  loans,  which  bj'  the  terms  of  the  contract  was  added  to  the 
principal  when  it  became  due,  does  not  constitute  income  where  it  remains  unpaid 
by  the  policyholder.     (T.  D.  3057;  Aug.  IG,  1920.     Ct.  Dec.) 

Decreases  in  the  value  of  assets  of  an  insurance  company  tlu-ougli  auiortizatioa 
of  premiums  on  Ijonds  are  mere  book  adjustments  and  are  not  deductible  as  an 
item  of  depreciation.     (T.  D.  3057;  Aug.  16,  1920.     Ct.  Dec.) 


412  INSURANCE. 

Excise  tax  on  companies — Continued. 

The  reserve  funds,  the  net  addition  to  which  is  to  be  deducted  from  the  gross 
income  of  a  life  insurance  company  in  computing  its  net  income,  are  those  funds 
which  are  built  up  to  mature  the  policy,  and  do  not  include  funds  reserved  because 
of  liabilities  on  supplementary  contracts  not  involving  life  contingencies  and 
canceled  policies  upon  which  a  cash-surrender  value' may  be  demanded.  (T.  D. 
3057;  Aug.  16,  1920.     €t.  Dec.) 

The  premium  receipts  of  "'every  insurance  company"  by  whatever  name  they 
are  called  are,  unless  specifically  exempted  by  the  terms  of  the  taxing  statutes  in 
question,  a  part  of  such  company's  gross  income.  (T.  D.  3078;  Oct.  13,  1920. 
Ct.  Dec.) 

Premium  deposits  made  in  advance  by  members  of  a  mutual  insurance  company 
to  cover  estimated  losses  and  expenses  are,  so  long  as  the  payment  thereof  consti- 
tutes the  consideration  for  contract  of  insurance,  insurance  premiums  constituting 
gross  income  of  the  company.     (T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

Moneys  received  by  way  of  interest  upon  bank  balances  and  from  investment  of 
such  portion  of  premium  deposits  as  are  not  currently  required  for  the  payment  of 
los.ses  and  expenses  are  profits  earned  by  an  insurance  company  subject  to  tax. 
(T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

A  corporation  organized  to  insure  its  members,  limited  to  jewelers  and  dealers  in 
goods  ordinaiily  carried  in  the  jewelry  trade,  against  loss  or  damage  by  fire,  theft, 
barratry,  embezzlement,  and  transportation,  which  requires  each  member  to  deposit 
in  advance  a  definite  sum  sufficient  to  cover  estimated  losses  and  expenses  for  the 
ensuing  year,  the  balance  of  such  deposits  being  returned  to  members,  is  a  mutual 
fire  insurance  company  and  subject  to  the  taxes  imposed  by  the  act  of  August  5, 
1909.     (T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

Fidelity  insui'ance— Stamp  tax. 

Policies  of  fidelity  insurance  are  subject  to  stamp  tax  on  bonds  imposed  by  sub- 
division 2  of  Schedule  A,  of  Title  VIII,  of  the  act  of  October  3,  1917,  and  not  to  the 
tax  on  insurance  imposed  by  section  504  (c)  of  that  act.     (T.  D.  2704;  Apr.  23,  1918.) 

Fraternal  beneficiary  societies — Exemption  from  tax. 

Fraternal  beneficiary  society,  order,  or  association,  operating  under  lodge  system 
or  for  exclusive  benefit  of  members  of  fraternity  itself,  operating  under  lodge  system 
and  providing  for  payment  of  life,  sick,  accident,  or  other  benefits  to  the  members 
of  such  societ}^  or  order  or  their  dependents  is  exempt  from  tax  on  insurance.  (T.  D. 
2588;  Nov.  21,  1917.) 

Guaranty  fnsurance. 

Companies  insuring  or  guaranteeing  any  loss  that  might  be  occasioned  by  reason 
of  accepting  mortgages  that  can  not  be  foreclosed  or  in  any  manner  recovered 
upon  are  subject  to  tax  under  subdiATision  2  of  Schedule  A  of  Title  VIII,  of  the  act 
of  October  3,  1917,  and  not  under  paragraph  (c)  of  section  504  of  that  act.  (T.  D. 
2704;  Apr.  23,  1918.) 

Policies  of  guaranty  insurance,  including  policies  guaranteeing  titles  to  real 
estate  and  mortgage  guaranty  policies,  are  subject  to  stamp  tax  on  bonds  imposed 
by  subdi\'ision  2  of  Schedule  A,  of  Title  VIII,  of  the  act  of  October  3,  1917,  and  not 
to  the  tax  on  insurance  imposed  by  section  504  (c)  of  that  act.  (T.  D.  2704;  Apr. 
23,  1918.) 

Income  taxes. 

See  "Income  Taxes  (Corporations)'";  "Income  Taxes  (Individuals)." 

Mutual  fii-e  companies — Exemption  from  tax. 

If  mutual  fire  companies  are  exempt  under  the  income-tax  law,  no  tax  is  imposed 
by  act  of  October  3,  1917.     (T.  D.  2588;  Nov.  21,  1917.) 

Mutual  protective  assoc-iations. 

Associations  composed  of  employed  or  others  who  band  themselves  together  for 
mutual  protection  in  issuing  life  and  casualty  insurance,  are  subject  to  tax  under 
paragraph  (c)  of  section  504  of  act  of  October  3,  1917,  unless  exempted  under  para- 

.    graph  (d)  of  such  section.     (T.  D.  2588;  Nov.  21,  1917.) 

Mutual  tornado  companies — Exemption  from  tax. 

If  mutual  tornado  insurance  companies  are  exempt  under  the  income-tax  law,  no 
tax  is  imposed  by  act  of  October  3,  1917.     (T.  D.  2588;  Nov.  21,  1917.) 


INSURANCE.  413 

Premiums  as  basis  for  computation  of  tax. 

Tax  provided  for  by  section  504  of  act  of  October  3,  1017,  is  imposed  on  premium 
charged,  each  separate  premium  collected  to  be  regarded  as  a  separate  item  for  the 
computation  of  the  tax  and  not  on  the  gross  premiums  collected  for  any  one  month. 
(T.D.  2588;  Nov.  21,  1917.) 

Promissory  notes — Stamp  tax. 

Policy  loan  and  premium  extension  agreements  are  not  promissory  notes  as 
contemplated  by  law  so  as  to  be  liable  for  stamp  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

Reirsurance. 

Tax  imposed  by  section  504  of  act  of  October  3,,  1917,  does  not  apply  to  amounts 
j)aid  on  policies  of  reinsurance;  consequently,  where  insurance  company  reinsures 
risks  of  another  company  transaction  is  termed  reinsurance  and  is  not  taxable; 
reinsurance  is  regarded  as  that  insurance  taken  by  a  company  which  has  oyer- 
insured  and  obtains  another  company  to  underwrite  it  for  part  of  the  liability 
(T.  D.  2588;  Nov.  21,  1917.) 

Residence  of  insured. 

Tax  imposed  by  section  504  of  act  ot  October  3,  1917,  accrued  on  insurance  poli- 
cies issued  within  Uuit-ed  States  irrespective  of  residence  of  insured,  (T.  D.  2588; 
Nov.  21,  1917.) 

Returns. 

Return  for  tax  on  insurance  may  be  filed  either  direct  from  home  office  or  by 
State  superintendent,  where  such 'is  appointed  or  employed,  single  reports,  pre- 
pared by  home  offices,  being  preferred;  local  insurance  agents  not  required  to  make 
returns,  nor  are  returns  showing  name  and  address  of  each  person  to  whom  an  in- 
demnity is  paid  required;  permission  to  be  granted  to  take  credit  in  subsequent 
month's  report  for  any  overpayment  of  tax  for  prior  month.  (T.  D.  2588;  Nov.  21, 
1917.) 

Sex  of  insured. 

Tax  provided  for  by  section  504  of  the  act  of  October  3,  1917,  is  imposed  on  insur- 
ance v/ithout  regard  to  sex  of  the  insured.     (T.  D.  2588;  Nov.  21,  1917.) 

Stamp  taxes  on  policies. 

Policies  of  guaranty  and  fidelity  insurance,  including  policies  guaranteeing  titles 
to  real  estate"  and  mortgage  guaranty  policies,  are  subject  to  stamp 'tax  on  bonds 
and  not  to  tax  on  insurance.     (T.  D.  2704;  Apr.  23,  1918.) 

Policy  loan  and  premium  extension  agreements  are  not  promissory  notes  as 
contemplated  by  law  so  as  to  be  liable  for  stamp  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

Merely  incidental  profit  earned  by  way  of  interest  on  its  invested  safety  funds  or 
on  its  bank  balances  does  not  change  purely  mutual  character  of  company  or  indi- 
cate that  its  business,  though  thus  earning  a  profit,  is  "carried  on  for  profit,"  so  as 
to  require  stamping  of  policies  under  act  October  22,  1914.  (T.  D.  2743;  July  2, 
1918.     Ct.  Dec.) 

Title  insurance. 

Policies  of  guaranty  insurance,  including  policies  guaranteeing  titles  to  real 
estate  and  mortgage  guaranty  policies,  are  subject  to  stamp  tax  on  bonds  imposed 
by  subdivision  2  of  Schedule  A,  of  Title  VIII,  of  the  act  of  October  3,  1917,  and  not 
to  the  tax  on  insurance  imposed  by  section  504  (c)  of  that  act.  (T.  D.  2704;  Apr. 
23,  1918.) 

War  risk  insurance. 

Tax  imposed  by  section  504  of  the  act  of  October  3, 1917,  does  not  apply  to  soldiers' 
and  sailors'  insurance  written  by  the  War  Risk  Insurance  Bureau;  the  act  clearly 
contemplates  that  the  tax  shall  be  paid  by  the  insurer  and  not  by  the  insured;  not 
only  is  it  impossible  in  absence  of  express  provision  to  contrary  to  infer  that  the 
United  States  intended  to  tax  itself,  but  section  505  of  the  act  obviously  liniits  the 
application  of  the  tax  to  persons,  corporations,  partnerships,  and  associations,  in 
-none  of  which  classes  is  the  United  States  included.     (T.  D.  2563;  Oct.  23,  1917.) 


414  INTANGIBLE   PKOPERTY INTEREST. 

INTANGIBLE    PHOPEHTY. 
Definition. 

The  term  "other  intangible  property,"  as  used  in  section  207  of  the  act  of  October 
3,  1917,  means  property  of  character  similar  to  good  will,  trade-marks,  and  the  other 
specific  kinds  of  property  emmierated  in  the  same  clause.     (T.  D.  2694;  art.  47.) 

INTEHEST. 

Advance  payments  by  taxpayer.  • 

Instractions  with  reference  to  time  for  making  advance  payments  in  installmenta 
or  in  whole,  of  income  and  excess-profits  taxes  under  section  1009  of  act  of  October 
3,  1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to  tax- 
payer; refund  of  excess  payment;  entries  to  be  made  on  specified  Forms;  interest 
table.  (T.  D.  2622;  Dec.  26,  1917.  T.  D.  2674;  Mar.  18,  1918.  T.  D.  2695;  Apr. 
11,  1918.) 

Certificates  of  indebtedness. 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  maturing 
Juno  25,  1918.  at  par  and  accrued  interest,  in  payment  of  income  and  excess  jirofits 
taxes,  when  payable  at  or  before  maturity  of  certificates;  amount  of  such  certificates 
must  not  exceed  amount  of  taxes  due;  deposits  of  such  certificates  to  be  made  in  Fed- 
n-rd  reserve  banks  of  districts  in  which  collectors'  offices  are  located;  insurance, 
where  amounts  are  transmitted  by  registered  mail;  until  certificates  of  deposits  are 
received  from  banks  amounts  must  be  carried  as  "cash  on  hand  " ;  schedule  showing 
amount  of  accrued  interest  payable  per  certificate  of  each  issue  on  any  date  from 
January  2  to  June  25,  1918.     (t.  D.  2639;  Jan.  28,  1918.) 

Schedule  showing  exact  amount  of  accrued  interest  payable  on  United  States  cer- 
tificates of  indebtedness,  receivable  in  payment  of  income  and  excess  profits  taxes, 
on  any  day  from  February  15,  1918,  to  June  25,  1918.     (T.  D.  2656;  Feb.  15,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
March  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  payable  on  any  dav  from  March 
15  to  June  25,  1918.     (T.  D.  2680;  Mar.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
April  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  on  any  dav  from  April  15  to 
June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
May  15, 1918,  and  maturing  June  25,  1918,  at  par  and  accrued  interest  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedules  showing  the  exact  amount  of  accrued  interest  payable  on  any  dav  from 
May  15  to  June  25,  1918.     (T.  D.  2718;  May  28,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
May  15,  1918,  and  maturing  June  25,  1918,  at  par  and  accrued  interest  in  payment  of 
income  and  excess  profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedules  showing  the  exact  amount  of  accrued  interest  payable  on  any  day  from 
May  15  to  June  2o,  1918.     (T.  D.  2718;  May  28,  1918.) 

Unmatured  coupons  attached  to  certificates  of  indebtedness  of  Tax  Series  of  1919, 
dated  August  20,  1918,  and  maturing  July  15,  1919,  and  of  Series  T,  dated  Novem- 
ber 7,  1918,  and  maturing  Marcli  15,  1919,  must  be  stamped  "Paid";  coupons 
maturing  on  or  before  date  tax  is  due  must  be  detached  by  taxpayer  and  collected , 
but  all  other  coupons  must  be  attached  to  certificate  and  forwarded  to  Federal 
reserve  banks;  accrued  interest  to  date  income  or  ])rofits  taxes  are  due  not  covered 
by  coupons  attached  will  be  remitted  to  taxpayer;  collectors  must  not  pay  interest 
on  such  certificates  nor  accept  them  for  an  amount  other  or  greater  than  their  face 
value.     (T.  D.  2778;  Dec.  11,  1918.) 

Estate  tax— Corporate  bonds. 

Actual  interest  on  bond?  owned  by  decedent  accrued  to  day  of  death  must  be 
returned  as  a  portion  of  the  gross  estate.     (T.  D.  2483;  Apr.  20,  1917.) 

Excess  profits  taxes. 

Interest  paid  within  the  year  on  indebtedness  incurred  for  purchase  of  Liberty  4 
per  cent  bonds  may  be  deducted  in  computing  net  income  subject  to  income  sur- 
taxes and  excess-profits  taxes;  in  case  of  corporations  this  is  subject  to  limitations 


INTEREST.  415 

Excess  profits  taxes — Continued, 
imoosed  by  law  on  amount  oi  indebtedness,  interest  on  which  may  lie  deducted, 
(T.'D.  2541;  Oct.  20,  1917.) 

In  computing  net  income  partnei*ship  will  be  allowed  to  deduct  amounts  paid 
during  year  to  individual  partner  ag  interest  upon  any  bona  fide  loan,  but  no  deduc- 
tion for  so-called  interest  upon  capital  will  be  recognized.  (T.  D.  2613;  Dec.  20, 
1917.) 

Excise  taxes. 

The  case  of  Altheimer  and  Rawliiigs  Investment  Co.  v.  Allen  holds  that  a  corpora- 
tion which  did  a  brokerage  business  and  bought  securities  for  customers  who  paid 
only  part  of  the  price,  paying  interest  on  Imlances,  corporation  also  paying  for  securi- 
ties purchased  only  part  of  the  price  and  paying  interest  on  balances,  including  in 
return  of  gross  income  difference  between  interest  received  and  interest  paid,  made 
incorrect  return;  interest  received  by  corporation  from  its  customers  should  be 
included  in  gross  income  and  interest  paid  by  the  corporation  on  said  piu'chases  is 
allowable  as  interest  payable  on  its  bonded  or  other  indebtedness;  in  determining 
net  income  interest  canbe  deducted  only  to  an  amount  not  exceeding  the  paid-up 
capital  stock  outstanding  at  close  of  the  vear.  (T.  D.  2441;  Feb.  8,  1917.  T.  D. 
268(3;  Apr.  1,  1918.    Ct.  Decs.) 

According  to  the  case  of  Boston  Terminal  Co.  v.  Gill,  decided  by  the  Circuit  Court 
of  Appeals  on  October  25,  1917,  interest  on  bonds  or  other  indebtedness  is  an  ailov\'- 
able  deduction  from  gross  income  only  to  the  amount  paid  upon  bonded  or  other 
indebtedness  not  exceeding  the  corporation's  paid-up  capital  stock.  (T.  D.  2671; 
Mar.  11,  1918.     Ct.  Dec.) 

Sale  or  stock  of  another  corporation  resulted  in  gain  or  profit  to  extent  of  difference 
between  bujdng  and  selling  prices,  there  being  no  merit  in  contention  that  interest 
should  be  added  to  purchase  price  in  order  to  ascertain  its  cost,  and  so  much  of 
profits  as  may  be  deemed  to  have  accrued  subsequent  to  December  31,  1908,  must 
be  treated  as' part  of  gross  income.     (T.  D.  2724;  June  4,  1918.     Ct.  Dec.) 

In  ascertaining  net  income  of  a  corporation  mider  section  38  of  the  act  of  August 
5,  1909,  which  has  taken  title  to  real  property  subject  to  mortgage,  but  hasnot 
assumed  indebtedness  secured  thereby,  interest  paid  on  indebtedness  may  be 
deducted  as  payments  required  to  be  made  as  condition  to  continued  use  or  pos- 
session of  the  property.     (T.  D.  2787;  Jan.  31,  1919.) 

Interest  paid  by  corporation  on  sum  representing  premiums  received  from  sale 
of  its  stock  can  not  be  deducted  in  ascertaining  net  income  subject  to  tax  under 
section  38  of  the  act  of  August  5,  1909.     (T.  D.  28S0;  July  3,  1919.) 

^Yliere  corporation  sold  bonds  at  discount  during  1906,  1907,  and  1908,  no  deduc- 
tion from  gross  income  for  years  1909,  1910,  and  1911,  oi  sums  set  aside  by  corpora- 
tion to  ])aY  such  discount  at  maturity  of  bonds  is  pernutted.  (T.  D.  2944;  Nov.  S, 
1919.     Ct.'Dec.) 

Indebtedness  upon  which  interest  n^y  be  taken  as  a  deduction  under  the  act  of 
August  5,  1909,  can  not  be  greater  than  par  value  of  capital  stock  paid  u])  and  out- 
standing; in  computing  paid-up  capital  stock,  a  surplus  created  by  payirg  a  pre- 
mium on  capital  stock  subscribed  for  can  not  be  added  in  determining  indebtedness 
r    upon  which  interest  may  be  deducted.     (T.  D.  3004;  Apr.  21,  1920.    'Ct.  Dec.) 

Statement  of  classes  of  claims  for  credit  of  sales  taxes  or  penalties  and  interest 
which  may  be  made  by  collectors  on  subsequent  return  where  claim  for  refund  or 
abatement  has  not  been  filed  by  individual  taxpayer.     (T.  D.  301G;  May  3,  1920.) 

Claims  for  refund  or  abatement  of  sales  taxes  or  penalties  ond  interest  other 
than  those  specified  in  this  Trcasm-y  Decision  must  be  made  by  individual  tax- 
payer on  Form  46  or  47,  respectively,  except  in  specific  instances  where  collector 
may  be  given  authority  bv  the  Bureau  to  use  Form  751  or  blanket  Form  47.  (T.  D. 
301 G;  Mays,  1920.) 

Interest  which  accrued  prior  to  1909  and  was  paid  in  1911  was  not  incom.c  within 
the  act  of  August  5,  1909.     (T.  D.  3048;  July  26,  1920.) 

Moneys  received  bj^  way  of  interest  upon  bank  lialanccs  and  from  investment  of 
such  portion  of  premiurn  deposits  as  are  not  cun-ently  required  for  the  payment  of 
losses  and  expenses  are  profits  earned  by  an  insurance  company  subject  to  tax. 
(T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

Premiums  due  and  deferred  and  interest  due  and  accrued  but  not  actually 
collected  in  cash  within  the  taxal>le  year  are  not  income  "received."  (T.  D. 
3057;  Aug.  16,  1920.     Ct.  Dec.) 


416  INTEREST. 

Excise  taxes — Continued. 

Interest  on  policy  loans,  which  by  the  terms  of  the  contract  was  added  to  the 
principal  when  it  became  due,  does  not  constitute  income  where  it  remains  unpaid 
by  the  policyholder.     (T.  D.  3057;  Aug.  16,  1920.     Ct.  Dec.) 

Income  taxes — Exemptions. 

Interest  on  State,  municipal  and  United  States  bonds  received  by  corporations  is 
not  taxable  to  the  corporation;  upon  amalgamation  with  other  funds  of  corporation 
such  income  loses  its  identity;  when  distributed  to  stockholders  as  a  dividend, 
entire  amount  of  dividend  is  subject  to  inclusion  in  returns  of  income  for  purposes  of 
tax;  foregoing  holds  true  for  scrip  payment  of  interest.     (T.  D.  2690;  art.  4.) 

Interest  on  obligations  of  a  State  or  any  political  subdivision  thereof,  or  on  obli- 
gations of  the  United  States  (but,  in  case  of  obligations  issued  after  Sept.  1,  1917, 
only  if  and  to  extent  provided  in  act  authorizing  issue  thereof),  or  its  possessions  or 
on  securities  issued  under  provisions  of  Federal  farm  loan  act  of  July  17,  1916,  shall 
not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

Section  1200  of  the  act  of  October  3,  1917,  so  amends  section  4  of  the  act  of  Sep- 
tember 8,  1916,  as  to  exempt  interest  on  obligations  of  United  States  issued  after 
September  1,  1917,  only  if  and  to  extent  provided  in  act  authorizing  their  issue; 
income  from  bonds  and  certificates  issued  under  the  act  of  September  24,  1917,  is 
exempt  from  war  income  tax  of  4  per  cent  imposed  upon  net  income  of  corporations 
by  section  4  of  Title  I  of  the  act  of  October  3,  1917,  and  the  2  per  cent  tax  imposed 
by  section  10  of  Title  I  of  the  act  of  September  8,  1916,  as  amended.  (T.  D.  2690; 
art.  85.) 

Gross  income  from  sources  within  United  States,  as  applied  to  foreign  corporations, 
includes  interest  received  on  bonds,  notes,  or  other  interest-bearing  obligations  of 
residents,  corporate  or  otherwise.     (T.  D.  2690;  art.  89.) 

Interest  recived  on  all  United  States  bonds  and  certificates  exempt  from  normal 
income  tax  need  not  be  included  in  gross  income  in  return  made  for  purpose  of  the 
2  per  cent  tax  or  the  4  per  cent  tax,  but  interest  on  bonds  and  certificates  issued 
under  the  a'?t  of  September  24,  1917,  in  excess  of  interest  on  $5,000  aggregate  princi- 
pal amount  of  such  bonds  and  certificates  must  be  included  in  net  income  upon 
which  war  excess-profits  tax  i=;  computed.     (T.  D.  2690;  art.  100.) 

All  interest  received  on  obligations  of  United  States  or  its  possessions  or  on  obliga- 
tions of  a  State,  or  any  political  subdivisior  thereof,  should  be  eliminated  in  ascer- 
taining gross  income;  accrued  interest  on  bonds  purchased  must  not  be  included 
in  amount  eliminated  from  gross  income;  in  case  of  obligations  of  United  States 
issued  alter  September  1, 1917,  income  therefrom  is  exempt  from  tax  only  to  extent 
provided  in  the  act  authorizing  their  issue,  and  income  from  such  obligations 
received  by  insurance  companies  is  exempt  from  2  per  cent  and  4  per  cent  tax. 
(T.  D.  2690;  art.  239.) 

Interest  upon  obligations  of  State  or  any  political  suddivision  thereof  is  exempt; 
obligations  issued  for  public  purpose  by  or  on  behalf  of  State  or  duly  organized 
political  subdivision  acting  by  constituted  authorities  duly  empowered  to  issue  such 
obligations  are  obligations  of  a  State  or  political  subdivision  thereof.  (T.  D.  2715; 
May  20,  1918.) 

When  income  as  such  is  taxable  to  beneficiaries,  as  in  case,  under  present  income 
tax  law,  of  trust  income  of  which  is  to  be  distributed  annually  or  regularly  between 
existing  beneficiaries  each  beneficiary  is  regarded  as  owner  of  proportionate  part 
of  bonds  held  in  trust,  and  subscription  by  trustee  for  bonds  of  Fourth  Liberty 
Loan  constitutes  each  beneficiary  an  original  subscriber  for  his  proportionate  part 
and  entitles  him  to  collateral  exemption  of  interest  on  bonds  of  previous  issues, 
whether  owned  by  beneficiary  or  by  trustee,  and  subscription  by  such  beneficiary 
for  bonds  of  Fourth  Liberty  Loan  entitles  him  to  collateral  exemption  of  interest 
on  bonds  of  previous  issues  held  by  trustee.     (T.  D.  2762;  Oct.  18,  1918.) 

When  income  is  taxable  to  trustee,  as  in  case,  under  present  income  tax  law, 
of  a  trust  income  of  which  is  accumulated  for  benefit  of  unborn  or  unascertained 
persons,  trustee  is  regarded  as  owner  of  all  bonds  held  in  trust  and  the  trust  is 
entitled  to  exemption  on  account  of  such  ownership;  in  such  case  subscription 
by  trustee  for  bonds  of  Fourth  Liberty  Loan  constitutes  trustee  as  such  the  original 
subscriber  and  entitles  the  trust,  on  account  of  such  subscription,  to  collateral 
exemption  of  interest  on  bonds  of  previous  issues.     (T.  D.  2762;  Oct.  18,  1918.) 

When  income  of  partnership  is  taxable  to  individual  partners,  as  under  present 
income  tax  law,  each  partner  is  treated  as  owner  of  proportionate  part  of  Liberty- 
loan  bonds  held  by  partnership  and  entitled  to  exemption  on  account  of  sucn 


INTEREST.  417 

Income  taxes — Exemptions — Contirmod. 

ownership  as  if  such  partner  owned  s^uch  proportionate  part  of  bonds  directly. 
(T.  D.  2762;  Oct.  18,  19J8.) 

When  inrnrae  of  partnership  is  ta:KaMe  to  partnership  as  snch,  as  under  present 
excess  profits  tax  law,  partnership  is  treated  as  owner  of  Liberty  loan  bonds  lield 
by  it  and  entitled  to  exemption  from  taxes  assessed  upon  income  of  partnership 
as  snch.     (T.  D.  2762;  Oct.  18,  1918.) 

With  rel'eionre  to  tax  assessed  upon  indi\idiial  partner  on  share  of  partnership 
income,  such  partner,  if  partner  at  time  of  original  subscription  by  partncrsliip  for 
bonds  of  Fourth  Liberty  Loan,  is  treated  as  original  subscriber  for  proportionate 
part  of  such  bonds  and  is  entitled  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues,  as  if  he  had  subscribed  directly  for  such  proportionate  part.  (T. 
]>.   2762;  Oct.   18,   1918.) 

With  reference  to  tax  assessed  to  partnership  upon  partnership  income  as  a  whole, 
eiicli  partnerslii])  is  original  subscriber  and  entitled  to  collateral  exemption  of  interest 
on  Liberty  bonds  of  pre\ious  issues  on  account  of  such  original  subscription  for 
bonds  of  Fourth  Liberty  Loan.     (T.  D.  2762;  Oct.  18,  1918.) 

In  determining  amount  of  net  income  of  taxable  year  "remaining  undistributed" 
six  months  alter  "its  close,  and  not  "invested  and  employed  in  the  business,"  there 
may  in  gneral  be  subtracted  the  amount  of  any  interest  paid  by  corporation  but 
not  allowed  to  be  deducted  for  income  tax  purposes.     (T.  D.  2763;  Oct.  21,  1918.) 

Corporation,  and  not  stockholders,  is  regarded  as  owner  of  Liberty  loan  bonds 
held  by  a  corporation  and  entitled  to  exemption  on  account  of  such  ownership; 
when  bonds  of  Fourth  Liberty  Loan  are  subscribed  for  by  corporation  it,  and  not 
stockholders,  is  original  subscriber  and  entitled  to  collateral  exemption  of  interest 
on  bonds  of  previous  issues  on  account  of  such  original  subscription.  (T.  D.  2762, 
Oct.  18,  1918.) 

Gross  income. 

Interest  accrued  to  time  of  purchase  of  bonds  (advanced  by  purchaser)  is  not  to  be 
accounted  for  as  income  by  purchaser;  only  amount  of  interest  assignable  to  por- 
tion of  intf^rest  paid  subsequent  to  purchase  has  status  of  income,  and  amount  of 
accrued  interest  so  advanced  by  purchaser  is  taxable  income  to  be  accounted  for  in 
return  of  vendor;  coupons  from  bonds  for  interest  thereon,  exchanged  for  other 
bonds,  are  equivalent  of  payment  of  interest  coupons  and  purchase  of  new  bonds 
with  cash.     (T.  D   2690;   art.  4.) 

Wherever  income  of  individual  is  from  tax-exempt  bonds,  and  amount  of  income 
other  than  that  from  tax-exempt  securities  is  less  than  amount  of  income  for  which 
return  is  required,  no  return  is  to  be  made;  interest  from  securities  exempt  under 
section  4  of  the  law  is  not  to  be  included  in  returns.     (T.  D.  2690;  art.  26.) 

Interest  received  on  bonds  held,  whether  guaranteed  to  be  tax-free  or  not,  must 
be  included  in  income  and  must  be  accounted  for  in  return  of  annual  net  income; 
matter  of  complving  with  covenant  of  bond  is  matter  to  be  adjusted  between  debtor 
corporation  and'the  bondholder.     (T.  D.  2690;  art.  122.) 

Moneys  received  by  way  of  interest  upon  bank  balances  and  from  investment 
of  such  portion  of  premium  deposits  as  are  not  currently  rerjuired  for  the  payment 
of  losses  and  expenses  are  profits  earned  by  an  insurance  company  subject  to  tax. 
(T.  D.  3078;  Oct.  13,  1920.     Ct.  Dec.) 

— —  Information  at  source. 

Interest  accrued  on  bank  deposits  before  it  has  been  passed  to  the  credit  of  the  in- 
dividual depositor  need  not  be  reported.     (T.  D.  2670:    Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  pa^'ing  interest  of  $800  or  more  in  any  taxable 
year,  or,  in  case  of  such  payment  made  by  the  United  States,  the  ofHcers  or  em- 
ployees of  the  United  States  having  information  as  to  such  payments  authorized  and 
required  to  render  due  and  accurate  return,  setting  forth  the  amount  of  such  interest 
and  the  name  and  address  of  the  recipients  thereof.     (T.  D.  2690;  art.  34.) 

Requirements  for  information  at  source  do  not  apply  to  payment  of  interest  on 
obligations  of  the  United  States.     (T.  1).  2690;   art.  37.) 

Owners  of  bonds  of  domestic  and  resident  corporations  shall,  when  presenting  in- 
terest coupons  for  payment,  file  certificate  of  ownership  for  each  issue  of  boiiils  show- 
ing name  and  address  of  debtor  corporation,  name  and  address  of  owner  of  bonds, 
whether  pavee  is  married  or  head  of  a  family,  and  amount  of  interest.  (T.  D.  2690; 
art.  43.) 

7042(1°— 21 27 


418  INTEREST. 

Income  taxes — Continued. 

Information  at  source — Continued. 

Returns  of  information  required,  regardless  of  .amount,  in  case  of  payments  of  in- 
terest upon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of  domes- 
tic or  resident  corporations,  joint-stock  companies,  associations,  and  insurance  com- 
panies, and  in  the  case  of  foreign  items;  original  owiership  certificates,  when  duly 
filed,  shall  constitute  and  be  treated  as  retmrns  of  information.  (T.  D.  2759;  Oct. 
2,  1918.) 

The  term  "foreign  item,"  as  used  in  article  35  of  Regulations  No.  33,  Revised, 
means  any  dividend  upon  stock  of  foreign  corporation  or  any  item  of  interest  upon 
bonds  of  foreign  countries  or  foreign  corporations,  wliether  such  dividend  or  interest 
is  paid  in  tlie  United  States  or  by  check  drawn  on  a  domestic  banlc,  (T.  D.  2759; 
Oct.  2,  1918.) 

Wherever  a  foreign  country  or  foreign  corporation  issuing  bonds  has  appointed  a 
pa\dng  agent  in  this  country,  charged  with  duty  of  paying  interest  upon  such  bonds, 
Buch  agent  shall  be  source  of  information ;  if  such  country  or  corporation  lias  no  such 
agent  tlien  last  bank  or  collecting  agent  in  this  country  shall  be  soiu'ce  of  information ; 
in  case  of  dividends  on  stock  of  foreign  corporation,  first  bank  or  collecting  agent 
accepting  such  item  for  collection  shall  be  source  of  information.  (T.  D.  2759; 
Oct.  2,  1918.) 

Banks  or  agents  collecting  foreign  items  required  to  obtain  license  from  Commis- 
sioner of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such  regu- 
lations for  furnishing  of  information  as  the  Commissioner,  with  approval  of  Secre- 
tary of  the  Treasurv,  shall  presciibe,  and  to  penalties  prescribed  by  failure  to  obtain 
such  license.     (T.  D.  2759;  Oct.  2,  1918.) 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed,  or  accompanied  by  proper  ownership  certificate, 
givine  all  information  called  for  by  such  certificate;  where  first  licensed  bank  or 
colhicting  agent  is  source  of  information,  licensee  shall  attach  ownership  certificate 
and  indorse  on  item  the  words  "Certificate  attached  and  information  fiunished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certifi(;ates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue 
(Sorfin^  ^)i^dsion),  Wasliington,  D.  C,  on  or  before  20th  day  of  month  following 
that  during  which  items  were  accepted,  accompanied  by  letter  of  transmittal, 
showing  number  of  certificates  and  aggregate  amount  of  foreign  items  disclosed 
thereon.     (T.  D.  27a9;  Oct.  2,  1918.) 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall 
accompany  coupon  to  paying  agent  in  this  country,  or  if  there  is  no  such  agent, 
then  to  last  bank  or  collecting  agent  handling  item  in  this  coimtry ;  when  more  than 
one  coupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from  same 
issue  of  bonds,  single  certificate  may  be  used;  when  foreign  items  have  been  prop- 
erly indorsed,  certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Inter- 
nal Revenue  (Sorting  Division),  W^ashington,  D.  C,  on  or  before  20th  day  of  month 
following  that  during  which  items  were  accepted,  accompanied  by  letter  of  trans- 
mittal, showing  number  of  certificates  and  aggregate  amount  of  foreign  items  dis- 
closed thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

The  term  "foreign  corporation,"  as  used  in  article  35  of  Regulations  No.  33,  Re- 
visod,  means  one  not  organized  and  existing  under  the  laws  of  the  United  States  or 
of  anv  State  or  Territory  thereof,  or  of  the  District  of  Columbia,  Porto  Rico,  or  the 
Philijppine  Islands.     (T.  D.  2759;  Oct.  2,  1918.) 

-        License  of  collecting  agent. 

All  persons,  corporations,  etc.,  undertaking  as  matter  of  business  or  for  profit,  col- 
lection of  foreign  pa>Tnents  of  interest  on  dividends  by  means  of  coupons,  checks,  or 
bills  of  exchange,  shall  obtain  license  from  Commissioner  of  Internal  Revenue,  as 
prescribed  by  section  9  (b)  of  the  act  of  September  8, 1916,  as  amended;  such  licensee 
shall  write  or  stamp  on  the  face  of  the  item:  "Information  obtained  and  furnished 
by (name  of  collecting  agent).     (T.  D.  2690;   art.  48.) 

Banks  or  agencies  collecting  foreign  items  required  to  obtain  license  from  Commis- 
sioner of  Internal  Revenue  to  engage  in  such  business,  and  are  subject  to  such  regu- 
lations for  furnishing  of  information  as  Commissioner  of  Internal  Revenue,  with 
approval  of  the  Secretary  of  the  Treasury,  shall  prescribe,  and  to  penalties  pre- 
scribed for  failure  to  obtain  such  license:  blank  application  for  license  may  be- 
obtained  from  any  collector  of  internal  revenue,  license  to  be  issued  without  cost. 
(T.  D.  2769;  Oct.  2,  1918.) 


INTEREST.  419 

Inconie  taxes — Continued. 
Net  income. 

Corporations  and  joint-stock  companies  or  associations,  and  insurance  companies, 
keeping  books  of  account  on  an  accrual  basis,  may  deduct  from  gross  income,  in  re- 
turns of  anjiual  net  income,  accrued  interest  for  the  return  year  within  limits 
prescribed  bv  taxing  acts  when  shown  as  a  charge  against  accrued  income  upon  the 
books  of  account.     (T.  D.  2625;   Dec.  17,  1917.) 

^^'here  it  is  clearly  established  that  debtor  corporation  has  actually  withhold  and 
paid  to  proper  officer  of  the  United  States  the  tax  on  interest  on  bonds  containing 
tax-free  covenant,  recii^ient,  having  returned  such  interest  as  income,  may  take 
credit  against  any  tax  to  which  subject  on  the  basis  of  the  return,  for  tax  so  paid  by 
debtor  corporation.     (T.  D.  2690;   art.  122.) 

Under  paragraph  third  of  section  12  of  income-tax  act  maximum  principal  upon 
which  deductible  interest  may  be  computed  is  amount  of  paid-up  capital  stock 
plus  one-half  of  interest-bearing  indebtedness  outstanding  at  close  of  year;  amount 
of  interest  thus  computed  at  contract  rate,  if  actually  paid  within  year,  may  be 
deducted,  or  if  accounts  are  kept  on  basis  other  than  actual  receipts  and  disburse- 
ments, amount  of  interest  actuall}'  accrued  at  contract  rate,  if  computed  on  amount 
not  in  excess  of  maximum  principal,  may  be  deducted,  provided  it  is  so  entered  on 
books  as  to  constitute  liability  against  assets,  and  provided  it  does  not  include  inter- 
est on  indebtedness  incurred  in  purchase  of  securities,  income  from  which  is  not 
subject  to  tax;  in  ascertaining  maximum  principal,  preferred  stock  will  be  con- 
sidered as  paid-up  capital  stock  and  not  as  indebtedness.     (T.  D.  2890;  art.  180.) 

Full  value  of  stock  as  represented  by  par  value  of  shares  issued  and  outstanding 
is  regarded  as  paid-up  capital  stock,  except  when  assessable  on  account  of  deferred 
payments  or  when  payable  in  installments,  in  which  case  amount  actually  paid 
■wall  constitute  actual  paid-up  stock;  where  stock  is  issued  without  par  or  nominal 
value,  paid-up  capital  stock  for  purpose  of  arriving  at  maximum  principal  will  be 
amount  of  cash  paid  into  corporation  or  cash  value  at  time  acquired  of  property 
given  in  exchange  for  such  stock;  when  there  is  no  capital  stock  entire  amount  of 
capital  (not  including  interest-bearing  indebtedness)  employed  in  business  plus 
one-half  of  interest-bearing  indebtedness  outstanding  at  close  of  year,  constitutes 
maximum  principal  upon  which  deductible  interest  can  be  computed.  (T.  D. 
2690;  art.  181.) 

Capital  employed  in  business,  constituting  one  of  the  elements  in  computing 
allowable  interest  deductions,  contemplates  entire  capital  paid  in  by  members  of 
company,  including  so  much  of  accumulated  surplus  as  is  actually  used  and  em- 
ployed in  the  business  and  properties  of  corporation,  but  does  not  include  any 
borrowed  ca2)ital  or  interest-bearing  indebtedness.     (T.  D.  2690;  art.  181.) 

Indebtedness  which  is  to  be  reported  in  return  for  purpose  of  determining  maxi- 
mum princi^Dal  upon  which  interest  deduction  is  to  be  computed  shall  not  include 
noninterest-bearing  indebtedness.     (T.  D.  2690;  art.  182.) 

^^^lere  no  indebtedness  is  outstanding  at  close  of  year,  maximum  deduction 
allowable  will  be  amount  of  interest  paid  on  amount  of  indebtedness  (other  than 
indebtedness  incurred  in  purchase  of  securities,  income  from  which  is  exempt 
frorn  tax)  not  exceeding  at  any  time  within  year  entire  paid-up  capital  stock  or 
capital  employed  in  business  outstanding  at  close  of  taxable  year.  (T.  D.  2690: 
art.  182.) 

The  qualifjdng  phrase,  "outstanding  at  the  close  of  the  year,"  as  used  in  para- 
graph third  of  section  12  of  the  income-tax  act,  applies  to  paid-up  capital  stock  or 
capital  invested  anil  interest-bearing  indebtedness,  which  indebtedness,  like  the 
paid-up  capital  stock  or  capital  invested,  is  required  to  be  reported  in  making 
return  of  annual  net  income,  as  outstanding  at  close  of  year;  from  amount  of  invest- 
ment to  be  so  reported  there  must  be  eliminated  all  indebtedness  incurred  in  pur- 
chase of  securities  income  from  which  is  not  subject  to  tax.     (T.  D.  2690;  art.  182.) 

Interest  on  bonded  or  other  indebtedness  bearing  different  rates  of  interest  may 
be  deducted  from  gross  income  during  year,  provided  aggregate  amount  of  indebt- 
edness on  which  interest  is  paid  docs  not  exceed  limit  prescribed  by  law  and  in 
case  indebtedness  is  not  in  excess  of  amount  on  which  deductible  interest  may  be 
legally  computed;  in  such  case  indebtedness  bearing  highest  rate  may  be  first 
considered  in  computing  interest  deduction,  and  balance,  if  any,  will  be  computed 
on  indebtedness  bearing  next  lower  rate,  and  so  on  until  interest  on  maximum 
principal  allowed  has  been  computed.     (T.  D.  2690;  art.  183.) 

Corporations  owning  property  such  as  office  buildings,  hotels,  apartment  houses, 
etc.,  which  are  not  for  sale  in  ordinary  business  of  corporation,  but  are  held  prima- 
rily for  investment  purposes  or  as  a  means  by  which  business  of  corporation  is  car- 


420  INTEREST. 

Income  taxes — Continued. 

' Net  income — Continued. 

ried  on,  and  which  are  pledged  as  security  for  mortgaged  notes  or  bonds  upon  which 
interest  is  paid,  can  not  deduct  euch  interest  under  deduction  for  expense  of  main- 
tenance and  operation,  but  shall  include  such  interest  payments,  subject  to  the 
limitation  of  the  law,  under  regular  interest  deductions.     (T.  D.  2690;  art.  184.) 

So-called  interest  on  preferred  stock,  which  is  in  reality  a  dividend  tliereon,  can 
not  be  deducted  iu  arriving  at  net  income;  for  purpose  of  tax,  di\ddendB  of  \vhate^  er 
character  can  be  paid  only  out  of  net  income,  and  net  income  is  subject  to  the  lax, 
and  for  this  purpose  can  not  be  reduced  by  any  distribution  among  or  payment  to  its 
stockholders,     (T.  D.  2690;  art.  185.) 

Interest  paid  pursuant  to  contract  on  indebtedness  secured  by  mortgage  on  real 
estate  occupied  and  used  by  coiporation  in  which  corporation  has  no  equity  or  to 
which  it  is  not  taking  title,  is  allowable  deduction  as  rental  charge,  payment  of  which 
is  required  to  be  made  as  condition  to  continued  use  and  possession  of  property; 
where  corporation  has  equity  in  or  is  purchasing  for  its  own  use  real  estate  u])on 
which  such  mortgage  is  prior  lien,  indebtedness  will  be  held  to  be  indebtedness  of 
corporation  within  meaning  of  law,  and  interest  paid  on  such  mortgage  will  be  de- 
ductible only  to  extent  that,  including  interest  on  other  obligations  of  corporation, 
it  is  within  limit  fixed  by  law.     (T.  D.  2690;  art.  186.) 

Interest  calculated  as  being  charge  against  income  on  account  of  capital  or  sur- 
plus invested  in  business,  but  which  does  not  represent  payment  on  interest-bearing 
obligation,  is  not  an  allowable  deduction;  that  is  to  say,  interest  which  money 
would  earn  if  otherwise  invested  is  not  a  deductible  charge.     (T.  D.  2690;  art.  187.) 

Car-trust  certificates  secured  by  equipment  are  obligations  of  raihoad  company 
similar  to  corporate  bonds,  etc.,  and  trustees  in  whose  names  legal  title  to  equipment 
stands  are  not  an  association  within  meaning  of  Title  I  of  the  act  of  September  8, 
1916,  as  amended  by  the  act  of  October  3,  1917,  and  are  therefore  not  taxable,  but 
they  are,  for  purposes  of  such  title,  a  fiscal  agent  paying  off  the  obligations,  b<-th 
principal  and  interest,  of  railroad  companies  with  funds  appropriated  by  such  com- 
panies; companies  may  mortgage  such  certificates  in  amount  of  bonded  or  other 
indebtedness  reported  under  item  2  of  return.  Form  1031,  and  interest  paid  thereon 
with  interest  on  otlier  obligations  will  be  deductible;  if  certificates  contain  provi- 
sion by  which  obligor  agrees  to  paj-  portion  of  tax  imposed  upon  obligee,  or 
reimburse  obligee  for  any  portion  of  tax,  or  pay  interest  without  deduction  for  any 
tax,  trustees,  in  making  interest  payments  will,  in  absence  of  claims  for  exemp- 
tion, where  interest  jDayments  are  made  to  individuals,  withhold  normal  income 
tax  on  such  payments  regardless  of  amount  thereof.     (T.  D.  2690;  art.  188.) 

WTiere  trustees  of  sinking  fund  have  invested  amount  of  sinking  fund  received 
or  any  portion  of  it  in  bonds  of  corporation,  and  such  corporation  pays  to  trustees 
interest  thereon,  the  corporation  wdll  be  permitted  to  deduct  such  interest,  pro- 
vided amount  thus  paid,  plus  interest  on  any  other  outstanding  indebtedness,  does 
not  exceed  legal  limit;  interest  paid  to  trustees,  together  with  all  other  earnings 
on  investments  made  by  trustees  of  the  sinking  fund,  must  be  included  in  gross 
income  of  corporation.     (T.  D.  2690;  art.  189.) 

In  case  of  banks  and  banking  associations,  loan  or  trust  companies,  interest  paid 
within  year  on  deposits  or  on  moneys  received  from  investment  and  secured  l)y 
interest-bearing  certificates  of  indebtedness  issued  by  such  bank,  banking  associa- 
tion, loan  or  trust  company,  may  be  allowably  deducted  from  gross  income  of  such 
corporation.     (T.  D.  2690;  art.  190.) 

Where  corporation  returns  as  income  interest  received  on  bonds,  interest  upon 
which  debtor  corporation  had  agreed  to  pay  without  deduction  of  income  taxes, 
and  debtor  corporation  actually  pays  income  tax  assessable  on  such  interest  income, 
corporation  receiving  such  interest  may  take  credit  against  tax  assessable  on  basis 
of  net  income  returned,  for  amount  of  tax  paid  thereon  by  debtor  corporation;  Mhen 
net  income  has  been  ascertained  within  rules  set  out  in  section  12  (a)  of  the  act  of 
September  8,  1916,  as  amended,  it  shall  be  credited  with  amount  of  excess  profits 
tax  assessed  or  to  be  assessed  for  same  year;  such  excess  profits  tax  allowance  is  a 
credit  against  the  net  income  for  purpose  of  taxes  imposed  by  both  the  act  of  Sep- 
tember 8,  1916,  and  act  of  October  3,  1917.     (T.  D.  2690;  art.  199.) 

Interest  paid  on  indebtedness  whollj^  secured  by  property  collateral  the  subject 
of  sale  or  hypothecation  in  ordinary  business  of  company  as  dealer  only  in  property 
constituting  such  collateral  or  in  loaning  of  funds  thereby  produced  is  an  allowable 
deduction  in  returns  by  insurance  companies  other  than  mutuals,  but  including 
mutual  life  and  mutual  marine,  as  business  expense  to  an  amount  of  interest  paid 
on  such  indebtedness,  not  in  excess  of  actual  value  of  collateral  securing  it.  (T.  D. 
2690;  art.  240.) 


12«TJiREST.  421 

Income  taxes — Continued. 
Net  income — Continued. 

In  ascertaining  net  income  of  a  corporation  under  section  2,  paragraph  G  ^b) 
(first)  of  the  act  of  October  3,  1913,  which  has  taken  title  to  real  property  subject 
to  mortsage,  but  lias  not  assumed  indebtedness  secured  thereby,  interest  paid  on 
indebtedness  may  be  deducted  as  payments  required  to  be  made  as  condition  to 
continued  use  or  possession  of  the  property.     (T.  D.  2787;  Jan.  31,  1919.) 

All  interest  accrued  on  3 J  per  cent  Victory  notes  at  date  of  any  conversion  by 
taxpayer  into  4f  per  cent  \"ictory  notes  will,  for  purposes  of  computing  net  income, 
be  deemed  to  be  interest  upon  3J  per  cent  A'ictory  notes,  and  will  be  entitled  to 
exemptions  from  taxation  to  which  interest  upon  3|  per  cent  Victory  notes  is 
erititled.     (T.  D.  2865;  June  14,  1919. j 

Interest  accrued  on  4f  per  cent  Victory  notes  at  date  of  convereion  by  taxpayer 
into  3 J  per  cent  Victory  notes  will,  for  pm-poses  of  computing  net  income,  be  deemed 
to  be  interest  on  4f  per  cent  \'ictory  notes,  and  v.'ill  be  entitled  only  to  exemptions 
from  taxation  to  which  interest  on  4f  per  cent  Mctory  notes  is  entitled;  amounta 
received  by  taxpayer  from  United  States  by  way  of  adjustment  of  accrued  interest 
upon  conversion  of  4|  per  cent  \'ictorv  notes  will  be  deemed  to  be  interest  on  4J 
per  cent  \'ictory  notes.     (T.  D.  2865;  June  14,  1919.) 

Returns. 

Monthly  returns  reporting  payment  of  interest  on  bcrnds,  or  payment  of  dividends 
on  stock  of  domestic  corporations,  registered  in  the  name  of  foreign  corporations, 
not  having  an  office  or  place  of  business  in  the  United  States,  required  to  be  pre- 
pared on  Form  1012,  revised  (1918).     (T.  D.  2702;  Apr.  18,  1918.) 

• Withholding. 

Interest  received  from  depi>.-its  in  banks  located  within  the  United  States  paid 
to  nonresident  alien  indi\iduals  and  corporations  constitutes  income  received  from 
resources  within  the  United  States  and  is  subject  to  withholding  proA^sions  of  act  of 
October  3,  1917.     (T.  D.  2623;  Dec.  28,  1917.    T.  D.  2652;  Feb.  6,  1918.) 

AMiere  debtor  corporation  or  its  duly  authorized  withholding  agent  has  made  no 
payments  of  interest  to  nonresident  alien  individuals  or  foreign  corporations,  having 
no  office  or  place  of  business  in  the  United  States,  or  has  withheld  no  tax  from  citi- 
zens or  residents  of  United  States,  whether  or  not  bonds  upon  which  such  interest 
accrued  contain  tax-free  covenant  clause,  exemption  certificates  filed  in  connection 
with  such  interest  payments  shall  be  transmitted  direct  to  Commissiriner  of  Internal 
Revenue  (Sorting  Division),  Washington,  D.  C,  accompanied  by  return  on  Form 
1096,  which  form  shall  be  filed  monthly,  and  need  not  be  sworn  to;  if  a  corporatiiin 
or  withholding  agent  has  withheld  tax  and  is  therefore  required  to  render  return  on 
Form  1012,  revised,  all  certificates  received  shall  be  accounted  for  on  such  mtmthly 
return,  as  directed  by  instructions  thereon.     (T.  D.  2687;  Apr.  1, 1918.) 

Form  1001,  revised,  shall  be  used  when  personal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  United 
States,  and  when  presenting  coupons  from  bonds  not  containing  tax-free  covenant; 
bj'  domestic  partnerships,  corporations,  or  associations;  by  nonresident  alien  part- 
nerships; and  by  foreign  corporations  having  office  or  place  of  business  in  United 
States,  whether  or  not  such  bonds  contain  tax-free  coA-enant.  In  case  citizen  or 
resident  indi^ddual  receives  interest  on  bond  containing  tax-free  covenant  in  excess 
of  amount  of  personal  exemption  which  individual  mav  claim,  any  such  excess  must 
be  reported  on  Form  1,000,  revised.     (T.  D.  2690;  art'.  43.) 

Form  1000,  revised,  shall  be  used  when  no  personal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  the  United 
States;  by  nonresident  alien  individuals,  foreign  corporations  having  no  office  orplace 
of  business  in  the  United  States,  whether  or  not  such  bonds  contain  a  tax-free  coA-e- 
nant;  and  in  case  where  coupons  are  receiA-ed  not  accompanied  by  certificates  of 
ownership.  First  bank  receiA'ing  coupons  not  accompanied  by  ownership  certifi- 
cates Avill  make  certificate,  crossing  out  "owner"  and  inserting  "payee,"  and  will 
enter  amount  of  interest  on  line  4.     (T.  D.  2690;  art.  43.) 

The  withholding  proA'isicms  of  sections  9  (b)  and  (c)  of  the  income  tax  law  apply 
to  the  normal  tax  leAied  upon  entire  net  income  of  nonresident  aliens  of  a  fixed  or 
determinable  annual  or  periodical  class,  as  interest,  rent,  wages,  etc.,  receiA^ed  by 
them  from  all  sources  within  United  States;  tax  to  be  deducted  and  withheld  from 
indiA'iduals  for  1917  and  subsequent  tax  Aears  ie  the  2  per  cent  normal  tax  imposed 
by  the  act  of  September  8,  1916,  as  amended.     (T.  D.  2690;  art.  43.) 

Withholding  Avill  at  all  times  be  limited  to  2  per  cent,  except  in  case  of  interest  on 
corporate  bonds  owned  by  foreign  corporations  having  no  office  or  place  of  business 


422  INVENTORIES. 

Income  taxes — Continued. 

■ Withholding — Continued. 

in  the  United  States,  in  which  case  deduction  will  be  at  rate  of  6  per  cent.     (T,  D. 
2690:  art.  45.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  citizens  or  residents  of  United  States,  indiAadual  or  fiduciary,  or  by  do- 
mestic or  resident  corporations,  joint-stock  companies,  associations,  insurance 
companies,  or  partnerships,  ownership  certificate  lOOlA  shall  be  executed  by  actual 
owner,  or  by  his  duly  authorized  agent,  when  presenting  item  for  collection,  whether 
item  is  di^ddend  or  interest  payment,  except  in  case  of  foreign  country  or  foreign 
corporation  ha^ang  pajang  agent  in  this  country  and  issuing  bonds  containing 
"tax-free"  covenant  clause;  in  such  cases  paying  agent  will  withhold  normal  tax 
upon  interest  on  such  bonds,  and  ownership  certificate,  Form  1000,  properly  modi- 
fied to  show  that  debtor  has  paying  agent  in  this  country,  should  be  used,  unless 
owner  desires  to  claim  exemption,  when  Form  lOOlA  should  be  used.  CT.  D.  2759: 
Oct.  2,  1918.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stock  of  foreign  corporations,  are 
owned  by  nonresident  alien  individuals,  or  foreign  corporations,  associations,  or 
partnerships,  ownership  certificate  Form  1071,  revised,  shall  be  used  for  and  on 
behalf  of  such  owners  by  any  responsible  bank  or  banker,  either  foreign  or  domestic. 
(T.  D.  2759;  Oct.  2,  1918.) 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed,  or  accompanied  by  proper  ownership  certificate, 
giving  all  information  called  for  by  such  certificate:  where  first  licensed  bank  or 
collecting  agent  is  source  of  information,  licensee  shall  attach  ownership  certificate 
and  indorse  on  item  the  words  "Certificate  attached  and  information  furnished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Intern^  Revenue 
(Sorting  Diydsion),  Washington,  D.  C,  on  or  before  20th  day  of  month  following 
that  during  which  items  were  accepted,  accompanied  by  letter  of  transmittal,  show- 
ing number  of  certificates  and  aggregate  amount  of  foreign  items  disclosed  thereon. 
(T.  D.  2759;  Oct.  2,  1918.) 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall  ac- 
company coupon  to  paying  agent  in  this  country,  or  if  there  is  no  such  agent,  then 
to  last  bank  or  collecting  agent  handling  item  in  this  country;  when  more  than  one 
coupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from  same  issue 
of  bonds,  single  certificate  may  be  used;  when  foreign  items  have  been  properly 
indorsed,  certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal 
Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of  month 
following  that  during  which  items  were  accepted,  accompanied  by  letter  of  trans- 
mittal, showing  number  of  certificates  and  aggregate  amount  of  foreign  items  dis- 
closed thereon.    (T.  D.  2759;  Oct.  2,  1918.) 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of 
information,  ownership  certificate  shall  accompany  coupon  to  such  agent  or  source 
of  inforcaation,  who  shall  forwaxd  ownership  certificate  to  Commissioner  of  Internal 
Revenue  in  manner  provided  where  duty  is  placed  upon  licensee,  provided  that 
in  case  ovrnership  certificate,  Form  1000,  is  used,  paying  agent  shall  make  return  on 
Form  1012.    (T.  D.  2759;  Oct.  2,  1918.) 

Munition  manufacturer's  tax. 

Amount  deductible  from  gross  income  on  account  of  interest  is  amount  of  interest 
actually  paid  within  year  on  debts  or  loans  contracted  to  meet  needs  of  business  of 
manufacturing,  and  proceeds  of  which  were  actually  used  to  meet  such  needs; 
this  deduction  must  not  include  interest  paid  on  debts  or  loans  proceeds  of  which 
were  used  to  meet  needs  of  any  other  business  in  which  manufacturer  may  be  engaged; 
deduction  can  be  taken  only  from  gross  income  of  year  in  which  interest  was  actually 
paid.     (T.  D.  2384;  art.  17.) 

INVENTORIES. 

Cigars,  cigarettes,  etc. 

Instructions  with  reference  to  making  inventory  required  by  sections  3358,  3390, 
Revised  Statutes;  no  claim  of  failure  to  make  true  inventory — in  which  certain 
tobacco  was  not  included — submitted  in  response  to  notice  to  show  cause  against 
assessment  for  omitted  tax  on  apparent  deficiencies  shown  in  examination  of  manu- 
facturer's account,  will  be  entertained;  verification  of  inventories  by  deputy  col- 
lectors.   (T.  D.  2390;  Nov.  4,  1916.) 


INVENTORIES.  423 

Cigars,  cigarettes,  etc.— Continued. 

All  attached  and  unattached  stamps  for  payment  of  tax  on  cigars  held  by  manufac- 
turers in  their  factories  on  October  4,  1917,  and  N(»vember  2, 1917,  before  commence- 
ment of  business  on  said  days,  required  to  be  inventoried  and  returns  filed  for  addi- 
tional tax,  as  provided  in  section  1006  of  act  of  October  3,  1917;  stamps  in  transit 
on  date  inventory  is  required  purchased  at  old  rates  must  be  included  in  inventory; 
forms  for  returns  and  inventories;  manufacturers  required  to  render  return  and 
inventory  notwithstanding  he  may  have  no  stamps  on  hand  on  dates  mentioned. 
(T.  D.  2569;  Oct.  17,  1917.) 

Instructions  with  reference  to  inventories  required  to  be  filed  January  1, 1918,  and 
verification  tliereof  by  collectors  of  internal  revenue  or  their  deputies;  further  duties 
of  deputy  collectors  stated.     (T.  D.  25S3;  Nov.  17,  1917.) 

Manufacturers  of  tobacco,  snuff,  cigars,  and  cigarettes  required  to  make  inven- 
tories in  accordance  with  sections  3358,  3390,  Revised  Statutes,  such  inventory  to 
be  made  before  commencement  of  business  of  January  1,  1919;  tobacco  of  each  class, 
and  stamped,  as  well  as  unstamped,  manufactured  plug,  twdst,  fine-cut,  and  smok- 
ing tobacco,  snuff,  cigars,  and  cigarettes,  of  the  several  classes,  should  be  weighed 
separately;  inventory  must  include  unstemmed  tobacco  stored  off  bonded  factory 
premises  and  also  the  attached  and  unattached  stamps;  tobacco  material  in  factory 
requii-ed  to  be  segregated  according  to  classification;  tobacco  dust,  sweepings,  etc., 
must  be  inventoried  as  "  waste" ;  weight  and  marks  of  each  unopened  package,  etc., 
required  to  be  listed  on  back  of  inventory  form;  record  of  quantity  of  tobacco  used 
from  date  of  inventory  to  date  of  deputy  collector's  visit  required  to  be  kept;  inven- 
tory must  be  verified  early  as  practicable  after  January  1,  1919;  duties  of  deputy 
collectors  enumerated,     (t.  D.  2777;  Dec.  11,  1918.) 

Inventories  prepared  in  accordance  with  sections  3358  and  3390,  Revised  Statutes, 
required  to  be  filed  before  commencement  of  business  on  January  1,  1920;  in- 
ventory of  attached  and  unattached  stamps  required;  tobacco  dust,  sweepings,  ttc, 
to  be  inventoried  as  "waste";  listing  of  weight  and  marks  of  unopened  packages, 
etc.;  verification;  duties  of  deputy  collectors.     (T.  D.  2955;  Nov.  29,  1919.) 

A  corporation  carrying  on  business  as  a  manufacturer  of  tobacco,  snuff,  cigars,  or 
cigarettes,  or  as  a  dealer  in  leaf  tobacco,  will  be  required  to  have  the  monthly  reports 
and  inventories  signed  and  sworn  to  by  a  duly  authorized  officer  or  agent  of  the  cor- 
poration and  to  file  the  monthly  reports  within  the  prescribed  time  ^vith  the  collector 
of  the  district  in  which  the  factory  or  dealer's  place  of  business  is  located.  (T.  D. 
3073;  Sept.  27,  1920.) 

An  officer's  authority  to  sign  and  make  oath  to  a  corporation's  monthlj'  reports  and 
inventories,  unless  specifically  given  in  the  charter  or  by-laws,  must  be  conferred 
by  a  resolution  in  due  course  of  the  board  of  directors.  In  case  of  such  resolution,  a 
certificate  thereof  in  duplicate,  executed  by  the  president  and  attested  by  the  secre- 
tary, shoxild  be  filed  with  the  collector  of  the  district  in  which  the  monthly  reports 
and  inventories  are  to  be  filed;  one  copy  should  be  retained  by  the  collector  and  one 
forwarded  by  him  to  the  Commissioner.     (T.  D.  3073;  Sept.  27,  1920.) 

Whenever  it  is  not  possible  or  convenient  for  an  officer  of  a  corporation  to  sign  and 
swear  to  its  monthly  reports  and  inventories  as  a  manufacturer  of  tobacco,  snuff, 
cigars,  or  cigarettes,  or  as  a  dealer  in  leaf  tobacco,  an  agent  may  be  authorizeil  to 
execute  them  and  may  bind  tlie  corporation  as  fully  as  an  officer,  under  the  following 
conditions: 

A  resolution  in  due  course  of  the  board  of  directors  should  appoint  and  authorize 
the  superintendent  or  manager  of  the  factory  or  leaf  establishment,  identif>"ing  both 
the  individual  and  the  factory  or  leaf  establishment,  to  execute  the  montlily  reports 
and  inventories  required  of  the  corporation,  and  provide  further  that  the  power  of 
attorney  so  created  shall  continue  in  full  force  until  wTitten  notice  of  the  revocation 
thereof  is  given  to  the  collector  of  the  district  thereby  affected.  A  certificate  in 
duplicate  of  such  resolution,  executed  by  the  president  and  attested  by  the  secre- 
tary, should  then  be  filed  with  the  collector  of  the  district  in  which  the  monthly 
reports  and  inventories  are  to  be  filed ;  one  copy  should  be  retained  by  the  collector 
and  one  forwarded  by  him  to  the  Commissioner.  Such  certificate  will  constitute 
authority  for  the  collector,  until  he  has  actual  notice  of  the  recall  of  the  power,  to 
accept  monthly  reports  and  inventories  executed  by  such  agent.  (T.  D.  3073; 
Sept.  27,  1920.) 

Actual  and  accurate  inventories  as  required  by  law  must  be  made  by  manu- 
facturers of  tobacco,  snuff,  cigars,  and  cigarettes  on  January  1,  1921.  Each  manu- 
facturer should  observe  carefully  the  following  instructions: 

(1)  The  inventory  must  be  made  before  the  commencement  of  business  on  Jan- 
uary 1, 1921.    After  it  is  completed  the  correct  totals  should  be  immediately  entered 


424  INVENTORIES. 

Cigars,  cigarettes,  etc. — Continued, 
on  the  blank  form  which  will  be  furnished  to  each  manufacturer  by  the  collector  of 
the  district  in  which  his  factory  is  located. 

(2)  All  stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine-cut,  and 
emoking  tobacco,  snuff,  cigars,  and  cigarettes  of  the  several  classes  must  be  separat^iy 
weighed  or  counted,  as  the  case  may  be.  An  accurate  inventory  of  attached  and 
unattached  stamps  must  also  be  made. 

(3)  All  tobacco  material  in  the  factory  should  be  segregated  according  to  the 
classification  provided  in  the  prescribed  inventory  form,  and  weighed  separately. 

(4)  The  weight  and  marks  of  each  unopened  hogshead,  case,  or  bale,  or  other 
package  of  to])acco,  and  all  broken  packages  of  tobacco  and  loose  tobacco  witliin 
the  factory  and  inventoried  by  the  manufacturer,  should  be  listed  and  each  item 
should  be  sufficiently  described  to  aid  the  deputy  collector  in  verifying  the  in- 
A'entory.  Such  list  should  be  made  on  the  back  of  the  inventory  form  or  on  separate 
sheets  of  the  same  size  attached  thereto. 

(5)  Tobacco  dust,  siftings,  sweepings,  and  waste  shall  be  inventoried  by  cigar 
manufacturers  under  the  head  of  "waste"  only,  and  by  quasi  manufacturers  of 
tobacco  under  separate  heads,  each  properly  described. 

(())  An  accurate  record  of  the  quantity  of  tobacco  of  each  class  used  during  the 
period  from  the  date  of  inventory  to  the  date  of  the  visit  of  the  deputy  should  be 
kept  for  the  purpose  of  enabling  him  to  arrive  at  the  actual  quantity  of  tobacco  of 
each  class  which  was  on  hand  on  the  inventory  date.     (T.  D.  3099;  Dec.  10,  1920.) 

l^ach  inventory  shall  be  verified  by  a  deputy  collector  at  the  earliest  practical>le 
date  after  January  1,  1921.  Each  deputy  should  be  directed,  in  determining  the 
correctness  of  the  figures  shown  in  the  inventory,  to  take  into  account  the  quantity 
of  toljacco  of  each  different  kind  sold  and  used  on  the  one  hand  and  pm'chased  on 
the  other  hand  between  the  time  of  his  visit  and  the  taking  of  the  inventory.  The 
deputy  should  require  any  necessary  amendment  to  be  made  before  permitting 
oath  to  be  taken  and  should  observe  the  instructions  in  Regulations  No.  8  (roAdsed 
July  1,  1910),  page  GO,  under  the  head  of  "Deficiencies  found  by  examining  officers." 
Anv  deficiencies  which  may  be  discovered  should  be  reported  immediately.  (T.  D. 
3099;  Dec.  10,  1920.) 

Every  dealer  in  leaf  tobacco  is  required  to  make  and  deliver  to  the  collector  of 
the  district  in  which  he  is  registered  a  true  inventory,  showing  the  places  where  his 
tobacco  is  stored  and  the  lands  and  quantity  of  each  kind  of  tobacco  held  by  him 
at  each  place,  on  January  1  next.  Such  inventory  shall  include  all  tobacco  in  his 
possession,  but  will  not  include  tobacco  owned  by  him,  but  held  by  another  dealer, 
who  must  include  it  in  his  inventory.  Such  inventory  shall  be  made  under  oath 
on  Form  776,  and  shall  show  also  the  rondition  of  the  tobacco  /whether  green, 
redried,  or  resweated)  on  the  inventory  date.  Actual  Aveighing  of  tobacco  on  the 
inventory  day  will  not  be  required,  but  if  the  tobacco  is  not  weighed,  the  inventory 
should  show  that  the  "marked  "  weights  are  reported.     (T.  D.  3099;  Dec.  10,  1920.) 

Distilled  spirits. 

"\Miere  tax-paid  whisky  belonging  to  customers  of  distillers  is  held  by  the  latter  for 
shipping  instructions,  an  inventory  covering  such  spirits  should  be  furnished  by 
the  owner  thereof  and  not  by  the  distiller,  the  distiller  being  required  to  furnish  the 
collector  with  a  statement  showing  the  name  and  address  of  the  owner,  serial  num- 
bers of  packages,  and  proof-gallon  contents,  time  of  shipment  to  owner,  etc.  (T.  D. 
2522;  Sept.  10,  1917.) 

Excise  taxes. 

Market  value  of  stock  on  December  31,  1908,  may  be  determined  by  an  inventory 
taken  as  of  that  date,  and  the  stipulated  fact  of  the  market  valueof  the  stock  on  that 
datf^  mavbe  accepted  as  suppljdng  the  lack  of  an  inventory.  (T.  D.  2725;  June 
4,1918.  "Ct.  Dec.) 

Whether  determination  of  value  of  capital  assets  on  December  31,  1908,  should 
be  made  by  taking  mining  inventory  upon  basis  of  market  values  then  exist- 
ing, or  whether  entire  increment  accruing  between  time  of  acquiring  and  time  of 
disposing  of  assets  should  be  prorated  as  if  it  had  arisen  through  a  series  of  gradual 
and  imperceptible  augmentations,  is  matter  of  detail,  to  be  settled  according  to  best 
evidence  obtainable  and  in  accordance  with  valid  departmental  regulations.  (T.  P. 
2724;  June  4,  1918.     Ct.  Dec.) 

Income  taxes — Gross  income. 

Gross  income  of  manufacturing  companies  consiete  of  the  total  sales  plus  the 
inventory  at  the  end  of  the  year  less  the  sum  of  cost  of  goods  or  materials  purchased 


INVESTED   CAPITAIi.  425 

Income  taxes — Gross  income — rontiniied. 
tluring  year  and  inventory  at  beginning  of  year;  instructione  ae  to  how  inventories 
ehall  be  taken  included  in  special  regulations  to  be  furnished  upon  application  to 
collector  of  internal  revenue.     (T.  D.  2690;  arte.  91,  92.) 

In  all  cases  where  inventories  are  taken  ffir  purpose  of  ascertaining  gain  or  lose 
resulting  from  business  of  the  year,  inventories  must  be  taken  in  accordance  with 
instructions  to  be  included  in  special  regulations  furnished  upc'n  application  to 
collector  of  internal  revenue.     (T.  D.  2(i90;  art.  120.) 

Dealers  in  merchandise  and  dealers  in  securities  authorized  to  make  returns  on 
basis  of  inventories  taken  at  cost  or  market  f)rice,  Avhichever  is  lower.  (T.  D.  2G09; 
Dec.  19,  1917.)  Pending  decision  by  Supreme  Court  of  United  States  as  to  legality 
of  authorization  of  T.  D.  2609,  retiu'ns  made  upon  basis  of  T.  D.  2609  mil  be  tenta- 
tively accepted.     (T.  D.  2649;  Jan.  30,  1918.     Affirmed,  T.  D.  2744;  July  11,  1918.) 

Net  income. 

No  deduction  because  of  obsolescence  or  damage  from  inventory  value  of  merchan- 
dise or  material  ^vill  be  allowed  excejit  in  cases  in  which  the  inventory  includes 
goods  or  materials  which  by  reason  of  obsolescense  or  damage  are  unsalable.  "(XTien 
such  deduction  is  claimed  the  facts  connected  therewith,  including  a  statement  pi 
the  cost  of  the  goods,  the  value  at  which  they  were  inventoried,  and  their  present 
condition,  must  be  filed  \nth  the  return.     (T.  D.  2690;  art.  160.) 

Where  farmer  has  adopted  inventory  method  of  keeping  accounts,  he  should,  in  or- 
der to  ascertain  gross  income,  add  to  amount  received  from  sales  during  year  the  in- 
ventory of  the  live  stock  on  hand  at  the  close  of  the  year,  and  then  deduct  amount 
expended  in  purchasing  live  stock  plus  inventory  of  live  stock  at  beginning  of  year; 
no  deduction  can  be  made  for  stock  lost  diu-ing  year;  stock  purchased  lor  any' pur- 
pose other  than  resale  may  be  included  in  inventory  for  each  year  at  a  figure  "which 
will  reflect  reduction  in  value  estimated  to  have  occurred  through  increase  or  age 
or  other  causes;  cost  price  of  article  sold  must  not  be  taken  as  additional  deduction. 
(T.  D.  2665;  Mar.  8,  1918.) 

Returns  on  basis  of. 

See  specific  heads. 

"Wines. 

AVine  makers  and  bonded  dealers  must  at  close  of  each  business  year  take  an 
inventory  of  all  mnes  actually  remaining  on  their  premises  at  that  time;  notice 
to  collector  of  date  on  which  inventory  is  to  be  taken  required;  statement  required 
to  be  made  on  last  page  of  Form  702  for  month  during  which  inventory  is  taken; 
effect  of  variance  between  quantity  found  to  be  actually  on  hand  and  that  reported: 
affidavits.     (T.  D.  2545;  Oct.  16,  1917.) 

INVESTED  CAPITAL. 
Definition. 

The  term  "invested  capital,"  as  used  in  excess  profits  tax  law,  means  the  invested 
capital  of  the  present  owner.     (T.  D.  2694;  art.  42.) 

The  term  "invested  capital,"  when  used  with  reference  to  a  foreign  corporation  or 
partnership  or  a  nonresident  alien  indi^ddual,  means  that  proportion  of  the  entire 
invested  capital  as  defined  and  limited  by  Regulati<.ins  No.  41  Avhich  the  net  in- 
come from  sources  within  the  United  States  is  of  the  entire  net  income.  (T.  D. 
2694;  art.  48.) 

Act  of  October  3,  1917,  Title  II,  imdertakes  to  define  "invested  capital,"  and  in 
computing  invested  capital  it  is  necessarv  to  come  within  the  definition  contained 
in  such  act.     (T.  D.  3051;  July  27,  1920. "  Ct.  Dec. ) 

The  term  "invested  capital,  "  as  used  in  section  209  of  the  act  of  October  3,  1917, 
includes  all  working  capital  consisting  of  money  or  propert}"  employed  in  the  busi- 
ness or  for  its  benefit,  and  furnished  or  paid  in  by  one  or  more  of  the  partners.  (T.  D. 
3080;  Oct.  19,  1920.     Ct.  Dec.) 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 
Income  taxes — Deductions. 

Amounts  expended  for  securing  copyright  and  plates  which  remain  in  possession 
of  and  as  property  of  person  making  payments  are  investments  of  capital  and  can 
not  be  allowed  as  deductions.    (T.  D.  2690;  art.  8.) 


426  IODINE ITINERANT   SHOWS. 

Income  taxes — Deductions — Continued. 

Amount  expended  for  architectural  service  is  part  of  cost  of  building  and  is  not 
a  deductible  business  expense;  cost  of  defending  title  or  perfecting  title  to  prop- 
ertv  constitutes  part  of  the  cost  of  property  and  is  not  a  business  expense.  (T.  I). 
2690;  art.  8.) 

Amounts  to  be  assessed  and  paid  under  mutual  agreement  between  bondholders 
and  stockholders  of  corporation  to  be  used  in  reorganization  of  corporation  are 
investments  of  capital  and  not  deductible.     (T.  D.  2690;  art.  8.) 

"Where  leasehold  is  sold  for  specified  sum,  purchaser  may  take  as  deduction  an 
aliquot  part  of  such  sum  each  year,  based  on  number  of  years  lease  has  run.  (T.  D. 
2690;  art.  8.) 

IODINE. 

Denatured  alcohol. 

See  "Alcohol." 

IRHIGATION. 

Capital  stock  tax — Exemption  of  companies. 

•  Farmers'  or  other  m.utual  ditch  or  irrigation  company  of  purely  local  character, 
income  of  which  consists  wholly  of  assessments,  dues,  and  fees  collected  from  mem- 
bers for  sole  purpose  of  meeting  expenses,  is  exempt  from  tax  imposed  by  section 
407  of  the  act  of  September  8, 1916.  (T.  D.  2383;  Oct.  19,  1916.  D.  T.  2750,  art.  12; 
Aug.  9,  1918.) 

Income  taxes — Exemption  of  companies. 

Mutual  ditch  or  irrigation  company  is  specifically  exempt  from  income  tax,  pro- 
vided that  their  entire  income  consists  solely  of  assessments,  dues,  and  fees  col- 
lected fi'om  members  for  sole  purpose  of  meeting  expenses  incurred  in  pui'suance 
of  purpose  for  which  organized;  if  any  such  organization  has  income  from  any 
source  other  than  assessments,  dues,  and  fees,  such  incorne  is  taxable,  and  organiza- 
tions receiving  same  will  be  required  to  make  returns.     (T.  D.  2690;  art.  69.) 

— —  Net  income. 

District  irrigation  bonds  generally  are  a  lien  upon  real  estate  affected  by  irriga- 
tion project,  and  until  corporation  holding  such  bonds  has  taken  necessary  action 
to  protect  its  interest  and  enforce  collection  of  such  bonds  corporation  will  not  be 
allowed  to  deduct  face  value  or  any  estimated  amount  suppoesd  to  represent  loss 
or  shrinkage  in  value  of  such  bonds;  any  estimated  shrinkage  in  value  does  not 
constitute  loss  within  meaning  of  Title  I  of  the  act  of  September  8,  1916,  as  amended 
by  act  of  October  3,  1917;  so  long  as  value  of  security  is  uncertain  or  unknown  loss 
can  not  definitely  be  asrertained  and  is  therefore  not  deductible.  (T.  D.  2690; 
art.  153.) 

ITINERANT   MANUFACTUREBS. 

Beverages. 

Itinerant  manufacturer  should  make  return  and  pay  tax  to  collector  of  district 
where  sales  of  beverages  are  made.     (T.  D.  2719;  Art.  XXXIV.) 

Excise  taxes. 

Itinerant  manufacturer  of  commodities  should  make  return  and  pay  war  excise 
tax  to  collector  of  district  where  sales  are  made.     (T.  D.  2719;  Art.  XXVI.) 

ITINERANT    SHOWS. 
Admissions. 

Proprietor,  manager,  or  duly  authorized  officer  of  traveling  or  itinerant  shows, 
exhibitions,  or  amusement  enterprises,  which  have  fixed  or  established  headquar- 
ters, required  to  register  \sith  collector  of  district  in  which  headquarters  are  located 
and  required  to  file  at  same  time,  or  as  soon  thereafter  as  possible,  a  schedule  of  the 
itinerararv  and  to  keep  a  daily  record  and  render  monthly  returns  to  the  collector 
of  said  district.     (T.  D.  2681;  Mar.  26,  1918.) 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con- 
siderable variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  inclosures  or  on  vacant  lots.    (T.  D.  2681;  Mar.  26,  1918.) 


JAMAICA  GINGER — JOINT-STOCK   LAND  BANKS.  427 

JAMAICA    GINGER. 
Nonb  ever  age  alcohol. 

See  "Alcohol." 

JEWELRY. 

Excise  taxes. 

Tax  imposed  by  section  600  (e)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  the 
price  for  which  any  article  commonly  or  commercially  known  as  jewelry,  whether 
real  or  imitation,  ia  sold  by  the  manufacturer;  all  articles,  among  others,  which  have 
been  specifically  classified  as  jewelry  by  the  Board  of  United  States  General  Ap- 
praisers  deemed  to  be  jewelry;  jewelry  includes  ornaments  made  of  gold,  silver,  or 
platinum,  or  any  imitations  thereof,  and  precious  or  semiprecious  stones  or  imitations 
thereof,  used  for  personal  adornment;  an  article  may  be  jewelry  although  ser-^ii'g 
a  useful  as  well  as  ornamental  purpose;  rulings  as  to  watches,  silver  tableware, 
opera  glasses,  clocks,  precious  stones,  vanity  boxes,  garters,  suspenders,  emblem 
buttons,  etc.     (T.  D.  2719;  Arts.  XIII-XVI.) 

The  presence  of  a  ring  or  loop  by  which  a  pencil  made  or  plated  with  precious 
metal  may"  be  hung  on  a  cliain  indicates  that  such  pencil  was  designed  for  personal 
adornment  and  requires  it  to  be  classified  as  jewelry  for  purposes  of  excise  tax  on 
sales.     (T.  D.  2785;  Jan.  23,  1919.) 

JOINT-STOCK  COMPANIES  OR  ASSOCIATIONS. 

Capital  stock  tax. 

See  "Capital  Stock  Tax," 

Definition. 

Term  "joint-stock  company  or  association,  "  as  used  in  Regulations  No.  33,  relat- 
ing to  income  tax,  includes  associations,  common-law  trusts,  or  organizations  by 
whatever  name  known,  which  carry  on  or  do  business  in  an  organized  capacity,  net 
income  of  which,  if  any,  is  distributed  or  distributable  among  members  or  share- 
holders on  basis  of  capital  stock  which  each  holds,  or,  where  there  is  no  capital 
stock,  on  basis  of  proportion,  share  or  capital  which  each  has  or  has  invested  in 
business  or  property  of  organization.     (T.  D.  2690;  art.  58.) 

Jjimited  partnerships  of  the  Pennsylvania  type,  which  offer  opportunity  for 
imiting  liability  of  all  the  members,  provide  for  transferability  of  partnership 
shares  and  capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are 
corporations  or  joint-stock  companies;  limited  partnerships  of  New  York  tyj^e, 
which  can  not  limit  liability  of  general  partners,  although  special  partners  enjoy 
limited  liability  so  long  as  they  observe  statutory  conditions,  and  which  arc  dis- 
solved by  death  or  attempted  transfer  of  interest  of  general  partner  and  which  can 
not  take  real  estate  or  sue  in  partnership  name,  are  partnerships;  in  doubtful  cases 
limited  partnerships  will  be  treated  as  corporations  unless  they  submit  satisfactory 
proof  that  they  are  not  in  effect  so  organized.     (T.  D.  2711;  May  9,  1918.) 

Excess  profits  tax. 

See  '  'Excess  Profits  Tax. " 
Income  taxes. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 

JOINT-STOCK   LAND   BANKS. 

Capital  stock  tax — Exemptions. 

Tax  does  not  apply  to  joint-stock  land  banks  as  to  income  derived  from  bonds  or 
debentures  of  other  joint-stock  land  banks  or  Federal  land  bank  belonging  to  such 
joint-stock  land  bank.     (T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Income  taxes — Exemptions. 

Joint-stock  land  banks  are  exempt  from  tax  without  condition  as  to  income 
specified  in  the  law;  collector,  being  satisfied  that  organization  comes  \vithin  ex- 
empted class,  is  aulliori/ed  to  eliminate  it  from  his  list  and  relieve  it  from  necessity 
of  making  returna.    (T.  D.  2690;  art.  68.) 


428  JOINT   TENANCY LABELS. 

JOINT  TENANCY. 
Estate  tax. 

Tf  property  conveyed  to  liuaband  and  wife  is  taken  by  each  in  entirety  and  in 
such  manner  that  each  was  owner  of  all,  and  upon  death  of  either  no  new  interest  or 
title  vested  in  8ur\'ivor,  one-half  of  property  thus  jointly  owned  should  be  returned 
as  portion  of  gross  estate  of  decedent  husband  or  wife,  as  case  might  be;  wherever 
public  records  show  property  in  name  of  decedent,  presumption  is  that  it  was  sole 
property  of  decedent,  and  burden  of  showing  that  surAdving  spouse  owned  any 
interest  therein  is  upon  such  spouse.     (T.  D.  2450;  Feb.  14,  1917.) 

Thirty-day  notice  (Form  705)  must  be  filed,  within  30  days  after  death  of  decedent 
whose  estate  is  taxable,  by  fiduciaries  holding  property  of  any  kind,  jointly  or  iii 
entirety,  for  decedent  and  another  or  others.     (T.  D.  2454;  Feb.  28,  1917.) 

JUDGES. 

Income  taxes — ^Exemptions. 

Retired  pav  of  judges  of  United  States  courts  is  subject  to  income  tax.  (T.  D. 
2690:  art.  4.)' 

Compensation  of  all  judges  of  the  Supreme  Court  and  inferior  courts  of  the  United 
States  in  office  September  8,  1916,  and  October  3,  1917,  shall  not  be  included  as 
income,  compensation  of  judges  of  those  courts  appointed  subsequent  to  September 
8,  1916,  being  subject  to  tax  under  act  of  that  date,  but  not  under  act  of  October  3, 
1917;  compensation  of  judges  of  such  courts  appointed  subsequent  to  October  3, 
1917,  are  subject  to  tax  under  both  acts.     (T.  D.  2690;  art.  5;  see  T.  D.  3037.) 

JUDGMENT. 

Income  taxes — Claims. 

When  suit  to  recover  tax  is  decided  in  favor  of  United  States  and  execution 
issued  and  retiu-ned  nulla  bona  as  respects  whole  or  part  of  judgment,  collei^tor 
should  satisfy  himself  whether  or  not  any  personal  property  can  be  found  to  satisfy 
such  judgment,  and  whether  there  is  any  real  property  which  can  be  subjected  by 
distraint  or  by  suit  in  equity  under  section  3207,  Re\ased  Statutes,  to  sale  in  satis- 
faction of  judgment;  where  satisfied  that  there  is  no  such  real  or  personal  property 
collector  should  present  to  Commissioner  a  claim  on  Form  53  for  abatement  of  amount 
not  collected  if  it  has  not  already  been  abated,  making  statement  thereon  of  his 
action,  accompanied  by  certificate  of  clerk  of  court  as  to  facts  in  case.  (T.  D.  2690; 
art.  253.) 

Inheritance  taxes — Bar  of  suit. 

Judgment  in  suit  against  collector  to  recover  succession  tax  collected  under  act 
of  June  13,  1898,  for  part  of  claim  only,  certain  interests  involved  being  erroneously 
held  to  be  taxable  as  being  vested  in  possession  or  enjoyment  before  July  1,  1902, 
which  judgment  was  satisfied  by  the  United  States,  is  no  bar  to  suit  against  United 
States  in  Court  of  Claims  to  recover  unpaid  residue.  (T.  D.  2885;  July  10,  1919. 
Ct.  Dec.) 

LABELS. 
Alcohol. 

See  "Alcohol." 

Cigar  boxes. 

See  "Cigars." 

Distilled  spirits. 

See  "Distilled  Spirits." 

Medicinal  preparations. 

See  "Medicinal  Preparationa." 

Oleomargarine  containers. 
See  "Oleomargarine." 

Wines. 

See"Wine8." 


LABOR  ORGANIZATIONS — LANDLORD  AND  TENANT.  429 

LABOR  ORGANIZATIONS. 

Capital  stock  tax. 

Labor  orji'anizations  are  specifically  exeniv)t  from  tax  imposed  by  section  407  of 
the  act  of  .September  8,  191(J.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2750,  Art.  12; 
Aug.  9,  1918.) 

Income  taxes — Exemption. 

Labor  orjranizat ions  are  exempt  from  tax  without  condition;  collector  being  satis- 
fied that  organization  comes  within  exempted  cla^s,  is  authorized  to  eliminate  it 
from  his  list  and  relieve  it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.; 

LANDLORD  AND  TENANT. 

Admissions. 

When  a  person  or  organization  leases  a  theater,  hall,  park,  or  place,  lessee  must 
collect  tax  on  admissions  to  entertainments  or  am"sements  conducted  at  such  place, 
but  lessor  is  permitted  to  assume  responsibility  for  collection  of  tax;  if  this  is  done, 
lessee  will  sell  tickets  from  reels  or  supplies  of  proprietor,  and  record  will  be  kept  in 
daily  records  of  lessor  in  same  manner  as  if  entertainment  had  been  conducted  by 
proprietor,  but  in  addition,  name  of  lessee  must  appear  in  a  space  provided  in  such 
record,  and  lessee  shall  certify  to  correctness  of  record;  exchange  of  general  admis- 
sion tickets  for  regular  box-ofhce  tickets;  notice  of  lease  to  collector;  en  bloc  sale  of 
tickets;  effect  of  failure  to  adopt  procedure  authorized.  (T.  D.  2681;  Mar.  26, 1918.) 
Tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  must  be  paid  in  respect 
to  performance  for  Avhich  boxes  or  seats  are  sold  or  reserved,  whether  or  not  they  are 
used;  if  there  are  no  boxes  of  similar  size,  tax  is  to  be  computed  by  dividing  tax 
payable  on  smaller  box  by  number  of  seats  in  larger  box,  and  if  there  are  no  boxes 
occupying  similar  position  tax  is  to  be  based  on  price  of  single  seats  in  same  part  of 
house;  in  case  of  seats  or  boxes  leased  or  reserved  for  period  before  and  after  Novem- 
ber 1,  1917,  tax  is  payable  on  admissions  after  October  31,  1917,  and  should  be  col- 
lected for  all  such  admissions  upon  first  use  of  box  or  seat  after  that  date;  where  lease 
only  entitles  lessee  to  right  of  occupancy  upon  payment  of  regular  price  charged  for 
admission,  tax  of  10  per  cent  is  to  be  collected  also  on  additional  charge  when  paid. 
(T.  D.  2681;  Mar.  26,  1918.) 

Capital  stock  tax. 

A  corporation  orignally  organized  for  the  purpose  of  owning  and  renting  an  ofRce 
building  which  leased  the  property  for  130  years  and  reorganized  and  practically 
went  out  of  business,  its  sole  authority  being  to  hold  the  title  subject  to  the  lease  ani 
to  receive  and  distribute  the  rentals  accruing  thereunder  or  the  proceeds  of  sale,  if 
the  property  should  be  sold,  is  not  liable  to  tax.     (T.  D.  2418;  Dec.  15,  1916.) 

Railroad  corporation  which  has  leased  its  property  for  a  term  of  years  and  parted 
with  its  control  and  management,  but  which  maintains  its  corporate  organization 
and  collects  rentals  from  lessee  company  and  distributes  same  among  its  stockhold- 
ers, is  not  engaged  in  business  so  as  to  be  liable  for  tax,  notwithstanding  lease  pro- 
vides for  recovery  of  property  in  case  of  default ;  this  does  not  apply  where  corpora- 
tion is  organized  for  ostensible  purpose  of  building  and  operating  a  railroad  and  leases 
the  road  before  it  is  built.     (T.  D.  2418;  Dec.  15,  1916.) 

If  purpose  for  which  corporation  was  organized  wa,s  to  build  and  lease  property, 
rents  derived  from  such  lease  are  taxable  even  though  thereby  the  corporation 
leases  all  the  property  and  of  necessitv  goes  out  of  all  corporate  business  excepting 
the  collection  and  distribution  of  the  rents.     (T.  D.  2418;  Dec.  15,  1916.) 

Excise  taxes — ^Mining;  properties. 

Lessee  of  mining  property  may  not  deduct  proportionate  value  of  ore  in  place  on 
January  1,  1909,  with  respect  to  each  ton  of  ore  mined,  as  so  much  depletion  of  capi- 
tal assets,  but  may  deduct  proportionate  part  of  royalty  paid  in  advance.  (T.  D. 
2721;  June  4,  1918.     Ct.  Dec.) 

Iron  ore  leases  under  consideration  in  case  of  United  States  v.  Biwabik  Mining 
Co.,  decided  b\-  the  Supreme  Court  of  the  I'nited  States,  held  not  to  be  conveyances 
of  ore  in  place,  but  to  be  grants  of  privilege  of  entering  upon,  discovering,  and  de- 
veloping and  removing  the  minerals  from  the  land  (Sargent  Land  Co.  case,  242 
IT.  S.,  503,  followed).     (T.  D.  2721;  June  4,  1918.     Ct.  Dec.) 

Excise  tax  imposed  by  the  act  of  October  3,  1917,  is,  in  case  of  positive  moving- 
picture  films,  on  their  sale  or  lease  by  the  manufacturer.     (T.  D.  2719;  Art.  III.) 


430  LANDLORD  AND  TENANT, 

Excise  taxes— Continued. 
• Moving-picture  films. 

In  case  of  lease  of  moving-picture  films  tax  attaches  when  manufacturer  enters 
into  contract  of  lease,  either  express  or  implied,  and  pursuant  thereto  delivers 
film  to  lessee  or  to  carrier  for  lessee.     (T.  D.  2719;  Art.  IV.) 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  does  not  attach  to  films 
first  sold  or  leased  prior  to  October  4,  1917.     (T.  D.  2719;  Art.  XII.) 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  applies  to  the  first  sale 
of  lease  of  any  new  positive  moving-picture  films  and  not  to  the  second  or  any 
subsequent  sale  or  lease.     (T.  D.  2719;  Art.  XII.) 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  does  not  apply  to  moving- 
picture  films  leased  by  the  manufacturer,  producer,  or  importer  located  in  one  of 
the  several  States  of  the  United  States,  where  such  films  are  exported  by  manu- 
facturer making  the  sale  on  which  but  for  the  exportation  he  would  be  liable  for 
the  tax,  the  tax  therefore  applying  to  articles  sold  for  domestic  delivery,  but  exported 
by  or  at  the  instance  of  the  buyer.     (T.  D.  2781;  Dec.  20,  1918.) 

Income  taxes — Gross  income. 

When  improvements  become  part  of  real  estate,  difference  between  cost  thereof 
and  allowable  depreciation  during  lease  term  is  gain  or  profit  to  lessor  at  end  of  lease 
term,  and  must  be  accounted  for  as  income  at  that  time.     (T.  D.  2690;  art.  4.) 

Taxes  paid  by  tenant  to  or  for  landlord  for  business  property  are  additional  rent 
and  constitute  deductible  item  to  the  tenant,  and  taxable  income  to  landlord,  and 
amount  of  such  tax  will  be  deductible  by  the  landlord.     (T.  D.  2690;  art.  8.) 

Salaries,  etc.,  and  rents  paid  by  domestic  corporations,  resident  individuals,  or 
partnerships,  to  nonresident  alien  employees  for  services  rendered  entirely  in  a 
foreign  country  and  for  property  located  in  a  foreign  country,  are  not  subject  to 
deduction  and  withholding  of  the  normal  tax,  and  such  pajonents  of  tncome  will 
not  be  subject  to  tax  in  hands  of  recipient  as  from  source  within  United  States. 
(T.  D.  2690;  art.  32.) 

Gross  income  from  sources  within  United  States,  as  applied  to  foreign  corpora- 
tions, includes  income  from  rentals.     (T.  D.  2690;  art.  89.) 

W^ere  corporation  leases  property  in  consideration  that  lessee  pay  in  lieu  of 
rental  an  amount  equivalent  to  certain  rate  of  dividend  on  capital  stock  or  interest 
on  outstanding  indebtedness,  together  with  fixed  charges,  such  payments  shall  be 
considered  rental  payments  and  shall  be  returned  by  the  lessor  corporation  as 
income,  notwithstanding  fact  that  dividend  and  interest  are  paid  by  lessee  direct 
to  stockholders  and  bondholders  of  lessor.     (T.  D.  2690;  art.  102.) 

Fact  that  corporation  has  conveyed  or  let  its  property  will  not  relieve  it  from 
liability  to  tax;  if  it  has  or  may  have  income  directly  or  indirectly  from  any  source 
it  must  make  return,  account  for  all  such  income,  and  pay  tax  assessable  thereon. 
(T.  D.  2690;  art.  102.) 

Where  corporation  is  owner  of  all  stock  in  subsidiary  company  and  the  lessee  of 
all  Its  property,  regularly  maintaining  possession,  control,  and  management  of  all 
the  subsidiary's  money  and  other  property,  so  that  the  subsidiary  is  a  mere  agent 
of  the  other  corporation  and  is  practically  merged  therewith,  dividends  of  the  sub- 
sidiary declared  out  of  a  surplus  which  accrued  prior  to  March  1,  1913,  are  not  tax- 
able income  of  the  parent  corporation.     (T.  D.  2730;  June  11,  1918.     Ct.  Dec.) 

— —  Information  at  source. 

Payments  of  rent  made  to  real  estate  agents  do  not  require  reports  of  information 
(but  agent  must  report  payments  to  landlord  if  the  same  amounts  to  $800  or  more 
during  1917.)     (T.  D.  2670;  Mar.  11,  1918.) 

Every  person,  corporation,  etc.,  paying  rent  of  $800  or  more  in  any  taxable  year, 
or,  in  case  of  such  payment  made  by  the  United  States,  the  officers  or  employees 
of  the  United  States  having  information  as  to  such  payments,  authorized  and  re- 
quired to  render  due  and  accurate  return,  setting  forth  the  amount  of  such  rent  and 
the  name  and  address  of  the  recipients  thereof.     (T.  D.  2690;  art.  34.) 

Net  income. 

Amounts  expended  by  tenants  for  taxes  and  necessary  repairs  imder  agreement, 
in  addition  to  stipulated  cash  rental,  are  items  of  taxable  income,  and  as  such  should 
be  reported  in  return  of  landlord;  corresponding  amount  may  be  deducted  by  the 
landlord.    (T.  D.  2690;  art.  4.) 


LANDLORD  AND  TENANT.  431 

Income  taxes — Continued. 
Net  income — Continued. 

Where  leasehold  is  soltl  for  specified  sura,  purchaser  may  take  as  deduction  an 
aliquot  part  of  such  sum,  each  year,  based  on  number  of  years  lease  has  to  run. 
(T.  D.  2690;  art.  8.) 

In  case  of  professional  man  who  rents  property  for  residential  purposes  but  re- 
ceives there  clients  or  callers  in  connection  with  his  professional  work  (place  of 
business  being  elsewhere),  no  part  of  rent  is  deductible  as  business  expense.  (T.  D. 
2690;  art.  8.) 

Taxes  paid  by  tenant  to  or  for  landlord  for  business  property  are  additional  rent 
and  constitute  deductible  item  to  the  tenant,  and  taxable  income  to  lanfUord,  and 
amount  of  such  tax  will  be  deductible  by  the  landlord.     (T.  D.  2690;  art.  S.) 

While  pj  yments  made  by  lessee  direct  to  stockholders  or  bondholders  are  rojitals  to 
both  it  and  lessor,  rentals  paid  in  one  case  and  rentals  received  in  other,  to  the 
stockholders  or  bondholders  they  are  interest  and  dividend  payments  received  as 
from  the  lessor,  and  as  such  will  be  accounted  for  in  their  returns  of  annual  net 
income.     (T.  D.  2690;  art.  103.) 

Stock  trust  certificates  or  leased  line  certificates,  as  case  may  be,  issued  by  lessee 
for  purpose  of  securing  or  holding  control  of  stock  of  lessor  are  held  to  be  issued  in 
lieu  of  certificates  of  capital  stock,  and  they  will  be  treated  as  capital  stock  and 
amounts  received  by  holders  are  dividends  to  them,  to  be  treated  as  rentals  by 
both  lessee  and  lessor  and  constitute  allowable  deduction  m  one  case  and  item  of 
income  in  other,  accordingly  as  they  are  paid  and  received.     (T.  D.  2690;  art.  104.) 

Cost  of  erecting  permanent  buildings  or  of  making  permanent  improvements  on 
ground  leased  by  company  is  an  additional  rental  and  may  be  deducted,  provided 
Buch  improvements,  under  terms  of  lease,  revert  to  owner  of  ground  at  expiration 
of  lease;  in  such  case  cost  will  be  prorated  according  to  number  oi  years  constituting 
term  of  lease  and  annual  deduction  will  be  aliquot  part  of  such  cost.  (T.  D.  2690; 
art.  140.) 

Lessee  corporation  may  not  deduct  any  depreciation  with  respect  to  buildings 
erected  by  it  on  leased  ground,  but  cost  of  incidental  repairs  necessary  to  keep 
buildings  in  efficient  condition  for  purpose  of  their  use  may  be  deducted  as  expense 
of  operation  and  maintenance;  if  life  of  improvement  is  less  than  life  of  lease,  de- 
preciation may  be  taken  by  lessee,  based  upon  cost  and  life  of  improvement.  (T.  D. 
2690;  art.  140.) 

Cost  of  incidental  repairs  necessary  to  keep  buildings  erected  by  lessee  corpora- 
tion in  efficient  condition  for  purposes  of  their  use  may  be  deducted  by  such  cor- 
poration as  an  expense  of  operation  and  maintenance.     (T.  D.  2690;  art.  140.) 

If  quantity  of  oil  or  gas  can  not  be  determined  with  certainty,  depletion  deduction 
will  be  computed  in  accordance  with  rules  set  out  in  T.  D.  2447,  except  that  lessees 
may  compute  deductions  for  return  of  capital  (cost  of  lease  and  development)  in  same 
manner  as  owners  in  fee;  that  is,  they  may  extinguish  such  capital  on  basis  of  re- 
duction in  flow  and  production  as  compared  -with  preceding  year,  or,  in  case  of  lease- 
hold properties  brought  in  or  developed  during  year,  depletion  deduction  may  be 
computed  on  basis  of  decline  in  settled  flow  and  procluction,  as  evidenced  by  tests 
and  gauges  made  at  end  of  year  as  compared  with  similar  tests  and  gauges  made  at 
time  settled  flow  was  determined;  for  purpose  of  commuting  depletion  territory 
comprehended  in  given  lease  will  be  considered  unit  with  respect  to  which  deple- 
tion deduction  may  be  claimed  and  allowed.     (T.  D.  2690;  art.  170.) 

In  case  of  lessee,  capital  to  be  returned  is  amount  paid  in  cash  or  its  equivalent  aa 
bonus  or  otherwise  by  lessee  for  lease,  plus  expenses  incurred  in  developing  prop- 
erty (exclusive  of  physical  property)  prior  to  receipt  of  income  thereform  sufficient 
to  meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and  lessee,  such 
incidental  expenses  as  are  paid  for  wages,  fuel,  etc.,  in  connection  with  drilling  of 
wells  and  further  development  of  property  may  be,  at  option  of  operator,  deducted  as 
operating  expense  or  charged  to  capital  account.     (T.  D.  2090;  art.  170.) 

Where  operator  is  owner  of  fee,  value  determined  and  set  up  as  of  March  1,  1913, 
or  cost  of  property  if  acquired  subsequent  to  that  date,  or  if  operator  is  lessee,  actual 
amount  paid  for  lease,  plus,  in  case  of  both  owner  and  lessee,  cost  of  subsequent  de- 
velopment, exclusive  of  physical  property,  if  such  cost  is  capitalized,  will  be  basis 
for  determining  depletion  deduction  or  deduction  for  return  of  capital  for  all  subse- 
quent years  during  continuance  of  ownership  under  which  value  was  fixed  or  by 
which  investment  was  made;  during  such  ownership  there  can  be  no  revaluation 
for  purpose  of  deduction  if  it  should  be  found  that  quantity  of  oil  or  gas  was  under- 
estimated at  time  value  was  fixed  or  property  was  acquired,  or  at  time  lease  contract 
was  entered  into  or  purchased.    (T.  D.  2690;  art.  170.) 


432  LANDLORD  AND   TENANT. 

Income  taxes — Continued. 
• Net  income — Continued. 

Both  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition  to  and 
Beparate  from  deduction  allowable  for  depletion  or  return  of  capital,  be  permitted  to 
deduct  reasonable  allowance  for  depreciation  of  physical  property,  such  as  machin- 
ery, tools,  equipment,  pipes,  etc.,  amount  deductible  on  this  account  to  be  such  an 
amount,  based  upon  its  capitalized  value  (cost)  equitably  distributed  over  its  usef  vil 
life,  as  will  bring  it  to  its  true  salvage  value  when  no  longer  useful  for  purpose  for 
which  property  was  acquired.     (T.  D.  2690;   art.  170.) 

As  to  both  fee  owner  and  lessee,  capital  invented  in  physical  property,  upon  which 
depreciation  deduction  is  computed,  should  be  segregated  in  books  of  account  from 
tliat  invested  in  oi!  or  gas  territory  or  in  lease  or  leases,  with  respect  to  which  deduc- 
tion for  depletion  or  return  of  capital  is  claimed,  and  credits  for  depreciation  may  be 
made  in  same  manner  as  provided  for  depletion.     (T.  D.  2690;  art.  170.) 

(Operator  will  be  permitted  to  deduct  from  gross  income  of  each  year  reasonable 
allowance  for  depreciation  of  all  physical  property  used  in  connection  with  operation 
of  mine  and  owned  by  operator;  for  this  purpose  the  actual  cost  (not  value)  will  be 
equitably  distributed  OA^er  useful  life  of  such  property  until  true  salvage  A'alue  has 
been  reached ;  both  owner  and  les-see  will  keep  acr-urate  ledger  accounts,  to  which  will 
be  charged  capital  invested  in  mine  or  lease,  and  in  machinery,  equipment,  etc. ,  cred- 
iting such  accounts  or  a  depreciation  reserve  a-'  o-  ni  t  w  ith  amount  claimed  and  allowed 
as  a  deduction  each  year  until,  as  result  of  such  credits,  the  capital  charge  shall  be 
extinguished,  after  which  no  further  deduction  on  this  account  will  be  allowed. 
(T.  D.  2690;  art.  172.) 

Operator  of  mining  properties,  or  lessee  thereof,  required  to  attach  to  his  return 
statement  setting  out  certain  specified  data.     ( T.  D.  2690;  art.  172.) 

Lessee  corporation  not  entitled  to  any  deduction  as  such,  but  if  lessee,  in  addition 
to  royalties,  pays  stipulated  sum  for  right  to  explore,  develop,  and  operate  mine, 
such  sum  may  be  spread  ratably  over  estimated  number  of  imits  in  mine,  and  thus 
ascertain  amount  of  invested  capital  or  bonus  payment  applicable  to  each  unit;  per 
unit  cost  thus  ascertained  will  be  multiplied  by  number  of  units  removed  from  mine 
during  any  one  year,  and  result  will  be  amount  that  may  be  deducted  from  gross  in- 
come of  that  year  as  return  of  capital  invested ;  in  case  of  both  mine  owner  and  lessee, 
no  deduction  for  depletion  or  return  of  capital  will  be  allowed  when  invested  capital 
has,  through  the  aggregate  of  all  such  deductions,  been  extinguished ;  for  purpose  of 
computing  this  deduction  in  case  of  lessee  company  a*  tual  amount  of  bonus  paid  and 
not  value  as  of  March  1,  1913,  will  be  considered  capital  invested  to  be  returned 
through  aggregate  of  annual  deductions.     (T.  D.  2690;  art.  172.) 

The  fact  that  the  lessee  of  a  mine  is  under  an  affirmative  obligation  to  remove  or  at 
least  to  pay  for  a  fixed  amount  of  ore  does  not  change  the  general  rule  as  to  depletion 
in  the  case  of  lessees.     (T.  D.  3001:  Apr.  15,  1920.     Ct.  Dec.) 

The  lessee  of  a  mine  is  not  entitled  to  a  deduction  for  depletion  under  the  act  of 
September  8,  1916.     (T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

Returns. 

All  corporations,  partnerships,  or  individuals  who  cultivate,  operate,  or  manage 
farms  for  gain  or  profit,  either  as  owners  or  tenants,  are  farmers  for  the  purposes  of  in- 
struction governing  preparation  of  income-tax  returns  bv  farmers.  (T.  D.  2665; 
Mar.  8,  1918.) 

Fiduciary  relationship  for  purposes  of  income  tax  can  not  be  created  by  power  of 
attorney;  agent  with  authority  to  effect  leases  with  tenants  entirely  on  his  own  re- 
sponsibility, paying  all  charges  in  connection  mth  property  out  of  rent  funds, 
merely  turning  over  net  profits  to  principal  by  -virtue  of  authority  conferred  by  power 
of  attorney,  is  not  a  fiduciary  within  the  income-tax  law;  in  all  cases  where  no  legal 
trust  has  been  created  in  the  estate  controlled  by  the  agent  and  attorney,  liability 
under  the  law  rests  with  the  principal.     (T.  D.  2690;  art.  29.) 

Where  bonded  or  other  indebtedness  of  leased  or  purchased  line  has  been  assumed 
by  operating  company,  it  may  deduct  from  its  gross  income  interest  paid  on  such  in- 
debtedness, provided  such  interest,  plus  interest  paid  on  its  own  indebtedness,  is 
not  in  excess  of  limit  fixed  by  law;  in  this  event  the  leased  or  purchased  line  so  long 
as  it  has  a  corporate  existence  will  make  return  of  annual  net  income,  setting  out 
that  on  its  own  account  it  has  neither  income  nor  expenses,  and  that  both  are  taken 
up  in  return  of  operating  company,  naming  it.     (T.  D.  2690;  art.  125.) 

Railroad  company  operating  leased  or  purchased  lines  as  integral  part  of  its  line  or 
system  and  keeping  no  separate  books  of  account  as  to  such  leased  or  purchased  line, 
income  from  operation  of  which  can  not  be  segregated,  shall  include  in  its  income  all 
receipts  derived  therefi'om.    (T.  D.  2690;  art.  125.) 


LAST  DUE  DATE LECTURE  LYCEUMS.  433 

Income  taxes — Continued. 

Returns — Continued. 

If  leased  or  purchased  line  keops  separate  books  of  account,  or  income  is  or  can  be 
segregated,  or  if  lessee  or  operating  company  pays  it  a  certain  rental,  or  in  lieu  of  rental 
pays  certain  ])er  cent  oi  <li\idends  on  its  stock,  interest  on  its  bonds,  taxes,  etc., 
lessor  will  return  same  as  its  income,  and  lessee  or  operating  company  will  make  its 
return  as  though  it  were  in  no  way  related  to  leased  line.     (T.  D.  2690;  art.  125.) 

Withholding. 

The  withholding  provisions  of  sections  9  (b)  and  (c)  of  the  income-tax  law  apply 
to  the  normal  tax  le^'ied  upon  entire  net  income  of  nonresident  aliens  of  a  fixed  or 
determinalile  annual  or  periodical  class,  as  interest,  rent,  wages,  etc.,  received  by 
them  from  all  sources  within  United  States;  tax  to  be  deducted  and  withheld  from 
indiAiduals  for  1917  and  subsequent  tax  years  is  the  2  per  cent  normal  tax  imposed 
by  the  act  of  September  8,  1916,  as  amended.     (T.  D.  2690;  art.  43.) 

Stamp  tax  on  leases. 

Tax  stamps  need  not  be  attached  to  leases.     (T.  D.  2599;  Dec.  3,  1917.) 

Terminal  or  switching  company — Transportation  charges. 

Where  a  terminal  or  yard  is  operated  under  its  own  management  for  profit,  or  if  a 
fixed  rental  be  charged  users  or  tenants  for  services  rendered  by  the  terminal  or 
switching  company,  tax  imjiosed  under  sections  500  and  501  of  the  act  of  October 
3,  1917,  applies  to  transportation  charges  made  by  tenants  or  users  on  such  com- 
modities.    (T.  D.  2676;  Mar.  18,  1918.) 

LAST   DUE   DATE. 
Definition. 

'•Last  due  date,"  as  used  in  Regulations  No.  33,  mean  last  day  upon  which  a  re- 
turn is  re([uired  to  be  filed  in  accordance  with  proAdsions  of  the  law,  or  last  day  of 
period  covered  by  an  extension  of  time  granted  by  the  collector  or  Commissioner  of 
Internal  Revenue.     (T.  D.  2690;  art.  218.) 

LEAF  TOBACCO. 

See  "Tobacco." 

LEASES. 
See  "Landlord  and  Tenant." 

LEAVE   OF   ABSENCE. 
Revenue  officers. 

.Vpplications  for  leave  of  absence  required  to  be  in  writing  or  by  telegraph  or 
telephone,  if  emergency  requires,  and  to  be  reported  by  revenue  agent  under  whom 
agent  or  inspector  is  assigned  to  duty;  leave  of  absence  is  subject  to  approval  of 
Commissioner  of  Internal  Revenue;  telegraph  or  telephone  charges  incident  to 
procming  leave  are  at  expense  of  oliicer  desiring  such  leave;  manner  of  reckoning 
leave  of  absence  and  extent  thereof.     (T.  D.  2369;  Sept.  12,  1916.) 

LECTURE   LYCEUMS. 

Admissions  tax. 

When  a  Chautauqua  bureau  presents  a  Chautauqua  under  the  usual  form  of 
agreement  with  a  local  body  by  which  latter  subscribes  for  season  tickets  and 
receives  them  to  resell  to  the  public,  the  admission  tax  is  payable  on  (1)  amount 
paid  by  local  body  to  the  bureau,  regardless  of  number  of  tickets  not  resold  or  not 
used,  on  (2)  any  excess  received  by  local  body  from  resale  of  tickets  over  the  amoimts 
80  paid  by  it,  and  also  on  (3)  all  admissions  other  than  by  tickets  so  sold  to  the  local 
body.     (T.  D.  2782;  Dec.  24,  1918.) 

Definition. 

The  term  "lecture  lyceums,"  as  used  in  clause  8  of  section  3  of  the  act  of  October 
22,  1914,  defines  no  well-known  method  of  public  entertainment  save  as  the  mean- 
ing may  be  gathered  from  the  aggregation  of  the  two  words;  there  is  no  system  of 
entertainments  known  as  lecture  lyceums;  it  does  not  include  mere  independent 
ehow  units  engaged  for  the  occasion,  whether  shown  alone  or  as  an  antidote  for  som- 
nolence.    (T.^D.  2684;  Mar.  28,  1918.    Ct.  Dec.) 

70420"— 21 28 


434  LEGACY  TAXES — LIBERTY  BONDS. 

Occupational  tax. 

Statement  of  matters  involved  in  case  of  Redpath  Lyceum  Bureau  v.  Pickering, 
in  order  that  decision  holding  that  the  Redpath  Co.  is  not  a  lecture  lyceum  within 
eighth  subdivision  of  section  3  of  the  act  of  October  22,  1914,  may  be  properly 
understood.     (T.  D.  2448;  Feb.  14,  1917.) 

Exemption  of  lecture  lyceums  under  clause  8  of  section  3  of  the  act  of  October  22, 
1914,  does  not  apply  to  lecture  lyceum  bureau  which  ia  proprietor  of  shows  or 
exhibitions.    (T.  D.  2684;  Mar.  28,  1918.    Ct.  Dec.) 

LEGACY  TAXES. 

See  "Inheritance  Taxes." 

LIBERTY   BONDS. 

Additional  taxes. 

Collectors  authorized  to  accept  in  lieu  of  surety  bonds  as  security  for  payment 
of  floor  taxes  covered  by  section  1002  of  the  act  of  October  3,  1917,  Liberty  bonds 
of  the  United  States  equivalent  to  the  actual  amount  of  taxes  due.  (T.  D.  2537; 
Oct.  17,  1917.) 

Bonds  deposited  as  security  must  be  immediately  forwarded  to  Commissioner 
of  Internal  Revenue  by  registered  mail  for  safe  keeping,  except  where  collector's 
office  is  in  same  city  as  Federal  reserve  bank,  in  which  case  coupon  bonds  received 
should  be  deposited  with  such  bank,  which  will  issue  its  receipt;  disposition  of 
receipts;  assignment  of  registered  bonds;  insurance  of  package.  (T.  D.  2554; 
Oct.  25,  1917.) 

Collectors  authorized  to  accept  certificate  of  bank  or  trust  company,  member  of 
Federal  Reserve  System,  sufficiency  and  solvency  of  which  are  satisfactory  to  col- 
lector, to  effect  that  taxpayer  has  deposited  cash  or  Treasury  certificates  of  indebt- 
edness in  full  payment  of  Liberty  loan  bond  subscriptions  in  name  of  "Commis- 
sioner of  Internal  Revenue  in  trust  for ,"  or  in  event  bond  transaction 

is  not  consummated  taxes  will  be  paid  to  collector  in  cash  or  corporate  surety  bond 
filed;  form  of  certificate  indicated;  certificate  to  be  forwarded  to  Commissioner  of 
Internal  Revenue.     (T.  D.  2554;  Oct.  25,  1917.) 

Where  Liberty  bonds  are  deposited  as  security,  principal  must  execute  bond  in 
stated  form ;  liberty  bonds  deposited  and  in  possession  of  collector  of  internal  reve- 
nue should  be  surrendered  to  taxpayer  as  soon  as  the  tax  and  interest  have  been 
paid;  if  tax  is  paid  in  installments,  a  proportionate  amount  of  the  collateral  depos- 
ited may  be  surrendered  in  the  discretion  of  the  collector.  (T.  D.  2574;  Oct.  31, 
1917.) 

Estate  or  inlieritance  taxes — Payment. 

Circular  No.  132,  issiied  imder  date  of  January  30,  1919,  with  reference  to  receipt 
of  Liberty  bonds  in  pavment  of  estate  or  inheritance  taxes,  published.  (T.  D.  2802; 
Mar.  12,  1919.     See  also  T.  Ds.  2878,  2898,  2904,  2905.) 

Excise  taxes. 

Corporation  owning  Liberty  bonds  is  not,  to  that  extent,  exempt  from  franchise 
taxes,  excise  taxes,  and  other  corporation  taxes  of  the  United  States,  and  of  the 
several  States.    (T.  D.  2512;  June  8,  1917.) 

Income  taxes — Exemptions. 

Income  from  United  States  bonds  issued  under  the  act  of  September  24,  1917,  is 
exempt  from  the  war  income  tax  of  4  per  cent  imposed  upon  net  income  of  corpora- 
tions by  section  4  of  Title  I  of  the  act  of  October  3,  1917,  and  the  2  per  cent  tax 
imposed  by  section  10  of  Title  I  of  the  act  of  September  8, 1916,  as  amended.  (T.  D. 
2690;  art.  85.) 

Interest  on  obligations  of  United  States  (but,  in  case  of  obligations  issued  after 
September  1,  1917,  only  if  and  to  extent  provided  in  act  authorizing  issue  thereof), 
or  its  possessions  shall  not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

WTien  income  as  such  is  taxable  to  beneficiaries,  as  in  case,  under  present  income 
tax  law,  of  trust  income  of  which  is  to  be  distributed  annually  or  regularly  between 
existing  beneficiaries,  each  beneficiary  is  regarded  as  owner  of  proportionate  part 
of  bonds  held  in  trust,  and  subscription  of  trustee  for  bonds  of  Fovirth  Liberty  Loan 
constitutes  each  beneficiary  an  original  subscriber  for  his  proportionate  part  and 
entitles  him  to  collateral  exemption  of  interest  on  bonds  of  previous  issues,  whether 


LIBERTY  BONDS.  435 

Income  taxes — Exemptions — Continued, 
owned  by  beneficiary  or  by  trustee,  and  subscription  by  such  beneficiary  for  bonds 
of  Fourth  Liberty  Loan  entitles  him  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues  held  by  trustee.     (T.  D.  2762;  Oct.  18,  1918.) 

AMien  income  is  taxable  to  trustee,  as  in  case,  under  present  income  tax  law,  of  a 
trust  income  of  which  is  accumulated  for  benefit  of  unborn  or  unascertained  per- 
sons, trustee  is  regarded  as  owner  of  all  bonds  held  in  trust  and  the  trust  is  entitled 
to  exemption  on  account  of  such  ownership;  in  such  case  subscription  by  trustee 
for  bonds  of  Fourth  Liberty  Loan  constitutes  trustee  as  such  the  original  siibscriber 
and  entitles  the  trust,  on  account  of  such  subscription,  to  collateral  exemption  of 
interest  on  bonds  of  previous  issues.     (T.  D.  2762;  Oct.  18,  191 8.) 

When  income  of  partnership  is  taxable  to  indi\ddual  partners,  as  under  pr^'^:•ent 
income  tax  law,  each  partner  is  treated  as  owner  of  proportionate  part  of  Liberty 
Loan  bonds  held  by  partnership  and  entitled  to  exemption  on  account  of  such 
ownership  as  if  such  partner  owned  such  proportionate  part  of  bonds  directly.  (T. 
D.  2762;  Oct.  18,  1918.) 

TVTien  income  of  partnership  is  taxable  to  partnership  as  such,  as  under  present 
excess  profits  tax  law,  partnership  is  treated  as  owner  of  Liberty  Loan  bonds  held 
by  it  and  entitled  to  exemption  from  taxes  assessed  upon  income  of  partnership  aa 
such.     (T.  D.  2762;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  upon  individual  partner  on  share  of  partnership 
income  such  partner,  if  partner  at  time  of  original  subscription  by  partnership  for 
bonds  of  Fourth  Liberty  Loan,  is  treated  as  original  subscriber  for  proportionate 
part  of  such  bonds  and  is  entitled  to  collateral  exemption  of  interest  on  bonds  of 
pre\'ious  issues,  as  if  he  had  subscribed  directly  for  such  proportionate  part.  (T.  D. 
2762;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  to  partnership  upon  partnership  income  as  a  whole, 
such  partnership  is  original  subscriber  and  entitled  to  collateral  exemption  of 
interest  on  Liberty  bonds  of  previous  issues  on  account  of  such  original  subscrip- 
tion for  bonds  of  Fourth  Liberty  Loan.     (T.  D.  2762;  Oct.  18,  1918.) 

Corporation,  and  not  stockholders,  is  regarded  as  owner  of  Liberty  Loan  bonds 
held  by  a  corporation  and  entitled  to  exemption  on  account  of  such  ownership; 
when  bonds  of  Fourth  Liberty  Loan  are  subscribed  for  by  corporation  it,  and  not 
stockholders,  is  original  subscriber  and  entitled  to  collateral  exemption  of  interest 
on  bonds  of  previous  issues  on  account  of  such  original  subscription.  (T.  D.  2762; 
Oct.  18,  1918.) 

Circular,  issued  under  date  of  April  23,  1919,  with  reference  to  tax  exemptions  of 
Libertv  bonds  and  Victory  notes  published  for  information  of  internal  revenue 
officers  and  others  concerned.     (T.  D.  2836;  May  7,  1919.) 

For  purposes  of  additional  tax  exemption  for  Liberty  bonds  granted  by  section  2(b) 
of  the  Victory  Liberty  loan  act,  approved  March  3,  1919,  Mctory  notes  of  either 
seriesissued  upon  conversion  of  Victory  notes  of  the  other  series  wliich  were  originally 
subscribed  for  by  any  taxpayer  will  be  deemed  to  have  been  originally  subscribed 
for  by  such  taxpayer.     (T.  D.  2857;  June  7,  1919.) 

All  interest  accrued  on  3f  per  cent  Victory  notes  at  date  of  any  conversion  by 
taxpayer  into  4  J  per  cent  Victory  notes,  will,  for  purposes  of  computing  net  income, 
be  deemed  to  be  interest  upon  3f  per  cent  Victory  notes,  and  will  be  entitled  to 
exemptions  from  taxation  to  which  interest  upon  3f  per  cent  Victory  notes  is  en- 
titled.    (T.  D.  2865;  June  14,  1919.) 

Interest  accrued  on  4|  per  cent  Victory  notes  at  date  of  conversion  by  taxpayer 
into  3f  per  cent  Victory  notes  will,  for  purposes  of  computing  net  income,  be  defamed 
to  be  interest  on  4f  per  cent  Victory  notes,  and  will  be  entitled  only  to  exemptions 
from  taxation  to  wliich  interest  on  4f  per  cent  Victory  notes  is  entitled;  amo;  Tits 
received  by  taxpayer  from  United  States  by  way  of  adjustment  of  accrued  interest 
upon  conversion  of  4f  Victory  notes  \vill  be  deemed  to  be  interest  on  4J  per  cent 
Victory  notes.    (T.  D.  2865;  June  14,  1919.) 

Stamp  tax  on  notes  secured  by. 

Promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
pledge  of  any  bonds  or  obligaticms  of  United  States,  issued  after  April  24,  1917,  and 
all  promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
pledge  of  promissory  note  which  itself  is  secured  by  pledge  of  United  States  bonds  or 
obligations  issued  after  April  24,  1917,  are  exempt  from  stamp  tax  imposed  by  sec- 
tion 301  of  the  act  of  April  5,  1918;  bonds  herein  mentioned  include  Liberty  bonds; 
exemption  applies  only  where  par  value  of  bonds  or  obligations  pledged  shall  equal 
amount  of  promissory  note.    (T.  D.  2701;  Apr.  16,  1918.) 


436  LICENSES — LIMITATIONS  OF  ACTIONS. 

Wine  makers— Deposits. 

Wine  maker  producing  not  exceeding  1.000  gallons  may  either  file  bond,  Form 
699,  or  may  deposit  with  collector  as  security  Liberty  Loan  bonds  or  cash  equal  to 
amount  of  tax:  if  Liberty  Loan  bonds  are  deposited,  he  must  execute  bond,  in 
duplicate,  in  stated  form,  and  in  such  form  with  appropriate  substitutions  in  case 
cash  is  deposited;  ])ond  and  security  must  be  filed  with  collector  prior  to  time  of 
crushing  grapes.     (T.  D.  2765;  Oct.  21,  1918.) 

\Mien  Liberty  Loan  bonds  or  cash  are  deposited  as  security  by  wine  maker  pro- 
ducing not  exceeding  1,000  gallons  per  year,  the  collector  should  give  the  depositor 
a  receipt  in  stated  form,  which  receipt  should  be  made  in  triplicate,  one  copy  being 
immediately  transmitted  to  Commissioner  of  Internal  Revenue;  safekeeping  of 
bonds:  assigning  of  registered  bonds;  seciudty  thus  pledged  should  not  be  held  by 
collector  except  upon  instructions  from  Commissioner,  and  security  will  be  snr- 
rendpred  as  soon  as  tax  and  any  accrued  penalty  and  interest  have  been  paaid 
(T.  D.  2765;  Oct.  21,  1918.) 

LICENSES. 
Fermented  malt  liquors. 

Brewers  intending  to  produce  fermented  malt  liquor  o«  and  after  January  1,  1918, 
recjuired  to  apply  for  license  to  operate  under  food-control  act  of  October  10,  1917; 
contputis  and  form  of  application;  issuance  and  posting  of  license.  (T.  D.  2618;  Dec. 
21,  1917.) 

Income  taxes— Banks  or  agencies  collecting  foreign  items. 

All  persons,  coi^porations,  etc.,  undertaking  as  matter  of  business  or  for  profit 
collection  of  foreign  payments  of  interest  on  dividends  by  means  of  coupons,  checks, 
or  bills  of  exchange,  shall  obtain  license  from  Commissioner  cf  Internal  ReA-enue, 
as  prescribed  by  section  9  (b)  of  the  act  of  September  8,  1916,  as  amended;  such 
licensee  shall  write  or  stamp  on  the  face  of  the  item:  "Information  obtained  and 
furnished  by (name  of  collecting  agent)."     (T.  D.  2690;  art.  48.) 

Banks  or  agents  collecting  foreign  items  recjuired  to  obtain  license  from  Commis- 
sioner of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such  regula- 
tions for  furnishing  of  information  as  the  Commissioner,  with  approval  of  Secretary 
of  the  Treasury,  shall  prescribe,  and  to  penalties  prescribed  for  failure  to  obtain  such 
license.     (T.  D.  2759;  Oct.  2,  1918.) 

Foreign  items  shall  not  l)e  accepted  for  collection  by  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed,  or  accompanied  by  proper  ownership  certificate, 
giving  all  information  called  for  by  such  certificate:  where  first  licensed  bank  or 
collecting  agent  is  som'ce  of  information,  licensee  shall  attach  ownership  certificate 
and  indorse  on  item  the  words  "Certificate  attached  and  information  furnished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue 
(Sorting  Di\-ision),  Washington,  D.  C,  on  or  before  20th  day  of  month  following  that 
during  which  items  were  accepted,  accompanied  by  letter  of  transmittal,  showing 
number  of  certificates  and  aggregate  amount  of  foreign  items  disclosed  thereon. 
(T.  D.  2759;  Oct.  2,  1918.) 

Deductions. 

License  taxes  may  be  deducted  either  as  taxes  or  items  of  expense,  but  not  under 
both  heads.     (T.  D.  2690;  art.  8.) 

LIFE    ESTATES. 

Estate  tax. 

See  "Estate  Taxes." 

LIFE    INSURANCE. 

See  "Insurance." 

LIF  EMEMBERSHIP   FEES. 

See  "Dues." 

LIMITATION  OF  ACTIONS. 

Recovery  of  taxes  paid. 

The  bar  of  section  3226,  Revised  Statutes,  making  appeal  to  Commissioner  and 
decision  by  him  a  necessary  condition  precedent  to  action  to  recover  tax  illegally 
collected,  and  of  section  3228,  Revised  Statutes,  fixing  two  years  as  time  within 


LIMITED  PARTNEESHIPS LIQUEURS.  437 

Recovery  of  taxes  paid — Continued, 
which  to  bring  such  an  action,  is  removed  as  to  inheritance  taxes  imposed  by  act 
of  June  13,  1898,  if  taxpayer  has  complied  \vith  section  3  oif  the  act  of  June  27,  liXVJ, 
and  section  2  of  the  act  of  July  27,  1912,  and  presented  to  Commissioner  claim  for 
refund  of  the  tax.     (T.  D.  288G;  July  10,  1919.     Ct.  Dec.) 

Where  ajjplication  was  made  on  September  7, 1916,  to  the  Secretary  of  the  Treasury 
for  repayment  of  tax  collected  under  act  of  June  13,  1898,  and  claim  was  rejected 
on  October  30,  1916,  suit  brought  in  Court  of  Claims  on  January  23,  1917,  under  the 
act  of  July  27,  1912,  was  within  the  six-year  period  allowed  by  section  1069,  Re\-ised 
Statutes."  (T.  D.  2885;  July  10,  1919.     Ct.  Dec.) 

Refunds. 

Under  the  pro^•ision  of  section  14.  paragraph  (a),  act  September  8,  1910.  that  upon 
examination  of  any  retm'n  of  income  made  pursuant  to  Title  1,  act  of  August  5, 1909, 
and  act  of  October  3,  1913,  if  it  shall  appear  that  amounts  of  tax  have  been  paid  in 
excess  of  those  properly  due,  the  taxpayer  shall  be  permitted  to  present  a  claim  for 
refund  thereof  notwithstanding  provisions  of  section  3228  of  the  Revised  Statutes, 
claims  for  refund  which  have  once  been  rejected  by  the  Comniis.':;ioner  because  of 
the  statute  of  limitation  in  existence  at  that  time  may  be  reopened;  claims  rejected 
can  also  be  reopened  if  the  question  involves  an  examination  of  the  return.  (T.  D. 
2396;  Nov.  1,  1916.) 

A  tax  demanded  and  paid  under  section  29  of  the  war-revenue  act  of  June  13, 1898, 
on  a  contingent  beneficial  interest  not  vested  prior  to  July  1,  1902,  contrary  to  the 
refunding  act  of  June  27,  1902,  is  a  tax  "en-oneously  collected  "  within  meaning  of 
the  act  of  July  27,  1912,  although  payment  was  without  protest  or  reservation,  and 
under  that  act  right  to  refund  is  barred  if  claim  was  not  presented  to  the  Commis- 
sioner of  Internal  Revenue  on  or  before  January  1, 1914.  (T.  D.  3007;  Apr.  22, 1920. 
Ct.  Dec.) 

Filing  of  amended  returns  does  not  constitute  beginning  of  new  proceedings  which 
BO  supersede  the  original  returns  as  to  remove  bar  imposed  by  sections  3227,  3228, 
Revised  Statutes,  against  claims  by  taxpayers  for  refund  of  taxes  paid  upon  original 
returns  and  assessments.     (T.  D.  3013;  May  3,  1920.     Ct.  Dec.) 

LIMITED  PARTNERSHIPS. 
Capital  stock  tax. 

Pennsylvania  partnerships  with  limited  liability  and  similar  so-called  limited 
partnerships  or  partnership  associations,  having  perpetual  succession  and  capable 
of  taking  title  to  real  estate  and  suing  in  common  name,  are  subject  to  tax  imposed  by 
act  September  8,  1916,  although  they  may  not  issue  stock  certificates  to  evidence  the 
shares  of  the  members.     (T.  D.  2750,  art.  2,  Appendix  A;   Aug.  9,  1918.) 

Limited  partnerships  of  the  New  York  type,  having  practically  no  characteristics 
of  a  corporation  or  joint-stock  company  except  limited  liability  as  to  some  of  the 
partners,  are  not  within  scope  of  tax  imposed  by  act  September  8,  1916.  (T.  D. 
2750,  art.  2;  Aug.  9,  1918.) 

Definition. 

Limited  partnership  is  partnership  having  one  or  more  special  partners  wh(i  may 
share  in  profits  of  firm  but  whose  liability  for  debts  of  company  is  limited  to  amount 
of  capital  invested  by  such  special  partner  or  partners.     (T.  D.  2090;  art.  02.) 

Limited  partnershiyjs  of  the  Pennsylvania  type,  which  offer  opportunity  for  limit- 
ing liability  of  all  the  members,  provide  for  transferability  of  piirtnership  shares, 
and  capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are  corpora- 
tions or  joint-stock  companies;  limited  partnerships  of  New  York  type,  which  can 
not  limit  liability  of  general  partners,  although  special  partners  enjoy  limited  lia- 
bility so  long  as  they  observe  statutory  conditions,  and  which  are  dissolved  by  d  eath 
or  attempted  transfer  of  interest  of  general  partner,  and  which  can  not  take  real 
estate  or  sue  in  partnership  name,  are  partnerships;  in  doubtful  cases  limited  part- 
nerships will  be  treated  as  corporations  unless  they  submit  satisfactory  proof  that 
they  are  not,  in  effect,  so  organized.     (T.  D.  2711;  May  9,  1918.) 

LINIMENTS. 
Denatured  alcohol. 
See  "Alcohol." 

LIQUEURS. 

See  "Rectified  Spirits;"  "Wines." 


438  LIVE  STOCK. 

LIVE    STOCK. 
Income  taxes — Exemptions. 

Agricultural  organizations  do  not  include  corporations  engaged  in  Rowing  agri- 
cultural products  or  raising  live  stock  or  similar  products  for  profit,  but  include  only 
those  organizations  which,  having  no  net  income  inuring  to  benefit  of  members,  are 
educational  or  instructive  in  character,  and  which  have  for  their  purpose  the  better- 
ment of  conditions  of  those  engaged  in  these  pursuits,  improvement  of  growing  of 
their  products,  and  encouragement  and  promotion  of  industries  to  higher  degree  of 
efficiency;  included  in  this  class  as  exempt  are  county  fairs  and  like  associations  of  a 
quasi-public  character;  societies  or  associations  holding  race  meets  from  which 
profits  inure  or  may  inure  to  members  or  stockholders  are  not  exempt.  (T.  D.  2690; 
art.  73.) 

Corporation  engaged  in  raising  stock  or  poultry,  or  growing  grain,  fruits,  or  other 
products  of  this  character,  as  means  of  livelihood  and  for  purpose  of  gain,  is  an  agri- 
cultural or  horticultural  society  only  in  the  sense  that  its  name  indicates  the  kind 
of  business  in  which  it  is  engaged,  and,  as  such,  is  not  exempt  from  taxation. 
(T.  D.  2690;  art.  74.) 

Gross  income. 

In  case  of  sale  total  amount  received  for  stock  raised  and  for  stock  purchased  for 
resale  is  to  be  accounted  for  as  income.     (T.  D.  2690;  art.  4.) 

Net  income — Depreciation. 

Under  paragraph  7  of  section  5  (a)  of  the  act  of  September  8,  1916,  there  may  be 
claimed  a  reasonable  allowance  for  depreciation  on  stock  purchased  for  breeding 
purposes,  but  no  claim  for  depreciation  on  stock  raised  or  purchased  for  resale  will 
be  allowed.     (T.  D.  2690;  art.  4.) 

Corporations  engaged  in  farming  may  claim  reasonable  allowance  for  depreciation 
on  stock  purchased  for  breeding  purposes,  but  no  claim  for  depreciation  on  stock 
purchased  for  resale  will  be  allowed.     (T.  D.  2690;  art.  123.) 

There  may  be  claimed  a  reasonable  allowance  for  depreciation  on  farm  buildings, 
farm  machinery,  and  other  physical  property,  including  stock  purchased  for  breed- 
ing purposes,  but  no  claim  for  depreciation  on  stock  raised  or  purchased  for  resale 
will  be  allowed.     (T.  D.  2690;  art.  123.) 

■ Death. 

"\ATiere  farmer  has  adopted  inventory  method  of  keeping  accounts,  he  should,  in 
order  to  ascertain  gross  income,  add  to  amount  received  from  sales  during  year  the 
inventory  of  the  live  stock  on  hand  at  the  close  of  the  year,  and  then  deduct  amount 
expended  in  purchasing  live  stock  plus  inventory  of  live  stock  at  beginning  of  year; 
no  deduction  can  be  made  for  stock  lost  during  ye^r)  stock  purchased  for  any  pur- 
pose other  than  resale  may  be  included  in  invenf,Ci-y  for  each  year  at  a  figure  which 
will  reflect  reduction  in  value  estimated  to  have  occurred  through  increase  or  age  or 
other  causes;  cost  price  of  articles  sold  must  not  be  taken  as  additional  deduction. 
(T.  D.  2665;  Mar.  8,  1918.) 

Individual  engaged  in  raising  and  selling  stock  may  not  claim  as  loss  value  of  such 
animals  raised  as  die;  in  case  of  animals  purchased,  which  die,  amount  of  purchase 
money  will  be  an  allowable  deduction,  if  not  proAdouslv  deducted  as  business  ex- 
pense.    (T.  D.  2690;  art.  4.) 

Money  expended  for  stock  for  breeding  purposes  is  regarded  as  capital  invested, 
and  where  stock  dies  from  disease  or  injury  or  is  killed  by  order  of  authorities  of 
State  or  United  States  and  cost  thereof  has  not  been  claimed  as  item  of  expense, 
amounts  so  expended,  less  any  depreciation  which  may  have  been  previously 
claimed,  may  be  deducted  as  a  loss;  if  reimbursement  is  made  by  State  or  United 
States,  amount  received  shall  be  reported  as  income  for  vear  in  which  reimburse- 
ment is  made.     (T.  D.  2690;  art.  4.) 

('oi-poration  engaged  in  raising  and  selUng  live  stock  can  not  deduct  amounts 
claimed  as  loss  on  account  of  death  of  such  stock  through  exposure  or  otherwise, 
unless  and  to  extent  that  such  stock  was  specifically  paid  for  in  cash  or  its  equiva- 
lent; if  stock  is  raised  and  fed  upon  farm  or  range,  cost  of  feeding  and  raising  will  be 
included  as  operating  expenses,  and  no  loss  of  capital  is  sustained  when  live  stock 
perishes;  if  stock  was  purchased  and  cost  thereof  was  not  charged  into  expenses  and 
as  such  deducted  from  gross  income,  deductible  loss  will  be  actual  purchase  price 
less  any  depreciation  which  had  been  previously  charged  off  and  deducted.  (T. 
D.  2690;  art.  154.) 


LOANS.  439 

Income  taxes — Continued. 

Net  income — Continued. 

Purchase  price. 

Cost  of  live  stock  purchased  for  resale  by  corporation  engaged  in  operating  planta- 
tions, stock  farms,  etc.,  is  an  allowable  deduction  under  item  of  expense.  (T.  D. 
2690;  art.  123.     But  see  T.  D.  2665.) 

Amount  expended  in  purchasing  stock  for  resale  is  an  investment  of  capital  and  ia 
not  to  be  taken  as  an  item  of  expense  for  year  in  which  stock  was  purchased  or  for 
any  subsequent  year,  but  when  stock  so  purchased  is  sold  its  cost  is  to  bo  deducted 
from  sales  price  in  ascertaining  amount  of  gain  or  profit  returnable  for  tax  puri)oses; 
return  where  cost  of  stock  purchased  in  1916  or  any  previous  year  for  resale  has  been 
claimed  as  a  deduction.     (T.  D.  2665;  Mar.  8,  1918.) 

Expenses. 

All  items  of  expense  connected  with  the  care,  feeding,  and  marketing  of  live  stock 
may  be  claimed  as  deductions  only  in  the  return  rendered  for  the  year  during  \\hich 
such  expenditures  were  made;  this  upplies  even  though  stock  may  not  have  been 
sold  or  exchanged  for  monev  or  money  equivalent  during  year  for  which  return  ia 
rendered.     (T.  D.  2665;  Mar.  8,  1918.) 

In  determining  cost  of  stock  for  purpose  of  ascertaining  deductible  loss  there  shall 
be  taken  into  account  only  the  purchase  price  and  not  the  cost  of  any  feed ,  pasturage, 
or  care  which  has  been  deducted  as  an  expense  of  operations.     (T.  D.  2690;  art.  123.) 

Shows — Admissions  tax. 

The  term  "agricultural  fairs,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
includes  live  stock  and  similar  shows  for  promotion  of  agricultural  interests,  but  not 
bench  shows  or  other  indoor  exhibitions.     (T.  D.  2681;  Mar.  26,  1918.) 

LOANS. 

See  "Building  and  Loan  Associations." 

Income  taxes. 

Interest  on  securities  issued  under  provisions  of  Federal  farm  loan  act  of  July  17, 
1916,  shall  not  be  included  as  income.     (T.  D.  2690;  art.  5.) 

Where  banks  or  other  corporations  loan  money  by  discounting  bills  or  notes,  one 
of  two  methods  shall  be  used  in  determining  amount  of  discount  to  be  reported  as 
income,  namely,  (1)  if  bank  or  corporation  makes  practice  of  crediting  discount 
directly  to  "discount  account"  or  to  profit  and  loss,  total  araoiint  thus  credited 
during  year  shall  be  considered  income,  regardless  of  fact  that  portion  may  represent 
discount  paid  in  advance;  (2)  if  bank  or  corporation  follows  practice  of  crediting 
discount  to  "unearned  discount  account,"  and  later,  as  discount  becomes  earned, 
debits  unearned  account  and  credits  "earned  discount  account''  ^vith amount  so 
earned,  total  amount  credited  to  "earned  discount  account"  during  year  shall  be 
considered  income.     (T.  D.  2690;  art.  114.) 

In  case  of  banks  and  banking  associations,  loan  or  trust  companies,  interest  paid 
within  year  on  deposits  or  on  moneys  received  from  investment  and  secured  by  inter- 
est-bearing certificates  of  indebtedness  issued  by  such  bank,  banking  association, 
loan  or  trust  company,  may  be  allowably  deducted  from  gross  income  of  such  cor- 
poration.    (T.  D.  2690;  art.  190.) 

Stamp  taxes. 

Neither  security  agreement  signed  by  prospective  borrower  of  bank,  empowering 
bank  to  apply  any  securities,  money,  or  other  property  of  borrower  in  hands  of-bank 
to  satisfy  debt,  nor  form  of  application  for  the  loan,  is  subject  to  stamp  tax  imposed 
by  Schedule  A  of  section  807  of  act  of  October  3,  1917.  (T.  D.  2599;  Dec  3,  1917.) 
Transfer  of  shares  or  certificates  of  stock  in  any  association,  company,  or  corpora- 
tion, made  by  the  person  loaning  stock  to  another  borrowing  such  stock  to  effect  a 
sale,  and  also  transfer  of  shares  or  certificates  of  stock  from  a  borrower  returning 
them  to  lender,  in  fulfillment  of  borrower's  obligation  to  buy  in  and  return  stock, 
are  both  subject  to  tax  imposed  by  sections  800  and  807  of  the  act  of  October  3,  1917; 
in  so-called  short-sale  transaction,  there  are  four  taxable  sales  or  transfers:  (1  )Sale 
of  stock  by  person  making  sjiort  sale,  (2)  transfer  from  lender  of  stock  to  person 
making  short  sale,  (3)  purchase  by  borrower  of  stock  to  return  to  lender,  (4)  transfer 
by  borrower  to  lender  of  shares  to  replace  those  borrowed.  (T.  D.  2685;  Mar.  30, 
1918.) 


440  LODGES — LOSSES. 

LODGES. 

Capital  stock  tax — Exemption. 

Fraternal  beneficiary  society,  order,  or  association,  operating  under  the  lodge 
system  or  for  the  exclusive  benefit  of  the  members  of  a  fratermty  itself  operating 
under  the  lodge  system,  and  providing  for  payment  of  life,  sick,  accident,  or  other 
benetirs  to  members  of  such  society,  order,  or  association,  or  their  dependents,  is 
exempt  from  tax  imposed  by  section  407  of  the  act  of  September  8,  1916.  (T.  D. 
2383;  Oct.  19,  1916.     T.  D.  27o9,  art.  12;  Aug.  9,  1918.) 

Definition. 

A  society  or  association  "operating  under  the  lodge  system"  is  one  organized 
under  a  charter  or  dispensation  with  properly  appointed  or  elected  officers,  with  an 
adopted  ritual  or  ceremonial,  holding  meetings  at  stated  intervals,  (T.  D.  2690; 
art.  77.) 

Dues. 

Dues  or  fees  are  expressly  exempt  from  tax  when  paid  to  fraternal  beneficiary 
society,  order,  or  association,  operating  under  the  lodge  system  or  for  exclusive 
benefit  of  members  of  fraternity  itseif  operating  under  such  system  and  providing 
for  payment  of  benefits  to  members  of  such  society,  order,  or  association,  or  their 
dependents;  dues  or  fees  paid  to  fraternal  orders  not  falling  within  the  express 
exemption  are  not  subject  to  tax  if  purposes  and  practices  of  order  are  religions, 
benevolent,  or  educational,  and  any  social  activities  are  incidental  and  subordinate. 
(T.  D.  26S1;  Mar.  26,  1918.) 

Income  taxes — Exemptions. 

Beneficiary  society,  order,  or  association  operating  under  lodge  system  or  for 
exclusive  benefit  of  members  of  a  fraternity  itself  operating  under  lodge  system  is 
exempt  from  tax,  without  condition;  collector,  being  satisfied  that  organization 
comes  within  exempted  class,  is  authorized  to  eliminate  it  from  his  list  and  relieve 
it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

Society  or  association  "operating  under  the  lodge  system,"  which  is  exempted 
under  the  provisions  of  the  income-tax  act,  is  considered  to  be  one  organized  under 
a  charter  with  properly  appointed  or  elected  officers  with  an  adopted  ritual  or  cere- 
monial ,  holding  meetings  at  stated  intervals,  and  supported  by  dues,  fees,  or  assess- 
ments.    (T.  D.  2690;  art.  239.) 

Insurance — Exemptions  from  tax. 

Fraternal  beneficiary  society,  order,  or  association  operating  under  lodge  system 
or  for  exclusive  benefit  of  members  of  fraternity  itself,  operating  under  lodge  system, 
and  pro\iding  for  paynient  of  life,  sick,  accident,  or  other  benefits  to  the  members 
of  such  society  or  order  or  their  dependents,  is  exempt  from  tax  on  insurance.  (T.  D, 
2588;  Nov.  21,  1917.) 

Occupational  tax — Pool  or  billiard  tables,  etc. 

Occupation  tax  levied  bv  act  of  September  8,  1916,  is  applicable  to  pool  or  billiard 
tables  and  bowling  alleys  in  lodge  halls.     (T.  D.  2462;  Feb.  16,  1917.) 

LOGGING  COMPANIES. 

Transporting  for  hire. 

Where  a  person,  corporation,  partnership,  or  association  is  engaged  in  logging 
and  for  account  of  himself  or  itself  furnishes  any  of  the  ser\-ice8  or  facilities  described 
or  referred  to  in  subdiAdsions  (a),  (h),  (c),  or  (d)  of  section  500  of  the  act  of  October 
3,  1917,  and  at  times  for  hire  furnishes  any  of  such  facilities  for  the  account  of  any 
other  person,  corporation,  partnership,  or  association,  the  one  furnishing  such 
facility  is  a  carrier,  and  tax  applies  as  respects  all  commodities  so  transported, 
whether  for  his  or  its  account  or  for  the  account  of  others.  (T.  D.  2676;  Mar.  18, 
1918.) 

LOSSES. 
Alcohol  in  transit. 

See  "Alcohol." 


LUMBER   COMPANIES MACHINERY.  441 

Distilled  spirits. 

See  '•Distilled  Rpirits." 
Net  income  for  income-tax  purposes. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 

LUMBER  COMPANIES. 
Excise  taxes. 

The  gain  on  a  sale  of  timber  acquired  by  a  lumber  manufacturing  company 
before  January  1,  1909,  and  converted  into  money  after  that  date  is  income  wifluM 
the  meaning  of  the  corporation  excise-tax  act  of  1909,  but  only  such  portion  of  Wi-i 
gain  as  accrued  subsequent  to  December  31,  1908,  is  taxable.  (T.  D.  2723;  June 
4,  1918.    Ct.  Dec.) 

Income  taxes — Net  income. 

Corporations  owning  timber  land  and  logging  off  the  timber  and  manufac- 
turing it  into  lumber,  will  if  timber  was  acquired  prior  to  March  1,  1913,  be  per- 
mitted to  exclude  from  gross  income  either  through  deduction  from  gross  receipt, 
or  through  charge  into  cost  of  nauufacturing  timber  into  lumber,  an  ammmt  equiva- 
lent to  fair  market  price  or  value  of  standing  timber  as  of  March  1,  1913;  corpora- 
tions must  set  up  on  their  books  as  of  March  1,  1913,  the  fair  market  price  en  blocs 
of  all  timber  then  owned  by  them  and  then  by  dividing  such  A'alue  by  estimated 
number  of  feet  in  entire  holdings  per  unit  value  or  price  will  be  ascertained,  which 
per  unit  price  or  value  will  be  basis  for  measuring  amount  to  be  added  to  cost  of 
manufacture  or  deducted  from  gross  income  until  en  bloc  value  of  entire  holdings 
Bhall  have  been  extinguished;  same  rule  applies  to  timber  or  timber  lands  purchased 
subsequent  to  March  1,  1913,  only  difference  being  that  actual  cost  shall  be  sub- 
stituted for  en  bloc  price  or  value.     (T.  D.  2690;  art.  173.) 

Where  entire  market  price  or  value  for  both  timber  and  lands  as  of  Man.'h  1,  1913, 
or  entire  cost,  if  acquired  subsequent  to  that  date,  is  extinguished  through  deduc- 
tion from  gross  income  for  timber  used  or  through  per  unit  charge  to  cost  of  manu- 
facturing lumber,  entire  amount  realized  from  logged-off  lands  or  other  salvage  will 
be  returned  as  income  of  year  in  which  such  lands  are  sold  or  disposed  of;  if  timber 
or  timber  lands  are  sold  en  bloc,  gain  or  loss  will  be  ascertained  on  basis  of  difference 
between  fair  market  price  or  cost  and  selling  price,  accordingly  as  property  was 
acquired  prior  or  subsequent  to  March  1,  1913.     (T.  D.  2690;  art.  173.) 

Fair  market  price  or  value  of  timber  lands  as  of  March  1,  1913,  is  price  at  which 
property  in  its  then  condition  and  with  circumstances  then  surrounding  it  could 
have  been  sold  for  cash  or  its  equivalent;  such  value  must  not  be  speculative,  but 
must  be  determined  without  taking  into  account  any  prospective  profits  that  may 
result  by  manufacturing  the  timber  into  lumber;  value  once  determined  must  be 
set  up  on  books  and  as  measure  of  stumpage  deduction  must  remain  constant  and 
can  not  be  increased  except  as  new  purchases  are  made  at  higher  average  cost; 
value  so  set  up  will  be  subject  to  approval  of  commissioner.     (T.  D.  2690;  art.  173.) 

MACHINERY. 
Income  taxes — Deductions. 

Cost  of  farm  machinery  is  not  an  allowable  deduction  as  item  of  expense,  but 
cost  of  ordinary  tools  may  be  included  under  this  item.     (T.  D.  2690;  art.  4.) 

Under  paragraph  7  of  section  5  (a)  of  the  act  of  September  8,  1916,  there  may  be 
claimed  a  reasonable  allowance  for  depreciation  on  farm  machtnery.  (T.  D.  2690; 
art.  4.) 

Corporations  engaged  in  farming  may  claim  a  reasonable  allowance  for  deprecia- 
tion on  farm  machinery.     (T.  D.  2690;"  art.  123.) 

Cost  of  farm  machinery  is  not  an  allowable  deduction  as  item  of  expense,  but 
cost  of  ordinary  tools  of  short  life  or  insignificant  cost,  such  as  hand  tools,  including 
shovels,  rakes,  etc.,  may  be  included  under  this  item.     (T.  D.  2690;  art.  123.) 

Loss  due  to  voluntary  removal  or  demolition  of  old  buildings,  scrapping  of  machin- 
ery, equipment,  etc.,  incident  to  renewals  and  replacements  will  be  deductible,  in 
amount  representing  difference  between  cost  of  such  property  and  amount  measur- 
ing reasonable  allowance  for  depreciation  which  property  had  undergone  prior  to 
ite  demolition  or  scrapping.     (T.  D.  2690;  art.  155.) 


442  MAIL. — MANUFACTURERS. 

MAIL. 

Estate  tax — Notice  of  excess  tax. 

"Time  of  notification,"  within  section  207  of  the  estate  tax  law,  Title  II,  act  of 
September  8,  1916,  in  the  date  on  which  notice  of  the  amount  of  such  "excess  part 
of  the  tax"  is  received  by  the  executor,  whether  such  notice  is  given  by  mau  or 
otherwise.     (T.  D.  2770;  Nov.  6,  1918.) 

Income  taxes — Mailing  returns. 

If  return  is  made  and  placed  in  the  United  States  mail,  properly  addressed,  and 
postage  paid,  in  ample  time,  in  due  course  of  mail,  to  reach  office  of  collector  or 
deputj^  collector,  on  or  before  last  due  date,  no  penalty  will  attach  should  return 
not  be  actually  received  by  such  officer  until  subsequent  to  that  date.  (T.  D.  2690; 
art.  52.) 

When  last  due  date  for  filing  return  falls  on  Sunday  or  a  legal  holiday  the  last  due 
date  will  be  held  to  be  day  following  such  Sunday  or  legal  holiday  and  return  should 
be  made  not  later  than  such  following  day,  or,  if  placed  in  the  mails,  it  should  be 
posted  in  ample  time  to  reach  collector's  office,  under  ordinary  handling  of  the 
mails,  on  or  before  date  on  which  return  is  required  to  be  filed.  (T.  D.  2690;  art. 
219.) 

Where  return  is  made  and  placed  in  United  States  mails  in  due  course,  properly 
addressed,  and  postage  paid,  in  ample  time  to  reach  office  of  collector  or  deputy 
collector  on  or  before  such  due  date,  no  penalty  attaches  should  return  not  be  actu- 
ally received  until  subsequent  to  that  date;  where  question  is  raised  as  to  whether 
or  not  return  was  posted  in  ample  time,  envelope  in  which  return  was  transmitted 
8,hould  he  preser^'ed  by  collector  and  forwarded  to  Commissioner  of  Internal  Reve- 
nue with  the  return.     (T.  D.  2690;  art.  220.) 

Parcel  post — Stamp  taxes. 

Parcel-post  packages  mailed  in  this  country  to  Porto  Rico  and  such  packages 
mailed  in  Porto  Rico  to  other  points  therein  are  not  subject  to  stamp  tax.  (T.  D, 
2599;  Dec.  3,  1917.) 

MALT  LIQUORS. 

See  "Fermented  Liquors." 

MANDAMUS. 
Abrogation  of  regulations. 

Writ  of  mandamus  directed  to  Commissioner  of  Internal  Revenue  and  Secretary 
of  the  Treasury  of  the  United  States  is  not  the  proper  remedy  to  abrogate  a  regula- 
tion (T.  D.  2309;  Mar.  11,  1916),  issued  under  authority  of  act  of  December  17,  1914, 
popularly  known  as  Harrison  Narcotic  Law,  to  carry  into  effect  the  provisions  of 
section  6  of  such  act,  which  regulation  was  issued  in  the  exercise  of  official  discre- 
tion.    (T.  D.  2489;  May  11,  1917.     Ct.  Dec.) 

MANUFACTURERS. 
Alcoholic  compounds. 

See  "Alcohol." 
Beverages. 

See  "Beverages." 
Cigars,  cigarettes,  eto. 

See  "Cigars";  "Cigarettes";  "Snuff";  "Tobacco." 
Definition. 

A  "manufacturer"  within  Regulations  No.  44,  relating  to  war  excise  taxes,  is  a 
person  who  prepares  an  article  in  final  marketable  form  and  sells  or  markets  it;  if 
goods  partly  manufactured  by  one  person  are  further  manufactured  by  another  before 
being  marketed  to  consumers  for  use,  latter  is  manufacturer  for  purpose  of  tax;  a  re- 
tailer may  be  also  a  manufacturer.     (T.  D.  2719;  Art.  II.) 

Within  the  meaning  of  section  600  (h)  of  the  act  of  October  3,  1917,  a  maufacturer 
or  producer  is  a  person  who  prepares  an  article  or  has  it  prepared  and  sells  it,  and  who 


MARINE   INSURANCE — MARKS  AND  BRANDS.  443 

Defljiition — Continued . 
identifiea  the  article  by  a  commercial  name,  trade-mark,  or  trade  name,  or  by  other 
means,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine  or  a  medicinal 
proprietary  article  or  preparation,  or  as  a  remedy  or  specific.    (T.  D.  2719;  Art. 
XXL) 

Excise  taxes. 

See  "Excise  Taxes";  "Munition  Manufacturers'  Tax,*! 

Extracts. 

See  "Extracts." 

Medicinal  preparations. 

See  "Medicinal  Preparations." 

Oleomargarine. 

See  "Oleomargarine." 

Playing  cards — Stamp  taxes. 
See  "Playing  Cards." 

War  excise  taxes  on  sales  of  commodities. 

See  "Excise  Taxes." 

MARINE  INSXTRANCE. 

See  "Insurance." 

MARKS  AND  BRANDS. 
Alcohol. 

Steel  drums  and  packages,  without  wooden  heads  or  lead  plates,  may  be  used  as 
containers  for  denatured  alcohol,  provided  that  in  case  of  specially  denatured  alco- 
hol one  end  of  each  such  package  is  painted  yellow,  upon  which  painted  end 
required  marks  and  brands  shall  be  stenciled  and  stamps  affixed;  stamps  required 
to  be  protected  with  coating  of  shellac  or  varnish  impervious  to  water;  packages 
intended  to  contain  completely  denatured  alcohol  are  to  be  painted  light  green 
color;  articles  36  and  37  of  Regulations  No.  30  modified.  (T.  D.  2824;  Apr.  22, 
1919.) 

Carbonic  acid  gas. 

In  all  cases  of  sales  of  carbonic  acid  gas  for  use  other  than  in  manufacture  of  car- 
bonated water  or  other  drinks,  manufacturer  must  prominently  stamp  on  or  affix 
to  the  container  a  warning,  as  follows:  "Federal  tax  not  paid.  Unlawful  to  use  in 
the  manufacture  of  beverages."    (T.  D.  2719;  Art.  XXXV.) 

Distilled  spirits. 

Article  No.  34,  Regulations  No.  23,  re\daed  December  21,  1912,  amended  so  as  to 
permit  serial  numbers  of  cases  which  are  to  contain  spirits  bottled  in  bond  for  do- 
mestic purposes,  to  be  stenciled  thereon  in  black  letters  instead  of  being  burned, 
imprinted,  or  embossed.     (T.  D.  2419;  Dec.  20,  1916.) 

Marks  and  brands  imprinted  or  embossed  on  a  loose  sheet  to  be  attached  to  "Gov- 
ernment side''  of  case  permitted,  provided  that  suitable  paste  or  glue  is  used  which 
will  protect  the  loose  sheet,  after  it  has  been  attached  to  the  case,  from  the  effects 
of  moisture.     (T.  D.  2492;  May  28,  1917.) 

All  products  of  rectification  from  molasses,  spirits,  or  spirits  other  than  grain  at 
rectifying  houses,  must  be  marked  and  branded  in  the  Siime  manner  as  spirits 
derived  from  grain.     (T.  D.  2548,  2.560;  Oct.  4,  1917.) 

Metal  packages  for  containing  distilled  spirits  for  export  not  required  to  be 
equipped  ^vith  wooden  surfaces  for  receiving  the  marks,  brands,  and  stamps, 
provided  stamps  are  securely  attached  to  metal  head  by  impervious  paste  and  pro- 
tected by  coatuig  of  varnish,  and  provided  tte  required  marks  are  stenciied  on  the 
heads  by  use  of  permanent  stenciling  material.     (T.  D.  2822;  Apr.  19,  1919.) 

Metal  packages  for  containing  nonbeverage  distilled  spirits  for  domestic  use  are 
not  requu-ed  to  be  equipped  with  wooden  surfaces  for  receiving  the  marks,  brands, 
and  stamps,  pro-\dded  stamps  are  securely  attached  to  metal  head  by  imperA-ious 
paste  and  protected  by  coating  of  varnish,  and  provided  that  marks  are  stenciled 
on  heads  by  use  of  permanent  stenciling  material.     (T.  D.  2894;  July  21,  1919.) 


444  MARKET  PRODUCE. 

Excess  profits  tax— Invested  capital. 

If  good  will,  trade-marks,  trade  brands,  franchises  of  a  corporation  or  partnership, 
or  other  intangible  property  has  been  purchased  with  stock  or  shares  issued  prior  to 
March  3,  1917,  amount  that  may  be  included  in  invested  capital  must  not  exceed 
20  per  cent  of  par  value  of  total  stock  or  shares  outstanding  on  that  date,  nor  actual 
value  of  asset  at  date  acquired,  nor  par  value  of  stock  issued  in  pavment  for  the 
asset.     (T.  D.  2694;  art.  57.) 

Subject  to  limitations  stated  invested  capital  of  individual  is  measured  by  total 
of  actual  cash  paid  into  trade  or  business,  tangible  property  paid  into  trade  or  busi- 
ness, patents  and  eo])vrights.  and  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  tangible  property.  '  (T.  D.  2694;  art.  66.) 

Patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises,  and 
other  similar  intangible  assets  may  be  included  in  iuAested  capital  at  value  not  to 
exceed  actual  cash  paid  therefor,  or  actual  cash  value  at  time  of  payment  of  tangible 
property  paid  therefor,  but  only  if  bona  fide  payment  \vas  made  therefor  specifically 
as  such  in  cash  or  tangible  property.     (T.  D.  2694;  art.  68.) 

Income  taxes — Net  income. 

No  deduction  will  be  allowed  for  depreciation  of  trade-marks  and  trade  brands; 
if  such  assets  shall  have  been  purchased  at  a  determined  price  and  shall  be  later 
sold  at  a  price  less  than  cost  or  less  than  their  determined  fair  market  value  as  of 
March  1,  191.3,  if  acquired  prior  to  that  date,  amount  by  which  selling  price  is  less 
than  cost  or  value,  as  case  may  be,  will  be  loss  deductible  from  gross  income  of  year 
in  which  such  assets  were  sold.     (T.  D.  2690;  art.  168.) 

Oleomargarine. 

Manufacturers  permitted  to  use  as  origijial  containers  for  packing  oleomargarine, 
paper  or  fiber  boxes,  proAdded  boxes  are  durable  and  of  substantial  character;  pro- 
visions of  existing  regulations  governing  marking  and  branding  and  affixing  and 
canceling  of  tax-paid  stamps  declared  applicable  to  original  packages  of  paper  or 
fiber,  except  that  such  stamps  may  be  affixed  by  paste  or  glue,  without  addition  of 
tacks,  staples,  or  brads,  and  \vithout  using  shellac  or  other  waterproofing  material  to 
cover  the  stamps;  such  original  containers  to  be  of  such  texture  ^s  will  meet  require- 
mejits  for  transportation  of  common  caniers  under  existing  classifications;  manu- 
facturers and  wholesalers  permitted  to  sell  only  in  original  packages,  and  retailers 
must  sell  only  from  original  stamped  package  in  quantities  not  exceeding  10  pounds 
and  shall  pack  oleomargarine  sold  by  them  in  suitable  wood  or  paper  retail  packages 
properlv  marked  and  branded;  par.  1,  page  44,  Regulations  No.  9,  amended.  (T.  D. 
2764;  Oct.  21,  1918.     T.  D.  2774;  Nov.  19,  1918.) 

Paragraph  1,  page  42,  Regulations  No.  9,  relative  to  affixing  caution  notices, 
Form  219,  to  original  oleomargarine  containers,  modified  to  permit  of  such  notices 
being  printed  on  the  container,  instead  of  affixing  such  notices  by  means  of  a  label; 
modification  is  not  mandatory,  and  manufacturers  may  adopt  either  of  the  approved 
methods  of  affixing  said  labels  as  meets  their  conA-enience.  (T.  D.  2968;  Feb.  4, 
1920.     T.  D.  3025;  June  2,  1920.) 

Wines. 

All  packages  or  cases  containing  wines  for  export  must  be  plainly  marked  or 
tagged  for  identification,  and  such  identifying  marks  must  contain  the  words  "For 
export,"  in  letters  not  less  than  two  inches  in  height.     (T.  D.  2505;  June  25,  1917.) 

All  casks,  tanks,  or  cases  of  wine,  fortified  under  act  of  September  8,  1916,  re- 
moved from  bonded  premises,  must  be  conspicuously  marked  or  labeled  with  fol- 
lowing legend  in  addition  to  information  called  for  by  Regulations  No.  28,  Supple- 
ment 2,  article  10:  "Fortified  under  act  September  8,  1916";  such  marks  or  labels 
should  be  in  reasonable  proportion  to  size  of  container,  and  label  must  be  pasted  to 
container,  and  secured  thereto  by  tacks;  where  such  wine  is  transferred  to  other 
containers  new  containers  must  also  bear  similar  legend.     (T.  D.  2629;  Jan.  7, 1918.) 

MARKET  PRODUCE. 

j> 

Capital  stock  tax  on  sales  organization. 

Tax  imposed  by  act  September  8,  1916,  does  not  apply  to  farmers',  fruit  growers', 
or  like  association,  organized  and  operated  as  a  sales  agent  for  purpose  of  marketing 
prcnlucts  of  its  members  and  turning  back  to  them  proceeds  of  sales,  less  necessary 
selling  expenses,  on  basis  of  quantity  of  produce  furnished  by  them.  (T.  D.  2750, 
art.  12;  Aug.  9,  1918.) 


MARRIED  WOMEN — MASTER  AND  SERVANT.  445 

Excise  tax  on  boats. 

Boats  used  to  carrv  produce  to  market  are  used  exclusively  for  trade  and  are  not 
subject  to  tax  imposed  by  section  603  of  act  October  3,  1917.  (T.  D.  2753;  Aug.  23, 
1918.) 

MARRIED  WOMEN. 

See  "Husband  and  Wife.' ' 

MASSACHUSETTS  TRUSTS. 
Capital  stock  tax. 

So-called  Massachusetts  trusts  are  subject  to  tax  imposed  bv  act  September  8, 
1916.     (T.  D.  2750,  art.  2;  Appendix  A;  Aug.  9,  1918.) 

Income  taxes. 

Organization  under  constitution  of  -which  individuals  who  are  beneficially  in- 
terested in  various  proportions  in  same  property  and  hold  assignable  certificates 
representing  their  different  interests  therein,  but  who  can  claim  no  part  of  income 
of  property  as  their  income  as  distinguished  from  income  of  organization,  commit 
control  and  management  of  such  property,  for  profit,  to  trustees,  free  from_ their  own 
immodiate  control  or  interference,  except  that  they  may  act  by  majority  in  amount 
and  interest  for  purpose  of  allowing  extra  compensation  to  triistees,  filling  vacancies 
in  office  of  trustees  or  modifying  terms  of  declaration  of  trust,  is  an  "association" 
and  taxable  as  such  under  Section  II,  G  (a),  of  act  October  3,  1913.  (T.  D.  2720; 
June  4,  1918.     Ct.  Dec.) 

WTiere  tr\istees  hold  shares  of  stock  of  a  corporation  and  real  estate  subject  to  a 
]ea?e,  collecting  the  di\-idends  and  rents,  but  otherwise  doing  no  business,  and 
distribute  the  income  less  taxes  and  similar  expenses  to  the  holders  of  their  receipt 
certificates,  who  h&xe  no  control  except  the  right  of  filling  a  vacancy  among  the 
trustees  and  of  consenting  to  a  modification  of  the  terms  of  the  trust,  upon  these 
special  facta  under  the  act  of  October  3,  1913,  the  trust  is  not  subject  to  the  income 
tax  as  a  joint-stock  association,  and  the  trustees  and  the  cestui  que  trust  are  to  be 
treated  as  fiduciaries  and  beneficiaries  for  purposes  of  taxation.  (T.  D.  2816;  Apr. 
2,  1919.     Ct.  Dec.) 

Stamp  tax  on  certificates  of  shares. 

Tax  imposed  by  act  October  3,  1917,  on  issue  or  transfer  of  capital  stock  applies 
to  issue  or  transfer  of  certificates  of  shares  in  so-called  Massachusetts  trusts  and  other 
unincorporated  associations.     (T.  D.  2752;  Aug.  14,  1918.) 

MASTER  AND  SERVANT. 

Admission  of  employees. 

Bona  fide  employees  when  admitted  free  are  not  taxable  under  section  700  of  act 
of  October  3,  1917;  employees  include  persons  necessary  to  the  production  of  the 
performance  or  entertainment  who  are  not  admitted  as  spectators  and  who  do  not 
occupy  seats  or  space  intended  for  the  use  of  spectators,  except  where  such  occu- 
pancy is  necessary  to  the  performance  of  duties  of  such  persons;  baseball  reporters 
and  telegraphers  are  exempt,  as  are  employees  of  management  or  of  concessionaires 
selling  refreshments  to  patrons,  and  newsboys  selling  newspapers;  persons  recov- 
ering or  aiding  in  custody  of  property  necessary  to  performance  may  be  admitted 
tax  free,  but  newspaper  critics  and  reporters  occupying  space  in  audience  ranst 
pa\'  tax;  doctors  and  attorneys  for  theaters  are  exempt  when  entering  theater  in 
ceiirse  of  emplo>Tnent.     (T.  D.  2681;  Mar.  26,  1918.) 

Contracts  for  services — Stamp  tax. 

Contracts  for  performance  of  services  are  not  subject  to  stamp  tax.  (T.  D.  2599; 
Dec.  3,  1917.) 

Fidelity  insurance. 
See  "Insurance." 

Government  employees— Exemption  of  charges  for  services  furnished  by 
carriers. 
See  "  Transportation  Tax.' ' 


446  MASTER  AND  SEBVANT, 

Income  tax — Accident  compensation. 

Payments  made  to  injured  employee  by  corporation  under  the  accident  com- 
pensation laws  of  the  several  States  constitute  taxable  income  of  the  employee. 
(T.  D.  2570;  Nov.  6,  1917.) 

Compensation  for  services. 

Compensation  for  service  paid  for  on  percentage  of  net  profits  is  income  to  employee 
and  must  be  accounted  for  as  such;  where  service  is  rendered  for  stipulated  price, 
wage,  or  salary,  and  paid  with  something  other  than  money,  stipulated  value  of 
service  in  terms  of  money  is  value  at  which  thing  taken  in  payment  is  to  be  con- 
sidered for  purpose  of  tax;  in  absence  of  stipulation  as  to  value  of  service,  payment 
being  made  with  something  other  than  money,  market  or  reasonable  value  of  thing 
taken  in  payment  is  amount  to  be  included  as  income.     (T.  D.  2690;  art.  4.) 

In  case  of  compensation  for  service,  where  no  determination  of  compensation  is 
had  until  completion  of  service,  amount  received  is  income  to  be  accounted  for  as 
for  calendar  year  of  receipt;  where  service  and  payment  period  is  divided  by  end 
of  taxable  year,  compensation  for  period  so  divided  will  be  accounted  for  as  income 
for  year  in  which  payment  is  actually  received;  where  compensation  is  by  fee  or  is 
of  such  nature  that  no  part  of  fee  or  compensation  becomes  due  until  completion  of 
service,  entire  amount  received  should  be  accounted  for  as  for  year  of  receipt; 
person  having  salary  by  the  year  and  in  addition  commissions  on  sales,  salary  to  be 
paid  at  time  commissions  are  determined,  and  determination  thereof  is  in  succeed- 
ing calendar  year,  entire  amount  should  be  accounted  for  as  income  of  calendar 
year  of  receipt.     (T.  D.  2690;  art.  4.) 

■ Deductions. 

Amounts  expended  by  corporations,  partnerships,  or  individuals  engaged  in  busi- 
ness, in  paying  all  or  portions  of  regular  compensation  of  officers  or  employees  who 
have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces  of  the 
United  States,  or  have  undertaken  services  for  the  Government  at  reduced  or 
nominal  compensation,  constitute,  during  the  continuance  of  the  war,  ordinary 
and  necessary  expenses  of  doing  business  and  are  allowable  as  deductions  in  com- 
puting net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

Amounts  paid  for  salary  received  for  all  services  rendered  are  deductible  as  busi- 
ness expense  when  expenditures  are  occasioned  by  the  service  in  respect  of  which 
salary  is  paid.     (T.  D.  2690;  art.  8.) 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made  in 
good  faith  and  as  additional  compensation  for  services  actually  rendered;  if,  when 
added  to  salaries,  they  do  not  exceed  reasonable  compensation  for  services,  they 
will  be  regarded  as  part  of  the  wage  or  hire,  and  therefore  an  ordinary  and  necessary 
expense  of  operation  and  maintenance,  and  as  such  will  be  deductible.  (T.  D. 
2690;  art.  8.) 

Debts  arising  from  unpaid  wages,  salary,  rents,  and  items  of  similar  taxable 
income,  not  allowed  as  deduction  unless  income  they  represent  has  been  included 
in  return  of  gross  income  for  year  in  which  deduction  as  bad  debt  is  sought  to  be 
made  or  in  previous  vear,  and  debts  themselves  have  been  actually  ascertained  to 
be  worthless  and  charged  off.     (T.  D.  2690;  art.  8.) 

Salaries,  etc.,  and  rents  paid  by  domestic  corporations,  resident  individuals,  or 
partnerships  to  nonresident  alien  employees  for  services  rendered  entirely  in  a 
foreign  country  and  for  property  located  in  a  foreign  country,  are  not  subject  to 
deduction  and  withholding  of  the  normal  tax,  and  such  payments  of  income  will 
not  be  subject  to  tax  in  hands  of  recipient  as  from  source  within  United  States. 
(T.  D.  2690;  art.  32.) 

Donations  made  for  purposes  connected  with  operation  of  property  when  limited 
to  charitable  institutions,  hospitals,  or  educational  institutions,  conducted  for 
benefit  of  employees  or  their  dependents,  may  be  deducted  as  ordinary  and  neces- 
sary expense;  such  deduction  should,  however,  be  reduced  by  any  amount  repaid 
to  corporation  by  the  employees.     (T.  D.  2690;  art.  134.) 

Donations  made  to  employees  and  others,  and  which  do  not  have  in  them  the  ele- 
ment of  compensation,  are  considered  gratuities  and  are  not  allowable  deductions 
from  gross  income  as  expenses  of  operation  or  maintenance  or  under  any  other  item. 
(T.  D.  2690;  art.  135.) 

Amounts  paid  for  pensions  to  retired  employees  or  to  their  families  or  others  de- 
pendent on  them,  or  on  account  of  injuries  received  by  employees,  or  lump-sum 
amounts  paid  as  compensation  for  injuries,  are  proper  deductions  as  ordinary  and 


MASTER  AND   SERVANT.  447 

Income  tax — Continued. 

Deductions — Continued. 

necessary  expenses;  such  deduction  shall  be  limited  to  amount  not  compensated 
for  by  insurance  or  otherwise;  no  deduction  shall  be  made  for  contributions  to 
pension  fund  resources  of  which  are  held  by  corporation,  amount  deductible  in 
such  case  being  amount  actually  paid  to  employee.     (T.  D.  2690;  art.  136.) 

When  amount  of  salary  of  officer  or  employee  is  paid  for  limited  period  after  his 
death  to  his  widow  or  heirs  in  recognition  of  services  rendered  by  individual,  no  serv- 
ices being  rendered  by  widow  or  heirs,  such  payment  is  not  ordinary  and  neces.gary 
expense  of  transacting  business  and  may  not  be  deducted.     (T.  D.  2690;  art.  137.) 

Gifts  or  bonuses  to  employees  constitute  allowable  deductions  when  made  in 
good  faith  and  as  additional  compensation  for  services  actually  rendered  by  em- 
ployees; if,  when  added  to  stipulated  salaries,  they  do  not  exceed  a  reasonable 
compensation  for  services  rendered,  they  will  be  regarded  as  a  part  of  the  wage  or 
hire  of  the  employee  and  are  deductible  as  an  ordinary  and  necessary  expense  of 
operation  and  maiatenance.     (T.  D.  2690;  art.  138.) 

Wliere  salaries  of  officers  or  employees  who  are  stockholders  are  found  to  be  out 
of  proportion  to  volume  of  business  transacted  or  excessive  when  cornpared  with 
salaries  of  like  officers  or  employees  of  other  corporations  doing  similar  kind  or 
volume  of  business,  amount  so  paid  in  excess  of  reasonable  compensation  for  services 
will  not  be  deductible,  but  will  be  treated  as  distribution  of  profits.  (T.  D.  2690; 
art.  138.) 

Special  payments  made  to  officers  or  employees  who  are  stockholders,  in  guise  of 
additional  salaries  or  compensation,  amount  of  which  is  based  upon  or  bears  close 
relationship  to  stocklioldings  of  such  officers  or  employees,  or  capital  invested  by 
them  in  business  of  company,  will  be  regarded  as  special  distribution  of  profits  or 
compensation  for  capital  invested,  and  not  payment  for  services  rendered;  pay- 
ments under  such  latter  conditions,  being  in  nature  of  dividends,  will  not  be 
deductible.     (T.  D.  2690;  art.  138.) 

Compensation  paid  employee  in  capital  stock  of  corporation  may  be  deducted  as 
expense  if  so  charged  on  books  at  actual  value  of  such  stock.     (T.  D.  2690;  art.  139.) 

Premiums  paid  on  life-insurance  policies  covering  lives  of  officers,  employees,  or 
those  financially  interested  in  any  trade  or  business,  conducted  by  an  individual, 
partnership,  corporation,  joint-stock  company  or  association,  or  insurance  company, 
shall  not  be  deducted  in  computing  net  income  of  insurance  companies  other  than 
mutuals,  but  including  mutual  life  and  mutual  marine.     (T.  D.  2690;  art.  240.) 

In  cases  of  compensation  fixed  after  services  are  rendered  and  not  in  accordance 
with  any  contract  or  any  custom  or  practice  amounting  wtually  to  a  contract, 
reasonableness  is  ordinarily  the  controlling  test  of  deductibility.  (T.  D.  2696; 
Apr.  10,  1918.) 

Test  of  deductibility  in  case  of  compensation  payments  is  whether  they  are  in 
fact  pafyments  purely  for  services  or  include  some  other  elernent;  in  case  of  any 
compensation  which  exceeds  amounts  ordinaiily  paid  for  like  services  in  like 
enterprises  under  like  circumstances,  burden  is  upon  enterprise  to  show  that 
amount  paid  was  solely  purchase  price  of  ser\'ice3;  this  test  and  its  particular 
application  further  stated  andillustrate,d.     (T.  D.  2696;  Apr.  10,  1918. 

Compensation  greater  than  that  ordinarily  paid  for  like  services  in  similar  enter- 
prises must  be  shown  to  represent  payment  for  services  only.  (T.  D.  2696;  Apr.  10, 
1918.) 

Compensation  on  whatever  basis  fixed,  representing  only  the  price  paid  for  serv- 
ices pursuant  to  a  fair  bargain  made  in  advance  between  the_  individual  and  the 
business  enterprise,  is  deductible  in  determining  taxable  net  income  of  the  enter- 
prise.    (T.  D.  2696;  Apr.  10,  1918.) 

Payments  nominally  as  compensation  for  services,  which  in  fact  include  amounts 
paid  as  dividends,  waste  of  corporate  assets,  payments  for  property,  or  for  anything 
other  than  services,  are  deductible  only  to  an  amount  not  in  excess  of  compensation 
for  like  services  in  similar  enterprises.     (T.  D.  2696;  Apr.  10,  1918.) 

Information  at  source. 

Bills  paid  to  employees  for  board  and  lodging  while  traveling  under  orders  or 
when  employee  is  employed  on  a  salary  basis,  do  not  require  reports  of  information. 
(T.  D.  2670;  Mar.  11,  1918.) 

Payments  made  by  branches  of  business  houses  located  in  foreign  countries  to 
alien  employees  serving  in  foreign  countries  need  not  be  reported.  (T.  D.  2670; 
Mar.  11, 1918.) 


448  MEDICllsAL.  PKEPAEATIONS. 

Income  tax — Continued. 

Information  at  source — Continued. 

Payments  made  to  employees  in  factories  where  the  brass  check  or  number  system 
was  in  use  in  1917  and  a  record  of  sufficient  detail  does  not  exist  and  can  not  be  ob- 
tained because  employees  are  not  longer  in  the  employ  of  the  company  do  not 
require  reports  of  information;  in  all  such  cases  an  accounting  system  must  be 
installed  that  will  enable  such  employers  to  keep  an  accurate  check  so  that  full 
iniormation  can  be  given  in  the  future.     (T.  D.  2670;  Mar.  11,  1918.) 

Returns  of  information  will  not  be  required  from  disbursing  officers  of  payment 
made  to  civilian  employees  of  the  United  States  Government.  (T.  D.  2670:  Mar. 
11,  1918.) 

Heads  of  branch  offices  and  subcontractors  employing  labor  and  keeping  the  only 
complete  record  of  payments  should  file  returns  of  information  direct  with  Com- 
missioner of  Internal  Revenue,  Sorting  Division,  Washington,  D.  C;  when  record 
is  kept  of  payments  at  both  main  office  and  branch  office  return  should  be  filed  by 
former;  when  no  address  is  available,  last  known  post-office  address  must  be  given, 
as  well  as  street  and  number,  when  possible;  information  as  to  whether  employee 
i'?  single,  head  of  a  family,  or  married,  should  be  given,  when  possible.  (T.D. 
2670;  Mar.  11,  1918.) 

When  living  quarters,  such  as  camps,  are  furnished  for  the  convenience  of  the 
employer  only,  the  cost  need  not  be  added  to  the  compensation  of  the  employee; 
''li\dng  quarters"  referred  to  in  paragraph  235,  Regulations  No.  33,  revised.' are 
quarters  furnished  for  the  benefit  and  convenience  of  emplovees  onlv.  (T.  D. 
2670;  Mar.  11,  1918.) 

In  case  of  employer  having  large  number  of  employees  who  are  moved  from 
place  to  place  and  who  consequently  has  no  complete  record  of  annual  payments 
to  them  at  any  one  place,  salary  of  two  representative  months  may  be  taken  to 
establish  a  fair  monthly  wage,  and  unless  yearly  payment  based  on  this  estimate  in 
the  case  of  an  emplovee  amounts  to  $800  or  more  no  return  of  payments  to  such 
employee  is  required  "for  1917.     (T.  D.  2670;  Mar.  11,  1918.) 

Salary,  Avages,  and  other  compensation  for  sergices  rendered  in  December,  1917, 
•  but  paid  in  1918,  need  not  be  reported  unless  the  amount  was  fullv  due  and  passed  to 
the  credit  of  the  individual  in  December,  1917.     (T.  D.  2670;  Alar.  11,  1918.) 

Every  person,  corporation,  etc.,  paying  compensation,  wages,  etc.,  of  $800  or 
more  in  any  taxable  year,  or  in  case  of  such  payment  made  by  the  United  States  the 
officers  or  ernployees  of  the  United  States  having  information  as  to  such  payments, 
authorized  and  requii'ed  to  render  true  and  accurate  return,  setting  forth  the  amount 
of  such  compensation,  wages,  etc.,  and  the  name  and  address  of  the  recipients 
thereof.     (T.  D.  2690;  art.  34.) 

\Miere  a  person  receives  a  cash  compensation  for  serAdces  rendered  and  in  addi- 
tion thereto  living  quarters,  the  value  to  such  person  of  the  quarters  furnished  con- 
stitutes income  subject  to  tax,  and  return  under  section  28  is  reqtiired  in  each  case 
where  cash  compensation  received  plus  the  value  of  living  quarters  furnished 
equals  or  exceeds  $800  for  a  tax  year.     (T.  D.  2690;  art.  34.) 

MEDICINAL  PREPARATIONS. 

Alcohol — Exemption  from  special  tax. 

-Mcoholic  solutions  of  Jamaica  ginger  must  always  be  made  in  accordanre  with 
the  process  and  comply  with  standards  of  the  U.  S.  P.  (T.  D.  2760;  Oct.  9,  1918. 
T.  D.  2788;  Feb.  6,  1919.) 

Manufacturers  of  preparations  in  which  sole  medication  is  salt  of  iron  will  not, 
with  certain  stated  e.'cceptions.  be  considered  entitled  to  use  alcohol  without  paying 
special  tax;  use  of  alcohol  in  conformity  with  prescribed  standard  is  permitted  in 
compounding  preparations  containing  peptonate  of  iron  and  in  manufacture  of 
preparations  corresponding  in  strength  of  iron  to  vinum  ferri  X.  F.;  inclusion  of  fer- 
mentable but  nonmedicinal  material  in  preparation  not  otherwise  requiring  alcohol 
will  not  be  regarded  as  sufficient  reason  for  using  it.     (T.  D.  2760;  Oct.  9,  1918.) 

Manufacturer  can  not  escape  liability  to  special  tax  by  showing  that  given  quan- 
tity of  drugs  was  used;  burden  is  on  him  to  see  that  finished  product  does,  in  fact, 
conform  to  prescribed  standard,  and  statements  that  ingradients  of  low  quality 
were  inadvertently  used  or  that  full  strength  was  through  some  defect  in  process 
of  manufacture  not  extracted,  will  not  be  accepted  as  sufficient  to  relieve  manu- 
facturer from  liability  in  case  preparation  is  insufficiently  medicated.  (T.  D.  2760: 
Oct.  9,  1918.) 


MEDICINAL   PREPAEATIONS.  449 

Alcohol — Exemption  from  special  tax — Continued. 

Pieparat  10113  such  as  aroinatic  olixira,  tincture  of  aromatica,  and  similar  prepara- 
tions used  by  physicians  and  j>harmaciets  principally  as  vehicles,  even  though 
potable,  may  be  sold  in  <?ood  faith  for  legitimate  uses  without  payment  of  special 
tax,  provided  they  are  made  in  conformity  with  U.  S.  P.  or  N.  F.  (T.  D.  2760; 
Oct.  9,  1918.) 

For  manufacturer  of  and  dealers  in  alcoholic  medicinal  compounds  to  be  exemjit 
from  special  tax  under  se>;tion  3246,  Revised  Statutes,  preparation  must  contain 
no  more  alcohol  than  is  necessary  for  legitimate  purposes  of  extraction,  solution,  or 
preservation,  and  as  a  minimum  dosage  each  liquid  ounce  of  completed  prepara- 
tion must  carry  in  it  appro.ximately  an  average  dose  for  adult  of  some  drug  or  drugs 
of  recognize  J  therapeutic  value,  either  singly  or  in  compatible  combination.  (T.  D. 
2760;  Oct.  9,  1918.     T.  D.  2767;  Xov.  2,  1918.) 

— —  Exports. 

Where  ali^ohol  is  used  in  the  manufacture  of  medicinal  proijarations  for  export, 
dra'vback  thereon  should  include  both  tax  of  $1.10  per  proof  gallon  and  additional 
tax  paid  thereon,  under  act  of  October  3,  1917.     (T.  D.  2572;  Oct.  24,  1917.) 

• Nonbeverage  alcohol. 

So-called  nonbeverage  alcohol  taxable  at  rate  of  .?2.20  per  proof  gallon  must  not  be 
dispensed  under  physician's  prescription,  unless  in  compounding  thereof  same  is  so 
medicated  as  to  render  it  absolutely  unfit  for  use  as  a  beverage;  in  case  of  prescrip- 
tion compounding  druggist  will  be  held  responsible  as  to  eufRciency  of  medication. 
(T.  D.  2593;  Nov.  27,  1917.) 

Such  United  States  Pharmacopojia  or  National  Formulary  preparations  as 
aromatica,  and  similar  p;-eparations,  which  are  used  by  physicians  and  pharmacists 
p  incipally  as  vehicles,  and  which  are  potable,  may  be  made  with  nonbeverage 
alcohol  and  sold  in  good  faith  for  legitimate  uses;  container  to  bear  stated  label. 
(T.  D.  2699;  Apr.  16,  1918.     T.  D.  2788;  Feb.  6,  1919.) 

Homeopathic  pharmacists,  in  order  to  obtain  and  use  nonbeverage  alcohol  in 
manufacture  of  potencies,  attenuations,  or  dilutions,  or  sell  the  same,  required  to 
make  application  and  obtain  permit  and  give  bond  in  same  manner  as  any  other 
user  or  dealer  in  nonbeverage  alcohol  (see  T.  D.  2559  and  T.  D.  2576);  such  pharma- 
cists in  order  to  obtain  and  use  nonbeverage  alcohol  must  under  any  circumstances 
qualify  by  filing  bond  and  obtaining  permit  regardless  of  manufacture  and  sale  of  the 
dilutions.     (T.  D.  2699;  Apr.  16,  1918.) 

Every  physician  or  other  person  desiring  to  purchase  or  use  homeopathic  attenua- 
tions, potencies,  or  dilutions,  or  nonbe\  erage  alcohol  for  making  same  must  qualify 
by  filing  bond  and  obtaining  permit  except  that  homeopathic  physician  or  any 
other  person  may  obtain  from  pharmacist  not  exceeding  2  drachms  of  any  attenua- 
tion, etc.,  at  one  time  without  filing  bond  and  obtaining  permit;  physician  may 
dispense  such  attenuations,  etc.,  in  quantities  ordinarily  prescribed  to  patients,  and 
6uch  patients  need  not  file  bonds  or  hold  permits,     (T.  D.  2699;  Apr.  16,  1918.) 

Persons  who  use  nonbeverage  alcohol  must  first  comply  Avith  preliminary  require- 
ments of  laws  pertaining  to  same  and  regulations  issued  in  pursuance  thereof;  use 
of  nonbeverage  alcohol  for  manufacture  of  medicinal  preparations,  flavoring  extracts, 
etc.,  is  permitted  only  under  same  conditions  and  subject  to  same  restrictions  as 
govern  manufacture  and  sale  of  same  preparations  without  pavment  of  special  tax. 
(T.  D.  2760;  Oct.  9,  1918.) 

Where  nonbeverage  alcohol  is  used  in  manufacture  of  U.  S.  P.  or  N.  F.  prepara- 
tions, such  as  arf)matic  elixirs,  tincture  of  aromatica,  etc.,  container  must  bear  label 
upon  which  shall  appear  prescribed  statement.     (T.  D.  2760;  Oct.  9,  1918.) 

Beverages. 

Cauffman's  ginger  brandy  not  taxed  as  a  proprietary  medicine  though  label  shows 
medicinal  claims;  being  an  alcoholic  compound  beverage,  only  alcohol  tax  paid  at 
the  rate  of  $3. 25  per  gallon  may  be  used  in  compounding  it  and  no  distilled  spirits 
fermented  after  11  o'clock  p.  m.  of  September  8.  1917,  may  be  used  in  its  manufac- 
ture; tax  of  15  per  cent  per  proof  gallon  required  on  all  compound  in  possession 
of  rectifier  on  October  4,  191 7,  or  thereafter  produced;  additional  floor  tax  on  product 
must  be  paid  after  inventorv  and  return  in  same  manner  as  floor  taxes  on  distilled 
spirits.     (T.  D.  2536;  Oct.  13,  1917.) 

70420^—21 29 


450  MEDICINAL  PREPAKATIONS. 

Beverages — Continued. 

Where  any  preparation  containing  more  than  one-half  of  one  per  cent  of  alcohol 

by  volume,  whether  sold  as  medicine  or  flavoring  extract  or  in  any  other  manner, 
does  not  conform  to  required  standard,  liability  will  be  asserted  to  taxat  beverage 
rate  on  alcohol  used;  similar  action  will  be  taken  in  case  of  preparation  made  in 
conformity  with  such  standard  if  sold  by  a  manufacturer  for  beverage  purposes. 
(T.  D.  2760;  Oct.  9,  1918.) 

Persons  who  manufacture  or  deal  in  alcoholic  medicinal  preparations,  flavoring 
extracts,  etc.,  even  though  made  in  accordance  with  standards  prescribed,  are  only 
relieved  from  special  tax  liability  so  long  as  they  make  sales  for  legitimate  purposes 
only;  if  preparation  containing  more  than  one-half  of  one  per  cent  of  alcohol  by 
volume  is  sold  for  beverage  purposes  or  under  circumstances  warranting  reasonable 
belief  that  it  is  to  be  used  as  a  beverage,  liability  to  tax  will  be  asserted  regardless 
of  what  other  ingredients  preparation  may  contain.     (T.  D.  2760;  Oct.  9,  1918.) 

Cigarette  tubes. 

Closed-end  tubes,  used  in  the  prOT)aration  of  catarrh  and  asthma  remedies,  are 
not  taxable  as  "cigarette  tubes."     (T.  D.  2570;  Nov.  6,  1917.) 

Definition. 

A  medicinal  preparation  is  a  preparation  of  any  substance  whatever  intended  to  be 
applied  for  the  cure  or  mitigation  of  pain  or  disease.     (T.  D.  2719;  Art.  XXII.) 

Distilled  spirits. 

Instructions  with  reference  to  permit  to  make  United  States  Pharrnacopoeia  or 
National  Formulary  products;  also,  with  reference  to  alcoholic  medicinal  com- 
pounds not  in  conformity  to  United  States  Pharmacopoeia  or  National  Formulary; 
statement  required  of  manufacturers;  demand  for  formula  and  process  by  which 
article  is  manufactured;  reference  of  matter  of  whether  compound  is  beverage  to 
Commissioner  of  Internal  Revenue.  (T.  D.  2576;  Nov.  10,  1917.  T.  D.  2788; 
Feb.  6,  1919.) 

The  sale  or  use  of  medicinal  extracts  made  with  nonbeverage  distilled  spirits  for 
beverage  purposes  or  for  manufacture  into  beverages  is  illegal.  (T.  D.  2559;  Oct. 
26,  1917.) 

Use  of  distilled  spirits  for  nonbeverage  purposes  includes  manufacture  of  bona 
fide  United  States  Pharmacopoeia  or  National  Formulary  medicinal  extracts. 
(T.  D.  2559;  Oct.  26,  1917.) 

Apothecaries  are  allowed  to  carry  distilled  spirits  and  wine  in  stock  and  use 
them  in  preparation  of  tinctures  and  other  U.  S.  P.  preparations  and  in  compounding 
of  bona  fide  prescriptions  without  paying  special  tax.    (T.  D.  2760;  Oct.  9,  1918.) 

Excise  taxes — Articles  included. 

The  word  "medicinal "  is  applicable  to  any  substance  adapted  to  cure  or  alleviate 
disease  or  pain;  accordingly,  a  medicinal  preparation  is  a  preparation  of  any  sub- 
Btance  whatever  intended  to  be  applied  for  the  cure  or  mitigation  of  pain  or  disease; 
many  articles  or  substances  which  are  not  usually  considered  as  belonging  to  materia 
medica  may  become  taxable  medicinal  preparations  by  being  held  out  or  adver- 
tised as  remedies  for  diseases  affecting  the  human  or  animal  body.  (T.  D.  2719; 
Art.  XXII.) 

—  Boric  acid. 

Boric  acid  when  sold  under  a  trade-mark  as  a  medicinal  preparation  is  taxable 
under  section  600  (h)  of  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXII.) 

Food  preparations. 

Food  preparations  as  distinguished  from  medicinal  preparations  are  not  taxable 
under  section  600  (h)  of  the  act  of  October  3,  1917.    (T.  D.  2719;  Art.  XXII.) 

"Held  out  or  recommended." 

"Held  out  or  recommended,"  as  used  in  section  600  (h)  of  the  act  of  October  3, 
1917,  includes  representation  by  any  means,  personal  canvass  and  statements  on  the 
labels,  in  pamphlets,  or  advertisements,  or  otherwise;  a  holding  out  or  recommenda- 
tion intended  for  physicians  only  is  a  holding  out  to  the  public.  (T.  D.  2719;  Art. 
XXI.) 


MEDICINAL  PREPARATIONS.  451 

Excise  taxes — Continued. 

"Held  out  or  recommended" — Continued. 

Medicinal  preparation  held  out  or  recommended  as  proprietary  or  as  a  remedy  or 
specific  for  disease  is  taxable,  (a)  even  if  sold,  in  first  instance,  only  to  physicians 
and  druggists,  (b)  even  if  a  "bacterin,"  and  (c)  even  if  an  uncompounded  natural 
substance  merely  dried  or  refined.     (T.  D.  2785;  Jan.  23,  1919.) 

Licorice. 

Licorice  put  up  in  sticks,  lozenges,  or  in  other  forms  suitable  for  medicinal  pur- 
poses and  sold  under  a  trade-mark  is  subject  to  the  tax  imposed  by  section  600  (h)  of 
the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXII.) 

Manner  in  which  prepared. 

Tax  applies  to  medicinal  preparation  held  out  by  producer  to  the  public  as  a  pro- 
prietary medicine  or  as  a  remedy  for  disease,  although  it  is  prepared  by  a  process 
which  merely  refines  a  natural  substance.     (T.  D.  2719;   Art.  XXII.) 

Taxability  of  merlicinal  preparation  under  section  600  (h)  of  the  act  of  October  3, 
1917,  is  determined  by  the  manner  in  which  it  is  prepared  or  the  way  in  which  it  is 
put  upon  the  market;  if  article  is  advertised  under  name  or  trade-mark  of  manu- 
facturer, or  any  name  in  possessive  case  is  used  on  label  or  on  Literature  describing 
medicinal  preparation,  or  name  of  manufacturer  is  made  part  of  name  or  title,  or  any 
intimation  is  otherwise  given  that  article  is  of  distinctive  origin,  tax  is  imposed; 
where  medicinal  preparations  are  sold  under  what  appears  to  be  or  what  is  intended 
to  be  a  trade-mark  appropriated  to  the  article,  the  tax  attaches.  (T.  D.  2719;  Art. 
XXII.) 

Manufacturer. 

Within  the  meaning  of  section  600  (h)  of  the  act  of  October  3, 191 7,  a  manufacturer 
or  producer  is  a  person  who  prepares  an  article  or  has  it  prepared  and  sells  it,  and  who 
identifies  the  article  by  a  commercial  name,  trade-mark,  or  trade  name,  or  by  other 
means,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine  or  a  medic- 
inal proprietary  article  or  preparation,  or  as  a  remedy  or  specific.     (T.  D.  2719;  Art. 

If  article  or  its  container  has  on  it  both  a  trade-mark  or  trade  name  of  one  manu- 
facturer, and  the  individual  or  business  name  of  another,  the  owner  of  the  trade- 
mark or  trade  name  -wdll  be  deemed  the  manufacturer;  if  the  article  or  its  container 
has  on  it  both  the  commercial  name  of  the  article  and  an  indiAddual  or  business  name, 
the  latter  will  be  deemed  to  designate  the  manufacturer.     (T.  D.  2719;  Art.  XXI.) 

A  person  who  is  employed  to  make  an  article  and  receives  for  it  the  cost  of  materials 
and  labor,  plus  specified  profit,  shall  be  considered  a  manufacturing  agent,  and  the 
person  who  procures  the  preparation  of  the  article  will  be  considered  the  manufac- 
turer.    (T.  D.  2719;  Art.  XXI.) 

Where  the  owner  of  a  formula  contracts  with  a  manufacturer  to  prepare  an  article 
according  to  such  formula  and  to  deliver  it  to  him  in  complete,  salable  foim,  the 
labels  bearing  the  formula  owner's  name,  he  is  considered  the  manufacturer.  (T.  D. 
2719;  Art.  XXI.) 

A  person  who  bottles  or  otherwise  prepares  an  article,  and  merely  for  advertising 
purposes  places  on  such  article  the  name  of  any  dealer  who  may  handle  it,  shall  be 
deemed  manufacturer  if  names  of  both  per^ns  appear,  but  if  only  the  dealer's  name 
appears  he  shall  be  deemed  the  manufacturer.     (T.  D.  2719;  Art.  XXI,) 

— —  Printing  on  labels,  etc. 

Printing  on  labels  the  directions  and  indications  for  use,  dosage,  and  other  similar 
matter,  will  not  alone  render  preparations  made  under  a  standard  formula  taxable, 
provided  preparation  is  not  held  out  or  recommended  as  a  proprietary  preparation  or 
as  a  remedy  or  specific;  where  medicinal  preparation.'^  are  sold  under  labels  which 
do  not  indicate  that  the  formula  is  published  they  will  be  considered  to  be  prepared 
under  private  formulas,  unless  proof  is  submitted  that  the  formula  is  not  secret. 
(T.  D.  2719;  Art.  XXII.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  across 
middle  of  label  does  not  amount  to  a  holding  out  of  that  preparation  as  proprietary. 
(T.  D.  2785;  Jan.  23.  1919.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  other  manufacturers,  amounts  to  a  holding  out  of  that 
preparation  as  proprietary.     (T.  D.  2785;  Jan.  23,  1919.) 


452  MEDICINAIi  PREPARATIONS. 

Excise  taxes — Continued. 

Printing  on  labels,  etc. — Continued. 

Name,  initials,  or  monogram  of  manufacturer  printed  on  label  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  amounts 
to  a  holding  out  of  that  preparation  as  proprietary.     {T.  D.  2785;  Jan.  23,  1919.) 

Rate  of  tax. 

Tax  imposed  by  section  600  (h)  of  the  act  of  October  3,  1917,  is  2  per  cent  of  price 
for  which  all  medicinal  preparations,  compounds,  or  compositions  whatsoever  nre 
sold  by  the  manufacturer,  provided  that  (1)  the  manufacturer  claims  to  have  any 
private  formula,  secret  or  occult  art  for  making  or  preparing  them;  or  (2)  the  manu- 
facturer has  or  claims  to  have  any  exclusive  right  or  title  to  making  or  preparing 
them;  or  (3)  they  are  prepared  uttered,  vended,  or  exposed  for  sale  under  any  letters 
patent  or  trade-mark;  or  (4)  they  are  held  out  or  recommended  to  the  public  by 
the  maker.?,  venders,  or  proprietors  thereof,  either  (a)  as  proprietary  medicines  or 
medicinal  proprietary  articles  or  preparations,  or  (b)  as  remedies  or  specifics  for  any 
disease  or  affection  whatever  affecting  the  human  or  animal  body.  (T.  D.  2719; 
Art.  XIX.) 

Scope  of  tax. 

Every  medicinal  preparation,  compound,  or  composition  embraced  within  one  or 
moreof  the  subdi\dBion8  in  Article  XIX  of  Regulations  No.  44  is  subject  to  tax;  if 
article  is  made  or  prepared  by  manufacturer  claiming  to  have  private  formula,  secret 
or  occult  art  for  it,  it  is  taxable  even  though  it  is  not  prepared,  uttered,  vended, 
or  exposed  for  sale  under  any  letters  patent  or  trade-mark,  and  it  is  not  held  out  or 
recommended  to  public  as  proprietary  medicine  or  medicinal  proprietary  article  or 
preparation  or  as  a  remedv  or  specific  for  any  disease  or  affection  of  the  human  or 
animal  body.     (T.  D.  2719;  Art.  XX.) 

Preparations  made  in  accordance  with  formulas  contained  in  United  States  Phar- 
macf'poeia  and  National  Formulary  by  pharmaceutical  manufacturers,  when  not 
held  out  or  recommended  as  proprietary  medicines  or  medicinal  proprietary  articles 
or  preparations,  or  as  remedies  or  specifics,  axe  not  subject  to  tax;  but  if  so  held  out 
or  recommended  they  are  taxable  although  not  identified  by  anv  name,  trade-mark, 
or  otherwise.     (T.  D.  2719;  Art.  XX.) 

Trade-mark  or  name. 

Taxability  of  medicinal  preparation  under  section  600  (h)  of  the  act  of  October  3, 
19]  7,  is  determined  by  the  manner  in  which  it  is  prepared  or  the  way  in  which  it  is 
put  upon  the  market;  if  article  is  advertised  under  name  or  trade-mark  of  manu- 
facturer, or  any  name  in  possessive  case  is  used  on  label  or  on  literature  describing 
medicinal  preparation,  or  name  of  manufacturer  is  made  part  of  name  or  title,  or  any 
intimation  is  otbermse  given  that  article  is  of  distinctive  origin,  tax  is  imposed: 
where  medicinal  preparations  are  sold  under  what  appears  to  be  or  what  is  intended 
to  be  a  trade-mark  appropriated  to  the  article,  the  tax  attaches.  (T.  D.  2719;  Art. 
XXII.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
eame  or  like  preparations  of  other  manufacturers,  is  a  •trade-mark"  under  section 
600  (h)  of  the  act  of  October  3,  1917.     (T.  D.  2785;  Jan.  23,  1919.) 

Autogiaphic  naine  of  manufacturer  of  medicinal  preparation  printed  across  middle 
of  label  is  not  a  ■trade-mark"  under  section  600  ?h)  of  the  act  of  October  3,  1917. 
(T.  D.  2785:  Jan.  23,  1919.) 

Name,  initials,  or  monogram  of  manufac  turer  printed  on  label  of  medicinal 
prepaiation,  so  as  to  be  practicallv  a  part  of  the  name  of  the  preparation,  is  not  of 
itself  a  trade-mark  under  section  600  (h)  of  the  act  of  October  3,  1917.  (T.  D.  2785; 
Jan.  23,  1919.) 

Waters. 

Artificial  mineral  waters,  not  carbonated,  sold  by  manufacturer,  producer,  or  im- 
porter, in  bottles  or  other  closed  containers,  carbonated  waters  manufactured  and 
sold  by  the  manufacturer,  producer,  or  importer  of  the  carbonic  acid  gas  used  in 
carbonating  the  same,  and  natural  mineral  waters  and  table  waters  sold  by  the  pro- 
ducer, bottler,  or  importer,  in  bottles  or  other  closed  containers  at  over  10  cents  per 
gallon,  all  of  which  are  taxed  under  section  313  of  the  act  of  October  3,  1917,  are  not 
Bubject  to  tax  under  section  600  (h)  if  intended  for  use  solely  as  beverages.  (T.  D. 
2719;  Art.  XXIII.) 


MERCANTILE   CORPORATIONS — MERGER.  453 

Liniments — Denatured  alcohol. 

Alcohol  denatured  accnnUng  to  stated  formula  may  be  used  in  the  manufacture  of 
soap  liniment.  (U.  S.  P.J,  chlnroform  Uniment  (U.  S.  P.),  liniment  of  soft  soap,  and 
green  soap  when  manufactured  in  accordance  with  standards  of  United  States  Phar- 
macopoeia with  exception  that  products  will  contain  camphor  and  rosemary;  de- 
naturant  may  be  used  only  in  central  denaturing  and  distilling  plant  of  industrial 
character  as  established  under  subsection  2^)f  paragraph  N,  of  section  4,  of  the  act 
of  October  3,  1913,  and  supplement  No.  2  to  Regulations  No.  30;  samples  of  liniment 
of  soft  soap  and  green  soap  required  to  be  submitted  together  with  formula,  before 
bf)nd  is  approved;  permission  for  use  of  special  denaturants  must  be  obtained. 
(T.  D.  2465;  Mar.  24,  1917.) 

Formula,  designated  as  No.  23,  for  special  denaturation  of  alcohol  to  be  userl  in 
manufacture  of  liniment,  stated ;  formula  not  to  be  used  in  central  denaturing  b(jnded 
warehouses  or  distillery  denaturing  bonded  warehouses,  but  use  authorized  f^r 
denaturation  of  alcohol  in  central  distilling  and  denaturing  plants;  permission  re- 
quired to  use  special  denaturant  in  any  central  di.stilling  and  denaturing  plant,  as 
provided  in  articles  2  and  19,  of  supplement  No.  2  to  Regulations  30.  (T.  D.  2379; 
Oct.  6,  1916.) 

Narcotics. 

See  "Narcotics."' 

Wines. 

Any  domestic  wines  may  be  used  in  manufacture  of  medicinal  preparations  pro- 
vided no  distilled  spirits  are  added.     (T.  D.  2387;  Oct.  30,  1916.) 

MERCANTILE   COaPORATIONS. 

Income  taxes — Gross  income. 

Gross  income  of  mercantile  companies,  for  purpose  of  returnp.  shall  consist  of 
total  sales  plus  inventory  at  end  of  year,  less  sum  of  cost  of  goods  purchased  duiing 
year  and  inventory  at  beginning  of  year;  to  amount  of  income  thus  ascertained 
should  be  added  the  income,  gains,  or  profits  derived  from  all  other  sources;  all 
sales  made  during  year,  whether  compensated  for  by  accounts  receivable,  bills 
receivable,  cash,  or  other  property  at  a  determined  cash  value,  must  be  included, 
in  gross  income  of  year  in  which  sales  were  made.     (T.  D.  2690;  art.  92.) 

Dealers  in  merchandise  and  dealers  in  securities  authorized  to  make  returns  on 
basis  of  inventories  taken  at  cost  or  market  price,  whichever  is  lower.  (T.  D. 
2609;  Dec.  19,  1917.)  Pending  decision  by  Supreme  Court  of  United  States  as 
to  legality  of  authorization  of  T.  D.  2609,  returns  made  upon  basis  of  T.  D.  2C09 
will  be  tentatively  accepted.  (T.  D.  2649;  Jan.  30,  1918.)  Affirmed,  T.  D.  2744; 
July  11,  1918. 

MERGER. 

Corporations — Stamp  tax — Issue  of  stock. 

Issue  of  stock  by  a  consolidated  corporation,  in  exchange  for  stock  of  the  con- 
solidating corporations,  is  a  taxable  original  issue  under  act  October  3,  1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Transfer  of  stock. 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the 
consolidated  corporation,  is  not  a  taxable  transfer  under  act  October  3, 1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Where,  as  under  section  15  of  the  New  York  stock  law,  pro"\dding  for  merger 
of  ordinary  corporations,  acquisitions,  acquisition  of  stock  of  corporation  to  be 
merged  is  condition  precedent  to  merger,  transfer  of  such  stock  to  merging  corpora- 
tion prior  to  actual  merger  is  taxable  under  act  October  3,  1917.  (T.  D.  2752; 
Aug.  14,  1918.) 

Trust  companies— Stamp  tax — Issue  of  stock. 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue 
of  stock  of  either  corporation  in  addition  to  already  existing  stock  \ipon  merger  of 
trust  companies  under  sections  487-496  of  New  York  banking  law,  b\it  such  tax 
does  not  attach  to  substitution  of  new  certificates  for  certificates  representing  old 
stock  of  merging  coi-poration.     (T.  D.  2752;  Aug.  14,  1918.) 


454  MESSAGES — MINES  AND  MINING. 

Trust  companies — Continued. 

Transfer  of  stock. 

Tax  imposeil  by  act  October  3,  1917,  on  transfers  of  stock,  does  not  attach  to 

exchange  of  stock  certificates  of  merged  corporation  for  stock  certificate  of  merging 
corporation  at  the  time  and  as  part  of  the  merger  of  trust  companies  under  sections 
487-496  of  the  New  York  banking  law,  nor  to  substitution  of  new  certificates  for 
old  certificates  representing  old  stock  of  the  merging  corporation.  (T.  D.  2752; 
Aug.  14,  1918.) 

MESSAGES. 
Radio. 

See  "Radio  Messages. " 

Telegraph  or  telephone. 

See  "Telegraphs  and  Telephones." 

METHYL  ALCOHOL. 

See  "Alcohol." 

MILEAGE  BOOKS. 
Passenger  transportation. 

Provision  of  subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  relating  to 
mileage  books,  applies  whether  book  was  purchased  in  United  States,  Canada,  or 
Mexico;  manner  of  reporting  and  returning  amounts  collected;  if  book  sold  in 
United  States  prior  to  November  1,  1917,  be  presented  for  exchange  ticket  or  on 
train  for  transportation,  tax  applies  on  sale  value  of  coupons  or  scrip  remaining  in 
book,  and  shall  be  collected  by  employee  to  whom  book  is  presented;  8  per  cent 
tax  applies  to  gross  amount  paid  for  book  purchased  on  or  after  November  1,  1917, 
as  and  when  collection  is  made  therefor,  and  if  e\"idence  of  right  to  exemption  be 
dehvered  to  carrier  at  time  of  purchase,  book  shall  be  stamped  "Tax  not  paid"; 
when  tax  appUes,  and  when  it  does  not  apply,  to  amount  paid  for  coupons  lifted 
from  mileage  books  purchased  in  Canada  or  Mexico,  stated.  (T.  D.  2676;  Mar.  18, 
1918.) 

MILITARY    SERVICE. 
See  "Army  and  Navy." 

MILK. 

Income  taxes — Cooperative  dairy  associations. 

Cooperative  dairy  companies  or  associations,  not  having  capital  stock  and  engaged 
in  collecting  milk  and  disposing  of  same  or  products  thereof,  and  distributing  pro- 
ceeds of  business,  less  necessary  operating  expenses,  among  their  patrons,  upon 
basis  of  quantity  of  butter-fat  in  milk  furnished  by  such  patrons,  are  exempt  from 
tax;  if  company  purchases  milk  at  stipulated  price  and  disposes  of  same,  or  its  prod- 
ucts, at  a  profit,  and  such  profit  inures  to  benefit  of  company  or  its  members,  on 
any  basis  other  than  butter-fat  content  of  milk  furnished,  such  company  will  come 
within  requirements  of  law  and  will  be  subject  to  tax.     (T  D.  2690;  art.  76.) 

Returns  of  dairy  farmers. 

See  "Farmers." 

Transportation  charges. 

The  amounts  p.iid  for  transportation,  other  than  by  express,  of  milk,  are  subject 
to  the  tax  of  3  per  cent;  whenever  two  or  more  tickets  for  transportation  are  sold  in 
book  form  or  in  bulk,  tax  applies  to  aggregate  amount  paid  for  tickets  so  purchased. 
(T.  D.  2676;  Mar.  18,  1918.) 

MINES  AND  MINING. 

Capital  stock  tax — "Engaged  in  business.' ' 

Corporations  engaged  in  mining  are  "engaged  in  business"  and  are  subject  to 
tax  imposed  by  section  407  of  the  act  of  September  8,  1916.  (T.  D.  2418;  Dec. 
15,  1916.) 

Company  organized  for  purpose  of  owning,  developing,  and  speculating  in  mining 
land  or  other  real  property  is  engaged  in  business  and  is  subject  to  capital  stock  tax 
imposed  under  section  407  of  act  of  September  8, 1916.     (T.  D.  2457;  Mar.  14,  1917.) 


MINES  AND  MINING.  455 

Excise  taxes — Depreciation  and  depletion. 

Section  14  of  the  act  of  September  8,  1916,  amending  section  3225,  Revised  Stat- 
utes, providing  tliat  it  shall  not  apply  to  statements  or  returns  made  or  to  be  made 
in  good  faith  regarding  annual  depreciation  of  oil  or  gas  wells  and  mines,  does  not 
purport  to  be  retroactive  in  its  operation.     (T.  D.  2661;  Mar.  5,  1918.     Ct.  Dec.) 

Lessee  of  mining  property  may  not  deduct  proportionate  value  of  ore  in  place  on 
January  1,  1909,  with  respect  to  each  ton  of  ore  mined,  as  so  much  depletion  of 
capital  assets,  but  may  deduct  proportionate  part  of  royalty  paid  in  advance. 
(T.  D.  2721;  June  4,  1918.     Ct.  Dec.) 

Iron  ore  leases  under  consideration  in  case  of  United  States  v.  Biwabik  Mining 
Co.,  decided  by  the  Supreme  Court  of  the  United  States,  held  not  to  be  conveyances 
of  ore  in  place,  but  to  be  grants  of  privilege  of  entering  upon,  discovering,  and 
developing  and  removing  the  minerals  from  the  land  (Sargent  Land  Co.  case,  242 
U.  S.  503,  followed).     (T.  D.  2721;  June  4,  1918.    Ct.  Dec.) 

In  ascertainment  of  net  income  under  the  corporation  excise-tax  act  of  1909 
mining  corporation  is  not  entitled  to  deduction  against  gross  proceeds  from  the 
mining  and  treatment  of  ores  to  the  extent  of  the  gross  value  of  the  ore  in  the  ground 
before  it  was  mined,  ascertained  in  compliance  with  T.  D.  1675.  (T.  D.  2722;  June 
4,  1918.     Ct.  Dec.) 

For  purpose  of  determining  net  income  for  basis  of  taxation  under  the  corpora- 
tion excise-tax  act  of  1909,  mining  corporation  may  not  deduct  from  its  gross  income 
any  amount  whatever  on  account  of  depletion  or  exhaustion  of  ore  bodies  caused 
by  its  operations  for  year  for  which  tax  is  assessed.  (T.  D.  2722;  June  4,  1918. 
Ct.  Dec.) 

Income  taxes — Depreciation  and  depletion  of  gas  and  oil  properties. 

Section  14  of  the  act  of  September  8,  1916,  amending  secticm  3225,  Revised  Stat- 
utes, providing  that  it  shall  not  apply  to  statements  or  returns  made  or  to  be  made 
in  good  faith  regarding  annual  depreciation  of  oil  or  gas  wells  and  mines,  does  not 
purport  to  be  retroactive  in  its  operation.    (T.  D.  2661;  Mar.  5,  1918.    Ct.  Dec.) 

In  case  of  lessee  capital  to  be  returned  is  amount  paid  in  cash  or  its  equivalent  as 
bonus  or  otherwise  by  lessee  for  lease  plus  expenses  incurred  in  developing  property 
(exclusive  of  physical  property)  prior  to  receipt  of  income  therefrom  sufficient  to 
meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and  lessee,  such 
incidental  expenses  as  are  paid  for  wages,  fuel,  etc.,  in  connection  with  drilUng  of 
wells  and  furtlier  development  of  property  may  be  at  option  of  operator  deducted 
as  operating  expense  or  charged  to  capital  account.     (T.  D.  2690;  art.  170.) 

In  case  of  operating  fee  owner  amount  returnable  through  depletion  deductions 
is  fair  market  value  of  property  (exclusive  of  cost  of  phj^sical  property)  as  of  March 
1,  1913,  if  acquired  prior  to  that  date,  or  actual  cost  of  property  if  acquired  subse- 
quent to  that  date,  plus,  in  either  case,  cost  of  development  (other  than  cost  of 
physical  property  incident  to  such  development)  up  to  point  at  which  income  from 
developed  territory  equals  or  exceeds  deductible  expenses.     (T.  D.  2690;  art.  170.) 

Essence  of  sections  5  and  12  of  the  act  of  September  8,  1916,  as  amended  by  the 
act  of  October  3,  1917,  is  that  owner  or  operator  of  gas  or  oil  properties  shall  secure 
through  an  aggregate  of  annual  depletion  deductions  the  return  of  amount  of  capital 
actually  invested,  or  amount  not  in  excess  of  fair  market  value  as  of  March  1,  1913, 
of  properties  owned  prior  to  that  date.     (T.  D.  2690;  art.  170.) 

As  to  both  fee  owner  and  lessee,  capital  invested  in  physical  property,  upon  which 
depreciation  deduction  is  computed,  should  be  segregated  in  Dooks  of  account 
from  that  invested  in  oil  or  gas  territory  or  in  lease  or  leases,  with  respect  to  which 
deduction  for  depletion  or  return  of  capital  is  claimed,  and  credits  for  depreciation 
may  be  made  in  same  manner  as  provided  for  depletion.     (T.  D.  2690;  art.  170.) 

Both  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition  to  and 
separate  from  deduction  allowable  for  depletion  or  return  of  capital,  be  permitted 
to  deduct  reasonable  allowance  for  depreciation  of  physical  property,  such  as 
machinery,  tools,  equipment,  pipes,  etc.,  amount  deductible  on  this  account  to  be 
such  an  amount,  based  upon  its  capitalized  value  (cost)  equitably  distributed  over 
its  useful  life,  as  will  bring  it  to  its  true  salvage  value  when  no  longer  useful  for 
purpose  for  which  property  was  acquired.     (T.  D.  2690;  art.  170.) 

"Where  operator  is  owner  of  fee,  value  determined  and  set  up  as  of  March  1,  1913, 
or  cost  of  property  if  acquired  subsequent  to  that  date,  or,  if  operator  is  lessee, 
actual  amount  paid  for  lease  plus,  in  case  of  both  owner  and  lessee,  cost  of  subse- 
quent development,  exclusive  of  physical  property,  if  such  cost  is  capitalized,  will 


456  MINES  AND   MINING. 

Income  taxes — Depreciation  and  depletion  of  gas  and  oil  properties — Con. 
be  basis  for  determining  depletion  deduction  or  deduction  for  return  of  capital  for 
all  subsequent  years  during  continuance  of  ownership  under  which  value  was 
fixed  or  by  which  investment  was  made;  during  such  ownership  there  can  be  ii  w 
revaluation  for  purpose  of  deduction  if  it  should  be  found  that  quantity  of  oil  r 
gas  was  underestimated  at  time  value  was  fixed  or  property  was  acquired  or  at  tii.je 
lease  contract  was  entered  into  or  purchased.     (T.  D.  2690;  art.  170.) 

If  quantity  of  oil  or  gas  can  not  be  determined  with  certainty,  depletion  deduc- 
tion will  be  computed  in  accordance  with  rules  set  out  in  T.  I^.  2447,  except  that 
lessees  may  compute  deductions  for  return  of  capital  (cost  of  lease  and  develop- 
ment) in  same  manner  as  owners  in  fee;  that  is,  they  may  extinguish  such  ca])ital 
on  basis  of  reduction  in  flow  and  production  as  compared  with  preceding  year,  or, 
in  case  of  leasehold  properties  brought  in  or  developed  during  year,  depletion 
deduction  may  be  computed  on  basis  of  decline  in  settled  flow  and  production,  as 
evidenced  by  tests  and  gauges  made  at  end  of  year  as  compared  with  similar  tests 
and  gauges  made  at  time  settled  flow  was  determined;  for  purpose  of  computing 
depletion  territory  comprehended  in  given  lease  will  be  considered  unit  with 
respect  to  which  depletion  deduction  may  be  claimed  and  allowed.  (T.  D.  2b90 
art.  170.) 

Every  individual  or  corporation  entitled  to  deduction  on  account  of  depletion 
or  for  return  of  capital  invested  shall  keep  accurate  ledger  account,  in  which,  in  case 
of  fee  owner,  shall  be  charged  fair  market  value  as  of  March  1,  1913,  or  cost,  if  ac- 
quired subsequent  to  that  date,  of  oil  or  gas  property  plus  cost  of  development,  or, 
in  case  of  lessee,  amount  actually  originally  invested  in  lease  and  its  development; 
this  amount  shall  be  credited  as  amount  claimed  each  year  as  deduction  on  account 
of  depletion  or  as  return  of  capital,  to  end  that  when  credits  to  account  equal  debits 
no  further  deductions  on  either  account  with  respct  to  this  property  and  capital 
invested  therein  will  be  allowed;  or,  in  lieu  of  direct  credit  to  property  account, 
amounts  so  claimed  and  allowed  as  deduction  may  be  credited  to  depletion  reserve 
account.     (T.  D.  2690;  art.  170.) 

Estimate,  subject  to  approval  of  Commissioner  of  Internal  Revenue,  required 
to  be  made  of  probable  quantity  of  oil  or  gas  contained  in  or  to  be  .recovered  from 
territory  with  respect  to  which  investment  is  made;  invested  capital  will  be  divided 
by  number  of  units  of  oil  or  gas  so  estimated,  and  quotient  will  be  per  unit  cost  or 
amount  of  capital  invested  in  each  unit  recoverable;  this  quotient  when  multiplied 
by  number  of  units  removed  from  territory  in  one  year,  will  determine  amount 
which  will  be  allowably  deslucted  from  gross  income  for  that  year  on  account  of 
depletion  or  as  return  of  invested  capital  until  total  of  such  deductions  shall  equal 
capital  invested.     (T.  D.  2690;  art.  170.) 

If  individual  or  corporation  charges  expense  of  drilling  wells  or  further  develop- 
ment to  capital  account,  the  same,  in  so  far  as  expense  is  represented  by  physical 
property,  may  be  taken  into  account  in  determining  reasonable  allowance  for 
depreciation  during  each  year  until  property  account  thus  augmented  has  been 
extinguished  through  annual  depreciation  deductions,  after  which  no  further 
deduction  on  this  account  will  be  allowed;  in  case  of  a  going  or  producing  business, 
cost  of  drilling  nonproductive  wells  may  be  deducted  from  gross  income  as  operat- 
ing expense.     (T.  D.  2690;  art.  170.) 

Individual  or  corporation  owning  and  operating  oil  or  gas  properties  required  to 
attach  to  each  return  a  statement  showing  certain  specified  data;  if  operator  is 
lessee  that  fact  should  be  stated,  and  to  return  made  by  such  lessee  there  should  be 
attached  a  statement  showing  certain  specified  matters.     (T.  D.  2690;  art.  170.) 

- —  Depreciation  and  depletion  of  ore  properties. 

When  corporation  sets  aside  part  of  its  earnings  to  create  sinking  fund  with  which 
to  retire  indebtedness,  annual  additions  to  such  fund  are  not  allowable  deduction 
from  gross  income  or  as  or  in  lieu  of  depreciation  or  on  any  other  account;  earnings 
thus  set  aside  are  an  asset  and  any  accretion  thereto  must  be  accounted  for  as  income ; 
ruling  will  not,  however,  forbid  deduction  or  reasonable  allowance  for  depletion  of 
natural  deposits  even  though  amount  so  deducted  be  used  in  whole  or  in  part  in 
payment  of  its  indebtedness.     (T.  D.  2690;  art.  166.) 

Ownership  of  mine  content  at  time  for  which  computation  is  made  is  an  essential 
prerequisite  to  an  allowable  deduction  for  depletion,  under  section  5  (a)  and  section 
12  (a)  of  Title  I  of  the  act  of  September  8,  1916,  as  amended;  deduction  in  case  of 
lessee  limited  to  amount  equal  to  capital  actually  invested  in  lease  without  regard 
to  value  as  of  March  1,  1913,  or  any  other  date;  the  seventh  and  eighth  paragraphs  of 
section  5  (a)  and  the  second  paragraph  of  section  12  (a)  authorize  in  case  of  mine  own- 


MINES  AND  MINING.  457 

Income  taxes — Continued. 

Depreciation  and  depletion  of  ore  properties — Continued. 

era  two  classes  of  deductions  to  take  care  of  wasting  of  assets,  namely,  depreciation 
and  depletion.     (T.  D.  2690;  art.  171.) 

Both  owner  and  lessee  will  keep  accurate  ledger  accounts  to  which  will  be  charged 
capital  invested  in  mine  or  lease,  and  in  machinery,  equipment,  etc.,  crediting  such 
accounts  or  a  depletion  reserve  account  with  amount  claimed  and  allowed  as  a 
deduction  each  year  until,  as  result  of  such  credits,  the  capital  charge  shall  be 
extinguished,  after  which  no  further  deduction  on  this  account  will  be  allowed. 
(T.  D.  2690;  art.  172.) 

Original  cost  of  mineral  deposit  may  be  taken  as  basis  for  computing  annual  deple- 
tion deductions  if  fair  market  value  as  of  March  1, 1913,  can  not  be  ascertained  other- 
wise, allowance  being  made  for  minerals  which  may  have  been  removed  prior  to  that 
date;  where  property  was  acquired  subsequent  to  that  date,  same  rule  for  computing 
annual  depletion  deduction  will  apply,  except  that  basis  of  computation  will  be 
actual  cost  rather  than  value  as  of  March  1,  1913.     (T.  D.  2690;  art.  172.) 

Every  individual  or  corporation  claiming  and  making  deduction  for  depletion  of 
natural  deposits  shall  keep  accurate  ledger  account,  in  which  shall  be  charged  fair 
market  value  as  of  March  1, 1913,  or  cost,  if  property  was  acquired  subsequent  to  that 
date,  of  mineral  deposits  involved,  accoimt  to  be  credited  with  amount  of  depletion 
deduction  claimed  and  allowed  each  year,  or  amount  of  depletion  shall  be  credited 
to  depletion  reserve  account,  to  end  that  when  siun  of  credits  for  depletion  equals 
value  or  cost  of  property,  no  further  deduction  for  depletion  will  be  allowed;  fair 
market  value  or  cost  of  property,  as  case  may  be,  will  be  basis  for  determining  deple- 
tion deduction  for  all  subsequent  years  duriog  ownership  under  which  value  was 
fixed,  and  during  such  ownership  there  may  be  no  revaluation  if  it  should  be  found 
that  estimated  quantity  of  deposit  was  understated;  w^here  quantity  of  mineral  de- 
posit prior  to  March  1,  1913,  can  not  be  accurately  estimated,  necessary,  if  depletion 
deductions  are  to  be  taken,  for  owner  of  deposits,  with  best  information  available, 
to  arrive  at  fair  market  value  of  property  as  of  March  1,  1913,  which  ^alue  during 
period  of  oAvnership  shall  be  final;  then,  on  basis  of  most  probable  niunber  of  units 
in  property,  per  unit  value  shall  be  determined  as  basis  for  computing  annual  deple- 
tion allowances;  this  method  and  allowances  to  be  continued  until,  but  not  beyond, 
time  when  value  as  of  March  1,  1913,  shall  have  been  extinguished.  (T.  D.  2690; 
art.  172.) 

Where  property  was  acquired  by  purchase  or  otherwise  (other  than  by  lease) 
prior  to  March  1,  1913,  amount  of  invested  capital  which  may  be  extinguished 
through  annual  depletion  deductions  from  gross  income  will  be  the  market  value  of 
mine  property  so  acquired,  as  of  March  1, 1913;  value  contemplated  as  basis  for  deple- 
tion deductions  must  not  be  based  upon  assumed  salable  value  of  output  under  cur- 
rent operative  conditions,  less  cost  of  production,  for  reason  that  value  so  deter- 
mined would  comprehend  profits  to  be  realized  from  operation  of  property;  A'alue 
must  not  be  speculative  but  must  be  determined  upon  basis  of  salable  value  en 
bloc  as  of  March  1,  1913,  of  entire  deposit  of  minerals,  exclusive  of  improvements 
and  development  work;  en  bloc  value  having  been  ascertained,  estimate  of  number 
of  units  (tons,  pounds,  etc.)  should  be  made,  and  en  bloc  value  divided  by  estimated 
number  of  units  will  be  determined  per  unit  value,  which,  multiplied  by  number 
of  imits  mined  and  sold  during  any  one  year  will  determine  sum  which  will  consti- 
tute deduction  of  that  year;  deductions  computed  on  like  basis  may  be  made  from 
year  to  year  during  ownership  under  which  value  was  determined  until  aggregate 
en  bloc  value  as  of  March  1,  1913,  of  mine  or  mineral  deposit  shall  have  been  extin- 
guished.    (T.  D.  2690;  art.  172.) 

Precise  manner  in  which  estimated  fair  market  value  of  mineral  deposits,  as  of 
March  1,  1913,  shall  be  made,  must  be  determined  by  owner  upon  such  basis  as 
must  not  comprehend  any  operating  profits,  estimate  to  be  subject  to  approval  of 
Commissioner;  in  passing  upon  accuracy  and  fairness  of  estimate  due  weight  to 
market  value  of  stock  of  corporation  on  March  1,  1913,  and  also  to  sworn  statements 
as  to  value  of  stock  filed  at  any  time  thereafter  for  purposes  of  special  excise  tax 
based  on  value  of  capital  stock  imposed  by  Title  I  of  the  act  of  September  8,  1916, 
will  be  attached.     (T.  D.  2690;  art.  172.) 

Where  depletion  deduction  is  computed  on  basis  of  cost  or  price  at  which  any 
mit>e,  mineral  lands  or  properties  were  acquired,  corporation  upon  request  of  com- 
missioner must  show  that  cost  or  price  at  which  propery  was  bought  was  fixed  for 
purposes  of  bona  fide  purchase  or  sale  by  which  property  passed  to  owner  in  fact  as 
well  as  in  form,  different  from  vendor;  m  determining  whether  or  not  price  or  cost 
at  which  any  purchase  or  sale  was  made  represented  actual  market  value,  due 


458  MINERAL  WATERS. 

Incoine  taxes — Continued. 

• Depreciation  and  depletion  of  ore  properties — Continued. 

weight  will  be  given  to  relationship  or  connection  existing  between  party  or  parties 
selling  property  and  buyer  thereof.     (T.  D.  2690;  art.  172.) 

Lessee  corporation  not  entitled  to  any  deduction  as  such,  but  if  lessee,  in  addition 
to  royalties,  pays  stipulated  sum  for  right  to  explore,  develop,  a,nd  operate  mine, 
such  sum  may  be  spread  ratably  over  estimated  niunber  of  units  in  mine,  and  thus 
ascertain  amount  of  invested  capital  or  bonus  payment  applicable  to  each  unit; 
per  imit  cost  thus  ascertained  will  be  multiplied  by  nujnber  of  units  removed  from 
mine  during  any  one  year,  and  result  will  be  amount  that  may  be  deducted  from 
gross  income  of  that  year  as  return  of  capital  invested ;  in  case  of  both  mine  owner 
and  lessee,  no  deduction  for  depletion  or  return  of  capital  will  be  allowed  when 
invested  capital  has,  through  the  aggregate  of  all  such  deductions,  been  extinguished ; 
for  purpose  of  computing  this  deduction  in  case  of  lessee  company  actual  amount  of 
bonus  paid  and  not  value  as  of  March  1,  1913,  will  be  considered  capital  invested  to 
be  returned  through  aggregate  of  annual  deductions.     (T.  D.  2690;  art.  172.)     • 

Operator  will  be  permitted  to  deduct  from  gross  income  of  each  year  reasonable 
allowance  for  depreciation  of  all  physical  property  used  in  connection  with  opera- 
tion of  mine  and  owned  by  operator;  for  this  purpose  the  actual  cost  (not  value) 
will  be  equitably  distributed  over  useful  life  of  such  property  until  true  salvage 
value  has  been  reached;  both  owner  and  lessee  will  keep  accurate  ledger  accounts 
to  which  will  be  charged  capital  invested  in  mine  or  lease,  and  in  machinery,  equip- 
ment, etc.,  crediting  such  accounts  or  a  depreciation  reserve  account  with  amount 
claimed  and  allowed  as  a  deduction  each  year  iintil,  as  result  of  such  credits,  the 
capital  charge  shall  be  extinguished,  after  which  no  further  deduction  on  this 
account  will  be  allowed.     (T.  D.  2690;  art.  172.) 

The  allowance  for  depletion  in  the  case  of  mines  pertains  to  a  consumption  of 
capital  assets  rather  than  to  a  business  loss.     (T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

The  lessee  of  a  mine  is  not  entitled  to  a  deduction  for  depletion  under  the  act 
of  September  8,  1916.     (T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

There  is  no  substantial  distinction  as  applied  to  a  mine  between  depreciation 
which  was  sought  by  mine  owners  under  the  acts  of  August  5,  1909,  and  October 
3,  1913,  and  the  depletion  which  was  allowed  by  the  act  of  September  8,  1916. 
(T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

The  fact  that  the  lessee  of  a  mine  is  under  an  aflirmative  obligation  to  remove 
or  at  least  to  pay  for  a  fixed  amount  of  ore  does  not  change  the  general  rule  as  to 
depletion  in  the  case  of  lessees.     (T.  D.  3001;  Apr.  15,  1920.     Ct.  Dec.) 

— —  Hetums. 

Section  14  of  the  act  of  September  8,  1916,  amending  section  3225,  Revised 
Statutes,  providino;  that  it  shall  not  apply  to  statements  or  returns  made  or  to  be 
made  in  good  faith  regarding  annual  depreciation  of  oil  or  gas  wells  and  mines, 
does  not  purport  to  be  retroactive  in  its  operation.  (T.  D.  2661;  Mar.  5,  1918.  Ct 
Dec.) 

Individual  or  corporation  owning  and  operating  oil  or  gas  properties  required  to 
attach  to  each  return  a  statement  showing  certain  specified  data;  if  operator  is 
lessee  that  fact  should  be  stated,  and  to  return  made  by  such  lessee  there  should  be 
attached  a  statement  showing  certain  specified  matters.     (T.  D.  2890;  art.  170.) 

Operator  of  mining  properties,  or  lessee  thereof,  required  to  attach  to  his  return 
statement  setting  out  certain  specified  data.     (T.  D.  2690;  art.  172.) 

Transportation  for  hire  by  mining  companies. 

WTiere  a  person,  corporation,  partnership,  or  association  is  engaged  in  mining, 
and,  for  account  of  himself  or  itself,  furnishes  any  of  the  services  or  facilities  de- 
scribed or  referred  to  in  subdivisions  (a),  (b),  (c),  or  (d)  of  section  500  of  the  act  of 
October  3,  1917,  and,  at  times,  for  hire,  furnishes  any  of  such  facilities  for  the  ac- 
count of  any  other  person,  corporation,  partnership,  or  association,  the  one  furnishing 
such  facility  is  a  carrier,  and  tax  applies  as  respects  all  commodities  so  transported, 
whether  for  his  or  its  account  or  for  the  account  of  others.  (T.  D.  2676;  Mar.  18, 
1918.) 

MINERAL   WATERS. 
Beverages. 

See  "Beverages." 

Excise  taxes. 

See  "Excise  Taxes." 


MINOES — MORTGAGES.  459 

MINORS. 
Admissions. 

Children  under  12  yeara  of  age  when  admitted  free  are  not  taxable  under  section 
700  of  the  act  of  October  3,  1917.     (T.  D.  2681;  Mar.  26,  1918.) 

Tax  imposed  by  section  700  of  the  act  of  October  3, 1917,  on  the  admission  of  chil- 
dren under  12  yeara  of  age,  must  be  collected  in  all  cases  at  the  full  rate  of  1  cent  for 
each  10  cents  or  fraction  thereof,  except  where  distinctive  tickets  are  issued  for 
children  under  12  years,  or  tickets  for  their  use  are  indelibly  stamped  to  show  that 
they  are  good  only  for  the  admission  of  children  under  12  years,  or  where,  in  absence 
of  tickets,  tax  is  paid  at  time  of  admission  of  children  under  12  years;  children 
under  12  years  of  age  when  admitted  free  are  not  taxable.  (T.  D.  2681;  Mar.  26, 
1918.) 

Income  taxes— Deductions  of  allowances. 

As  a  rule,  allowances  which  father  gives  to  his  minor  children,  whether  said  to  be 
in  consideration  of  service  or  otherwise,  are  not  allowable  deductions  in  return  of 
income,  nor  are  they  income  to  the  children.     (T.  D.  2690;  art.  8.) 

Exemptions. 

Exemption  of  $200  for  each  dependent  child  provided  by  section  7  of  act  of  Sep- 
tember 8,  1916,  as  amended,  is  given  in  respect  of  income  tax  and  is  therefore  appli- 
cable under  both  the  act  of  September  8,  1916,  as  amended,  and  the  act  of  October 
,  1917,  under  same  conditions  of  fact.     (T.  D.  2690;  art.  14.) 

Returns. 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returns,  in 
cases  arising  under  section  2  (b)  of  the  act  of  September  8,  1916,  as  amended,  when 
income  of  estate  or  trust,  as  an  entity,  is  §1,000  or  over,  return  to  be  made  on  Form  1040 
or  1040A;  fiduciaries  must  make  returns  on  Form  1041  whenever  interests  of  bene- 
ficiary in  net  income  of  estate  or  trust  is  $1,000  or  over  for  an  unmarried  beneficiary 
and  whenever  interest  of  married  beneficiary  is  $2,000  or  over.  (T.  D.  2690;  art. 
27.) 

Fiduciaries  acting  for  minors  or  other  incompetents,  required  to  make  returns 
according  to  marital  status  of  beneficiary;  whenever  interest  of  beneficiary  in  net 
income  of  estate  or  trust  is  $1,000  or  over,  for  an  unmanied  beneficiary  or  in  case  of 
married  beneficiary,  whenever  interest  is  $2,000  or  over,  fiduciaries  are  requii'ed  to 
make  return.    (T.  D.  2690;  art.  27.) 

MIXED  FLOUR. 

Stamps — Cancellation. 

Tax-paid  stamps  on  mixed  flour  may  be  canceled  by  perforation  by  manufacturer 
at  his  option,  provided  factory  number,  district,  and  State,  and  name  of  person  by 
whom  or  for  whom  canceled,  or  suitable  abbreviation  thereof,  together  with  date 
affixed  and  canceled,  are  shown  by  this  means,  and  letters  or  numerals  employed  in 
perforation  are  plain  and  legible.     (T.  D.  2701;  Oct.  10,  1918.) 

MONEY   OR  OTHER  PROPERTY  BORROWED. 

Definition. 

The  term  "money  or  other  property  borrowed,"  as  used  in  section  207  of  the  act 
of  October  3,  1917,  and  Regulations  No.  41,  includes  not  only  cash  or  other  borrowed 
property  which  can  be  identified  as  such,  but  current  liabilities  and  temporary 
indebtedness  of  all  kinds  and  any  permanent  indebtedness  upon  which  taxpayer 
is  entitled  to  an  interest  deduction  in  computing  net  income.  (T.  D.  2694;  art. 
44.) 

MORTGAGES. 
Corporation  excise  tax. 

In  ascertaining  net  income  of  a  corporation  under  section  38  of  the  act  of  August 
5,  1909,  which  has  taken  title  to  real  property  subject  to  mortgage,  but  has  not 
assumed  indebtedness  secured  thereby,  interest  paid  on  indebtedness  may  be  de- 
ducted as  pa\  ments  required  to  be  made  as  condition  to  continued  use  or  possession 
of  the  property.    (T.  D.  2787;  Jan.  31,  1919.) 


460  MOTIOK  PICTURES — MOTOR  VEHICLES. 

Estate  tax — Deduction. 

Mortgages  resting  on  decedents'  property  should  be  shown  under  "Deductions" 
in  Form  706,  and  full  value  of  mortgaged  realty  should  be  shown  under  item  1  of 
"Gross  estates";  similar  rule  must  be  applied  with  regard  to  hypothecated  person- 
alty.    (T.  D.  2513;  July  16,  1917.) 

Income  taxes — Deductions. 

Where  mortgagee  buys  in  property  and  credits  indebtedness  with  purchase  price, 
difference  between  price  and  indebtedness  not  allowable  as  deduction;  only  where 
purchaser  for  less  than  debt  is  another  than  mortgagee  may  difference  between  debt 
and  net  from  sale  credited  be  deducted  as  bad  debt.     (T.  D.  2690;  art.  8.) 

In  ascertaining  net  income  of  a  corporation  under  section  2,  paragraph  G  (b) 
Cfirst)  of  the  act  of  October  3,  1913,  which  has  taken  title  to  real  property  subject  to 
mortaage,  but  has  not  assumed  indebtedness  secured  thereby,  interest  paid  on 
indebtedness  may  be  deducted  as  payments  required  to  be  made  as  condition  to 
continued  use  or  possession  of  the  property.     (T.  D.  2787;  Jan.  31,  1919.) 

Information  at  source. 

Returns  of  information  required,  regardless  of  amount,  in  case  of  payments  of 
interest  upon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  and  insurance 
(•ompanies,  and  in  the  case  of  foreign  items;  original  ownership  certificates,  when 
duly  filed,  shall  constitute  and  be  treated  as  returns  of  information.  (T.  D.  2759; 
Oct.  2,  1918.) 

Withholding. 

Withholding  provisions  of  sections  9  (b)  and  (c)  of  the  income-tax  law  apply  to 
normal  income  tax  of  citizens  and  resident  aliens,  only  when  derived  from  interest 
on  bonds  and  mortgages,  deeds  of  trust,  or  other  similar  obligations  of  corporations, 
associations,  etc.,  which  have  a  "tax-free  covenant  clause,"  regardless  of  amount 
and  period  of  payment;  on  and  after  January  1,  1918,  normal  tax  of  2  per  cent 
imposed  by  the  act  of  October  3,  1917,  is  the  tax  to  be  deducted  and  withheld  from 
citizens  or  residents  of  the  United  States  in  accordance  with  section  9  (c).  (T.  D. 
2690;  art.  43.) 

MOTION   PICTURES. 

See  "Moving  Pictures." 

MOTOR  FUEL. 
Denatured  alcohol. 

I'ormula  3  for  the  complete  denaturation  of  alcohol  made  of  refuse  material  for 
use  as  a  motor  spirit  or  gasoline  substitute  in  Hawaii  authorized  for  use  by  any 
qualified  denaturer.     (T.  D.  2528;  Oct.  3,  1917.) 

Formula  No.  28,  for  special  denaturation  of  alcohol  for  use  in  manufacture  of 
motor  fuel,  stated;  formula  authorized  to  be  used  exclusively  in  manufacture  of 
motor  fuel  by  a  closed  and  continuous  process,  in  connection  with  a  central  dena- 
turating  bonded  warehouse;  analytical  requirements:  process  after  denaturation; 
samples  of  finished  product  to  be  fiu-nished;  application  for  use  of  denaturant  to 
be  accompanied  by  blue  prints  and  full  description  of  process  and  premises.  (T.  D. 
2769;  Nov.  4,  19lg.) 

MOTOR  VEHICLES. 

Automobiles — Accessories. 

Automobile  bodies  and  other  attachments  and  accessories  to  automobiles  and 
motorcycles  are  not  taxable  when  sold  separately,  but  they  are  when  sold  as  part  of 
automobile  or  motorcycle  or  of  its  equipment,  whether  standard  or  not.  (T.  D. 
2719;  Art.  X.) 

Assembled  car. 

A  usable,  substantially  completed  automobile,  produced  by  assembling  new 
parts  of  trucks  and  cars,  is  subject  to  tax  imposed  by  eection  600  (a)  of  the  act  of 
October  3,  1917.    (T.  D.  2719;  Art.  IX.) 


MOTOR  VEHICLES.  461 

Au  tomobil  es — Cont  i  nued . 

Bodies. 

Automobile  bodies  and  other  attachments  and  accessories  to  automobiles  and 
motorcycles  are  not  taxable  when  sold  sejjarately,  but  they  are  when  sold  as  part  of 
an  automobile  or  motorcycle  or  of  its  equipment,  whether  standard  or  not.  (T.  D. 
2719:  Art.  X.)  ' 

Dealer  who  contracts  to  sell  to  customer  a  truck  composed  of  a  tax-paid  chassis 
and  a  body  to  be  added  by  body  builder  and  who  perforins  his  contract  is  lial)le  to 
tax  as  manufacturer  of  completed  truck,  though  order  to  body  builder  ))urp<iits  to 
be  that  of  customer  through  the  dealer  as  his  agent.     (T.  D.  2795:  Feb.  26,  1919.) 

Chassis. 

A  chassis  is  an  automobile  within  the  meaning  of  section  600  (a)  of  the  act  of  Octo- 
ber 3,  1917,  and  tax  is  payable  by  manufacturer  thereof;  M'here  person  other  than 
manufacturer  of  chassis  completes  and  sells  automobile,  tax  must  be  paid  on  com- 
plete car  less  any  tax  already  paid  on  the  sale  of  the  chassis.     (T.  D.  2719;  Art.  IX.) 

Combination  of  vehicles. 

Single  sale  by  dealer  of  tractor  and  trailer  bousht  by  him  together  tax  paid,  and 
au  extra  trailer,  is  not  taxable  unless  combination  of  the  three  vehicles  (other\\i8e 
than  merely  by  coupling)  forms  a  functioning  vehicle.     (T.  D.  2795;  Feb.  26, 1919. 

Definition. 

An  automobile  is  a  self-propelling  vehicle,  usually  designed  to  run  on  a  road, 
containing  the  means  of  propulsion  mthin  itself .     (T.  D.  2719;  Art.  VIII.) 

An  automobile  truck  or  wagon  is  an  automobile  used  primarily  for  transportiiig 
articles.     (T.  D.  2719;  Art.  VIII.) 

Demountable  top  added. 

If  a  dealer  adds  a  demountaV)le  top  to  a  tax-paid  automobile  or  a  driver's  cab  to  a 
tax-paid  truck,  the  sale  of  the  improved  vehicle  is  not  subiect  to  excise  tax.  (T.  D. 
2795;  Feb.  26,  1919.) 

• Fire  engines. 

A  self-propelling  fire  engine,  at  least  if  designed  to  carry  only  such  persons  as  are 
necessary  to  drive  it,  is  not  spoken  of  and  is  not  to  be  regarded  as  an  automobile; 
if,  however,  it  is  specially  designed  to  carry  firemen  not  employed  in  or  about  the 
driving  of  the  machine,  it  must  be  regarded  as  falling  Avithin  the  scope  of  section  600 
(a)  of  the  act  of  October  3,  1917;  on  other  hand  automobiles  and  automobile  trucks 
ecpiipped  as  hook  and  ladders,  hose  carts,  etc.,  for  the  use  of  firemen,  are  taxable. 
(T.  L).  2719;  Art.  IX.) 

Forfeiture. 

Nonpavticipation  of  owner  of  automobile  in  its  use  in  transporting  distilled  spirits 
upon  which  the  tax  had  not  been  paid  is  no  bar  to  proceeding  in  rem  for  its  for- 
feiture.    (T.  D.  2776;  Dec.  11,  1918.) 

Under  section  3450,  Revised  Statutes,  automobile  used  in  transporting  spiritous 
liquors  on  which  tax  has  not  been  paid,  borrowed  from  purchaser  thereof,  who  had 
given  his  note  secured  by  deed  of  trust  thereon  for  unpaid  purchase  price,  is  subject 
to  forfeitures  as  against  seller,  though  under  terms  of  deed  and  the  State  law  the 
seller  could  require  the  trustee  to  seize  such  automobile  and  sell  it  in  satisfaction  of 
his  deed,  and  though  he  had  no  knowledge  of  any  intention  to  use  such  automobile 
for  an  illegal  purpose.    (T.  D.  2789;  Feb.  10,  1919.    Ct.  Dec.) 

Macliine  guns. 

Motor-driven  machine  guns  are  not  automobiles  or  automobile  trucks.  (T.  D. 
2719:  Art.  IX.) 

Mo  tor- driven  machines. 

Motor-driven  machines  for  pulling  vehicles  around  factories  and  railway  stations 
are  not  automobiles  or  automobile  trucks.     (T.  D.  2719;  Art.  IX.) 

Motor  units. 

A  motor  unit,  designed  to  be  attached  to  a  bicycle  so  as  to  make  it  self-propelling 
like  a  motorcyclCj  is  not  taxable  when  sold  separately,  but  when  sold  attached  to  a 
bicycle  or  to  a  children's  buckboard  the  complete  vehicle  is  subject  to  the  tax  as  a 
motorcycle  or  automobile.     (T.  D.  2719;  Art.  X.) 


462  MOTOR  vehicl.es. 

Automobiles — Continued . 

• Bate  of  tax. 

Tax  imposed  by  section  600  (a)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  the 
price  for  which  automobiles,  automobile  trucks,  automobile  wagons,  and  motor- 
cycles are  sold  by  the  manufacturer.     (T.  D.  2719;  Art.  VIII.) 

Scope  of  tax. 

To  come  within  the  scope  of  the  tax  imposed  by  section  600  (a)  of  the  act  of  October 
3,  1917,  a  machine  must  be  a  vehicle  or  conveyance;  that  is,  designed  primarily  for 
the  transportation  in  or  upon  it  of  persons  or  property.     (T.  D.  2719;  Art.  IX.) 

Speedometers. 

Speedometers  and  other  attachments  and  accessories  to  automobiles  and  motor- 
cycles are  not  taxable  when  sold  separately,  but  they  are  when  sold  as  part  of  an 
automobile  or  motorcvcle  or  of  its  equipment,  whether  standard  or  not.  (T.  T>. 
2719;  Art.  X.) 

— —  Track  use. 

An  automobile  adapted  for  use  on  a  track  is  subject  to  the  tax  imposed  by  section 
600  (a)  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  VIII.) 

Tractors. 

Tractors  for  pulling  agricultural  implements  are  not  automobiles  or  automobile 
trucks.     (T.  D.  2719;  Art.  IX.) 

A  tractor,  which  has  no  body  or  provision  for  carrying  the  load,  but  is  intended 
to  haul  trailers,  is  not  taxable;  if  it  has  a  body,  no  matter  how  small  the  carrying 
capacity,  or  is  designed  for  attachment,  permanent  or  temporary,  to  a  two-wheel 
trailer,  in  such  a  way  as  to  carry  part  of  the  load,  it  is  subject  to  tax  as  an  automobile 
truck  or  wagon;  if  sold  in  combination  with  such  trailer,  the  tax  is  on  the  total 
price;  a  four-wheel  trailer  complete  in  itself,  having  no  connection  with  an  auto- 
mobile except  the  necessary  coupling  when  drawn  by  it,  is  not  subject  to  tax. 
T.  D.  2719;  Art.  X.) 

— —  Truck  units. 

So-called  truck  units,  intended  to  be  attached  to  pleasure  car  chassis  so  as  to  con- 
vert them  into  trucks,  are  not  taxable  when  sold  separately;  if  sold  in  combination 
with  a  new  chassis,  however,  tax  is  imposed  upon  price  of  complete  truck.  (T.  D. 
2719;  Art.  X.) 

— —  Used  or  second-hand  automobiles. 

Used  or  second-hand  automobiles  are  not  subject  to  tax  imposed  by  section  600 
(a)  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  X.) 

Boats. 

Motor  boat  operated  solely  in  taking  out  fishing  parties  for  hire  is  subject  to  excise 
tax  on  boats,  although  it  is  licensed  in  the  coasting  trade  and  transportation  tax  is 
collected  from  passengers.     (T.  D.  2795;  Feb.  26,  1919.) 

Electric  motor  boats,  Avithin  the  meaning  of  Title  III  of  the  act  of  September  8, 
1916,  are  ttiose  boats,  regardleA  of  size  or  character  of  construction,  which  are  pro- 
pelled by  electric  power.     (T.  D.  2384;  art.  2.) 

Motor  boats  operated  by  a  company  engaged  in  the  business  of  taking  parties  on 
trips  to  enjoy  the  trip  and  the  scenery  are  not  used  exclusively  for  trade  and  their 
use  is  subject  to  the  excise  tax  on  boats.    (T.  D.  2785;  Jan.  23,  1919.) 

Motor  cycles. 

A  motorcycle  is  a  motor-driven  bicycle.     (T.  D.  2719;  Art.  VIII.) 

Side  cars  for  motorcycles  are  not  taxable  when  sold  separately,  but  they  are  when 

eold  as  part  of  a  motorcycle,  or  of  its  equipment,  whether  standard  or  not.     (T.  D. 

2719;  Art.  X.) 

A  motor  unit,  designed  to  be  attached  to  a  bicycle  so  as  to  make  it  self-propelling 
like  a  motorcycle,  is  not  taxable  when  sold  separately,  but  when  sold  attached  to  a 
bicycle  or  to  a  children's  buckboard,  the  complete  vehicle  is  subject  to  the  tax  as  a 
motor  cycle  or  automobile.     (T.  D.  2719;  Art.  X.) 

Speedometers  and  other  attachments  and  accessories  to  motor  cycles  are  not  taxa- 
ble when  sold  separately,  but  they  are  when  sold  as  part  of  a  motor  cycle  or  of  its 
equipment,  whether  standard  or  not.     (T.  D.  2719;  Art.  X.) 


MOVING  PICTURES.  463 

Seizure — Release  under  bond. 

In  case  of  eeizurea  of  automobiles,  horsea,  and  other  similar  property,  collectors 
instructed  to  refuse  to  accept  bond  under  section  3459,  Revised  Statutes,  for  release 
unless  property  was  seized  under  provisions  of  section  3453,  Revised  Statutes,  only; 
where  seizure  was  not  made  under  such  section,  if  property  is  appraised  at  $500  or 
less,  collectors  will  dispose  of  same  promptly  under  provisions  of  section  3460, 
unless  bond  for  costs  is  given,  in  which  event  bond  should  be  forwarded  to  United 
States  attorney  with  request  to  institute  libel  proceedings;  if  value  exceeds  $500, 
property  should  be  turned  over  to  United  states  marshal  and  the  attorney  requested 
to  institute  forfeiture  proceedings,  no  bond  for  costs  being  required;  question  of 
release  of  property  on  bond  is  within  jurisdiction  of  court.  (T.  D.  2511;  July  12, 
1917.) 

MOVING  PICTURES. 

Cameras — ^Excise  taxes. 

Motion-picture  cameras  are  subject  to  the  tax  of  3  per  cent  of  the  price  for  which 
sold  by  the  manufacturer  imposed  by  section  600  (j)  of  the  act  of  October  3,  1917. 
(T.  D;2719;  Art.  XXV.) 

Films — ^Excise  taxes. 

Tax  imposed  by  section  600  of  the  act  of  October  3,_  1917,  is  measured  by  price 
for  which  article  is  sold,  except  in  case  of  moving-picture  films;  it  is  on  actual 
sales  price  and  not  on  list  price,  where  that  differs  from  the  sales  price;  if  price  of 
article  is  increased  to  cover  tax,  tax  is  on  such  increased  price.  (T.  D.  2719;  Art. 
III.) 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  is  on  sale  of  articles 
enumerated,  or  in  case  of  positive  moving-picture  films  on  their  sale  or  lease  by 
manufacturer.     (T.  D.  2719;  Art.  III.) 

In  case  of  lease  of  moving-picture  films  tax  attaches  when  manufacturer  enters 
into  contract  of  lease,  either  express  or  implied,  and  pursuant  thereto  delivers  film 
to  lessee  or  to  carrier  for  lessee.     (T.  D.  2719;  Art.  IV.) 

The  tax  imposed  by  section  600  of  the  act  of  October  3, 1917,  is  one-fourth  of  1  cent 
for  each  linear  foot  of  unexposed  moving-picture  films  sold  by  the  manufacturer 
and  one-half  of  1  cent  tor  each  linear  foot  of  positive  moving-picture  films,  contain- 
ing picture  ready  for  projection,  sold  or  leased  by  the  manufacturer.  (T.  D.  2719; 
Art.  XII.) 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  applies  to  the  first  sale 
or  lease  of  any  new  positive  moving-picture  films  and  not  to  the  second  or  any  sub- 
sequent sale  or  lease.    (T.  D.  2719;  Art.  XII.) 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  d^os  not  attach  to  filma 
first  sold  or  leased  prior  to  October  4,  1917.     (T.  D.  2719;  Am.  XII.) 

Where  a  laboratory  simply  does  the  mechanical  work  of  ]>roducing  the  positive 
print,  charging  the  owner  of  the  negative  for  materials  used  and  services  rendered, 
such  laboratory  will  not  be  regarded  as  the  manufacturer  of  the  film ;  the  tax  is  upon 
the  sale  or  lease  by  the  owner  of  the  film;  the  laboratory,  however,  shall  keep  a 
record  of  all  such  films  produced,  with  name  of  owner  and  length  of  film,  such  record 
to  be  available  for  examination  by  internal  revenue  officers,  and  shall  furnish 
monthly  to  collector  of  district  in  which  it  is  located  a  signed  statement,  giving 
such  information.     (T.  D.  2719;  Art.  XII.) 

Printed  or  hand-lettered  titles  or  subtitles  used  in  connection  with  a  picture 
production  constitute  part  of  the  film  and  should  be  included  in  the  length  of  the 
film  upon  which  the  tax,  imposed  by  section  600  of  the  act  of  October  3,  1917,  is 
computed,  but  if  such  titles  are  in  the  form  of  separate  slides  or  announcements, 
the  tax  does  not  attach.     (T.  D.  2719;  Art.  XII.) 

There  is  no  exemption  from  tax  imposed  by  section  600  of  the  act  of  October  3, 
1917,  in  the  case  of  films  used  exclusively  for  educational,  charitable,  or  reUgioua 
purposes.     (T.  D.  2719;  Art.  XII.) 

Tax  imposed  by  section  600  of  the  act  of  October  3, 1917,  does  not  apply  to  repairs 
of  positive  films,  but  does  to  the  negative  film  used  in  making  such  repairs.  (T.  D, 
2719;  Art.  XII.) 

Where  manufacturer  has,  prior  to  May  9,  1917,  made  bona  fide  contract  with 
dealer  for  sale  after  tax  takes  effect  of  any  article  upon  which  sales  tax  is  imposed, 
and  such  contract  does  not  permit  adding  of  whole  of  such  tax  to  amount  to  be  paid 
under  such  contract,  dealer  shall  pay  so  much  of  tax  as  is  not  so  permitted  to  be 


464  MUNICIPAL  CORPORATIONS. 

Filras — Excise  taxes — Continued. 
added  to  contract  price;  this  applies  to  contracts  with  dealer,  exchange,  or  exhib- 
itor for  sale  or  lease  of  moving-picture  films.     (T.  D.  2719;  Art.  XXXVII.) 

A  foreign  Government  or  a  State,  or  any  political  subdivision  thereof,  buying  or 
leasing  an  article  for  its  own  use  is  not  a  dealer,  nor  in  case  of  moving-picture  films 
is  it  an  exhibitor  or  exchange.     i.T.  D.  2719;  Art.  XXXVII.) 

Tax  imposed  by  section  600  of  the  act  of  October  3,  1917,  does  not  apply  to 
moving-picture  films  leased  by  the  manufacturer,  producer,  or  importer  located  in 
one  of  the  several  States  of  the  United  States,  where  such  filras  are  exported  by 
manufacturer  making  the  sale  on  which  but  for  the  exportation  he  would  be  liable 
for  the  tax,  the  tax  therefore  applying  to  articles  sold  for  domestic  delivery,  but 
exported  by  or  at  the  instance  of  the  buyer.     (T.  D.  2781;  Dec.  20,  1918.) 

The  at  ers — ^  Admissions. 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act  of 
October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  consid- 
erable variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  de\'ices,  and  vaudeAolle  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  inclosures  or  on  A'acant  lots;  outdoor  amusement  parks 
include  motion  picture  or  other  theaters  known  as  "airdromes."  (T.  D.  2681;  Mar. 
26,  1918.) 

MUNICIPAL   CORPORATIONS. 

Admissions  of  officers — Exemptions  from  tax. 

Municipal  officers  on  official  business  when  admitted  free  are  not  taxable  under 
section  700  of  the  act  of  October  3,  1917;  municipal  officers  include  policemen  and 
firemen  when  in  attendance  in  the  course  of  their  duty.     (T.  D.  2681;  Mar.  26, 1918.) 

Carriers'  facilities,  tax  on  use  of. 

See  "Transportation  Tax." 
Income  taxes — ^Bonds. 

Interest  on  State,  municipal,  and  United  States  bonds  received  by  corporations 
is  not  taxable  to  the  corporation ;  upon  amalgamation  with  other  funds  of  corpora- 
tion such  income  loses  its  identity;  when  distributed  to  stockholders  as  a  di\'idend, 
entire  amount  of  dividend  is  subject  to  inclusion  in  returns  of  income  for  purposes  of 
tax;  foregoing  holds  true  for  scrip  payment  of  interest.     (T.  D.  2690;  Art.  4.) 

Net  income. 

Where  public  utility  constructed,  operated,  or  maintained  by  corporation  under 
contract  with  any  city,  State,  Territory,  or  the  District  of  Columbia,  agrees  that 
portion  of  net  earnings  shall  be  paid  to  such  city,  State,  Territory,  or  the  District  of 
Columbia,  amount  so  paid  may  be  deducted  by  the  public  utiUty  company  as  neces- 
sary expense  of  transacting  business.     (T.  D.  2690;   Art.  142.) 

Taxes  imposed  against  a  corporation  by  authority  of  any  municipal  corporation 
(not  including  those  assessed  against  local  benefits),  and  paid  within  year  for  which 
return  is  made,  are  deductible  from  gross  income  of  domestic  corporation;  similar 
taxes  with  like  exceptions  assessed  against  and  paid  by  foreign  corporation  receiving 
income  from  any  source  within  United  States  are  deductible  from  gross  income  re- 
ceived from  such  source,  except  that  taxes  imposed  bj^  foreign  Government  and  paid 
bv  foreign  corporations  are  not  deductible  from  gross  income  received  from  sources 
within  United  States.     (T.  D.  2690;  Art.  191.) 

Warrants. 

In  cases  wherein  warrants  are  issued  by  a  city  or  other  political  subdivision  of  a 
State  and  are  accepted  by  contractor  in  payment  for  pubUc  work  done,  face  value  of 
such  warrants  must  be  returned  as  income  for  year  in  which  they  are  received ;  if 
contractor  does  not  receive  and  can  not  recover  full  face  value  of  such  warrants  he 
may  deduct  from  gross  income  for  year  in  which  warrants  are  converted  into  cash  any 
loss  sustained,  which  loss  will  be  measured  by  difference  between  face  value  of 
warrants  returned  as  income  and  amount  actually  received  for  them  in  cash  or  its 
equivalent.     (T.  D.  2690;  Art.  108.) 

Refunds. 

Nonrevenue  remittances,  such  as  State  or  municipal  taxes,  sent  to  collector 
through  error  and  deposited  by  him,  shoiild  be  refunded  on  Form  751;  claims  on 
this  form  must  be  submitted  by  collector  in  triplicate.    (T.  D.  3016;  May  3. 1920.) 


MUNITION   manufacturers'  TAX.  465 

stamp  taxes — Bonds. 

Bonds  ^iven  to  a  State,  township,  county,  or  village,  coverins;  contracts  for  povprn- 
mental  purposes  or  the  protection  of  the  State,  township,  county,  village,  or  muni'i- 
pality,  in  any  respect,  are  free  from  Federal  taxation.     (T.  D.  2624;  Dec.  14,  1917.) 

MUNITION   MANUFACTURERS'  TAX. 
Act  published. 

Sections  300  to  312  of  the  act  of  September  8,  1916,  relating  to  tax  on  manufac- 
turers of  munitions,  published  for  information  of  internal-revenue  officers  and  others 
concerned.     (T.  D.  2362;   Sept.  11,  1916.) 

Assessment  and  collection. 

Commissioner  vdU,  as  soon  as  practicable  after  return  has  been  transmitted  to 
him,  assess  tax  found  due  and  notify  taxable  person  of  amount  so  assessed.  (T.  D. 
2384;  art.  7.) 

All  administrative,  special,  and  general  provisions  of  law  relating  to  assessment 
or  collection  of  taxes,  not  specifically  repealed,  apply  to  Title  JIT  of  the  act  of 
September  8,  1916,  in  so  far  as  applicable  and  not  inconsistent  with  its  proAdsions. 
(T.  D.  2384;  art.  8.) 

WTierc  Secretary  of  Treasury  or  Comjuissioner  has  reason  to  be  dissatified  K\-ith 
return,  or  where  no  return  is  made,  Commissioner  may  make  investigation  and 
examine  books  and  records,  and  may  determine  amount  of  tax  d\ie  and  assess  tax 
accordingly;  Commissioner  shall  notify  taxable  person  of  result  of  finding  and  the 
tax  shall  be  collected  unless  such  person  files  with  Commissioner  within  30  days 
from  date  of  such  notice  written  request  for  hearing,  in  which  event  burden  of 
proof  that  amount  of  taxable  income  determine4  by  Commissioner  was  not  correct 
will  devolve  upon  person  against  whom  tax  was  Assessed.     (T.  D.  2384;  art.  9.) 

Capital  stock  tax — Deduction. 

Credit  of  payment  of  munition  manufacturer's  tax  applies  alike  to  foreign  corpora- 
tions and  to  domestic  corporations.     (T.  D.  2750,  art.  16;  Aug.  9.  1918.) 

The  amount,  if  any.  of  the  munition  manufacturer's  tax  imposed  by  Title  III  of  the 
act  of  September  8, 1916.  actually  paid  by  the  corporation  since  making  its  last  pre- 
vious return  is  deductible  from  "capital  stock  tax;  if  munition  manufacturer's  tax 
it  due  and  payable  but  has  not  been  paid  at  time  capital  stock  tax  becomes  due  and 
payable  no  credit  of  the  munition  manufacturer's  tax  is  permissible  until  after  such 
latter  tax  has  been  paid;  after  its  pajTnent  the  credit  may  be  availed  of  by  a  claim 
for  refund  of  so  much  of  capital  stock  tax  actually  paid  as  is  not  in  excess  of  the  muni- 
tion manufacturer  s  tax  which  became  due  and  payable  Tvithin  the  same  calendar 
year.     (T.  D.  3009;  Apr.  22,  1920.) 

Date  act  effective. 

Effective  date  of  Title  III  of  the  act  of  September  8. 1916.  is  January  1, 1916;  that 
is  to  say,  the  tax  is  laid  upon  or  measured  by  net  profits  received  by  or  accrued  to 
each  taxable  person  for  and  during  entire  calendar  year  ended  December  31, 1916, 
or  so  much  thereof  as  during  which  the  person  may  have  been  engaged  in  business 
of  manufacturing  and  disposing  of  articles  enumerated,  and  for  each  calendar  year 
thereafter  until  one  year  after  close  of  present  European  war,     (T.  D.  2384;  art.  3.) 

Deductions  from  gross  income. 

See  "Net  income  or  profits,"  post. 

Definitions. 

The  word  "appendages,"  as  used  in  paragraph  (d)  of  article  2  of  Regulations 
No.  39,  includes  those  adjuncts  or  accessories  which  may  be  attached  to  and  become 
in  effect'parts  of  firearms.     (T.  D.  2714;   May  14,  1918.') 

"Any  part  thereof."  as  used  in  section  301  of  the  act  of  September  8,  1916.  is  any 
article  relatively  complete  Avithin  itself  and  designed  or  manufactured  for  special 
purpose  of  being  used  as  component  part  of  completed  mimition.  and  which,  by 
reason  of  some  peculiar  characteristic,  loses  its  identity  as  a  commercial  commodity, 
and  which,  without  further  treatment,  can  not  be  used  for  any  pui'pose  other  than 
that  for  which  it  was  designed;  stock  or  commercial  commodity  purchasable  in 
general  trade  or  upon  market,  if  adapted  to  u£e  in  manufacture  of  munition,  is  not 

70420°— 21 30 


466  MUNITION   MANUFACTUKERS '   TAX. 

D  efiiiitions — Continued . 

"part,"  and  will  be  treated  as  raw  material,  provided  that  articles  which  ordinarily 
would  be  classed  as  commercial  commodities  become  "parts"  when  they  are  manu- 
factured specially  for  and  sold  to  manufacturer  to  be  by  him  incorporated  in  and 
made  essential  part  of  any  munitions  enumerated  in  said  section  301.  (T.  D.  2384  ; 
art.  13.) 

"Gross  income,"  as  used  in  Regulations  No.  39,  relating  to  mimition  manufac- 
turer's tax,  means  gross  receipts  from  sale  or  disposition  of  munitions  or  parts  thereof 
enumerated  in  section  301,  Title  III,  act  of  September  8, 1916.     (T.  D.  2384;  art.  10.) 

The  term  "shells,"  as  used  in  Title  III  of  the  act  of  September  8,  1916,  compre- 
hends any  receptacle  used  to  inclose  an  explosive  charge,  or  the  receptacle  and 
charge  combined.     (T.  D.  2384;  art.  2.) 

The  term  "torpedoes,"  as  used  in  Title  III  of  the  act  of  September  8, 1916,  compre- 
hends any  receptacle  to  inclose  an  explosive  charge,  or  the  receptacle  and  charge  com- 
bined.    (T.  D.  2384;  art.  2.) 

Electric  motor  boats,  within  the  meaning  of  Title  III  of  the  act  of  September  8, 
1916,  are  those  boats,  regardless  of  size  or  character  of  construction,  which  are  pro- 
pelled by  electric  power.     (T.  D.  2384;  art.  2.) 

Term  "person,"  when  used  in  Regulations  No.  39,  includes  such  partnerships,  cor- 
porations, or  associations  as  are  engaged  in  manufacture  in  the  United  States  and 
in  the  sale  or  disposition  of  articles  enumerated  in  section  301  of  Title  III  of  the  act 
of  September  8,  1916,  or  parts  thereof.     (T.  D.  2384;  art.  1.) 

"Projectiles,"  as  used  in  Title  III  of  the  act  of  September  8,  1916,  include  any  and 
all  missiles  to  be  projected  from  a  gun,  cannon,  mortar,  or  other  firearm,  and  will 
include  bullets,  balls,  shot,  or  missiles.     (T.  D.  2384;  art.  2.) 

Term  "taxable  person,"  wher^  used  in  Regulations  No.  39,  includes  such  part- 
nerships, corporations,  or  associations  as  receive  any  profit  from  the  manufacture 
and  sale  of  articles  enumerated  in  section  301  of  Title  III  of  the  act  of  September  8, 
1916.     (T.  D.  2384;  art.  1.) 

Submarine  or  submersible  vessels,  within  the  meaning  of  Title  III  of  the  act  of 
September  8,  1916,  include  all  craft,  no  matter  how  propelled,  manufactured  for 
purpose  of  being  at  will  submerged  beneath  siirface  of  water.     (T.  D.  2384;  art.  2.) 

As  used  in  section  302  of  the  act  of  September  8, 1916,  raw  materials  are  any  crude 
or  elemental  products  or  substances  necessary  to  the  manufacture  of  any  parts  of  the 
articles  enumerated  in  paragraphs  (b)  to  (e),  inclusive,  of  section  301,  and  which, 
without  any  application  of  skill  or  science,  can  not  become  component  parts  or 
elements  in  the  finished  article  or  unit;  as  applied  to  manufacture  of  completed 
munitions,  raw  materials  include  not  only  such  crude  products  and  elemental  sub- 
stances, but  all  essential  finished  or  imfinished  parts  as  well;  cost  of  raw  materials 
authorized  as  deduction  will  not  include  any  expenditures  made  for  raw  materials 
used  in  manufacture  of  articles  other  than  munitions,  or  parts  thereof,  where  manu- 
facture of  such  munitions  or  parts  is  carried  on  in  connection  with  any  other 
business.  (T.  D.  2384;  art.  15.) 

The  words ' '  shell "  and  ' '  any  part "  as  used  in  section  301  of  the  act  of  September  8 , 
1916,  do  not,  respectively,  mean  "completed  shell"  or  "any  completed  part." 
(T.  D.  2875;  Jime  26,  1919.    T.  D.  3003;  Apr.  21,  1920.    Ct.  Decs.) 

Exemptions. 

Articles  eniunerated  in  (a)  and  (b)  of  section  301  of  the  act  of  September  8,  1916, 
as  being  exempt  because  "used  for  indiistrial  piu"poses"  include  those  articles  so 
enumerated  which  are  used  in  connection  with  or  in  promotion  and  operation  of 
some  industrj';  net  profits  received  or  accrued  on  any  articles  named  in  such  para- 
graphs which  are  manufactured  and  sold  or  disposed  of  for  any  purpose  other  than  for 
use  in  connection  with  or  in  promotion  or  operation  of  some  industry  will  be  subject 
to  tax.     (T.  D.  2384;  art.  14.) 

Gross  incoiae. 

Gross  income  contemplated  by  Title  III  of  the  act  of  September  8,  1916,  is  gross 
amoimt  received  by  or  accrued  to  taxable  person  during  the  year  from  the  sale  or 
disposition  of  articles  named  in  section  301  of  the  act,  which  are  manufactured 
within  the  United  States,  profits  received  and  accrued  from  manufacture  and  sale  of 
blasting  powder  and  dynamite,  and  from  manufacture  and  sale  of  cartridges,  loaded 
and  unloaded,  caps  and  primers  iised  for  industrial  purposes  being  excepted,  and 
income  received  during  1916  from  sale  and  deHvery  of  mimitions  under  contracts 
executed  and  fully  performed  prior  to  January  1,  1916,  being  also  excepted  from 


MUNITION  manufacturers'  TAX.  467 

Gross  income — Continued, 
liability  to  tax;  expenses  incident  to  manufacture  of  such  articles  and  creation  of 
such  incomes  not  deductible  from  o;ross  income.  (T.  D.'  2384;  art.  10.) 

Income  from  contracts  executed  and  fully  performed  prior  to  January  1,  1916, 
relates  to  any  deferred  payments  on  such  fully  performed  contracts,  which  payments 
may  not  have  been  received  until  subsequent  to  January  1,  1916;  profits  represented 
by  such  payments  ha\ing  been  earned  prior  to  effective  date  of  Title  III  of  the  act 
of  September  8,  1916,  are  not  subject  to  tax  although  received  subsequent  to  that 
date;  if,  however,  contracts  were  not  fully  performed  prior  to  January  1,  1916,  any 
profits  resulting  from  that  part  of  the  contracts  performed  subsequent  to  January  1, 
1916,  must  be  returned.     (T.  D.  2384;  art.  10.) 

Net  income  or  profits. 

Amount  taxable  or  by  which  tax  is  measured  is  net  profits  received  or  accrued 
from  sale  or  disposition  of  munitions  enumerated  in  section  301  of  the  act  of  Sep- 
tember 8,  1916,  manufactured  in  the  United  States,  or  from  sale  or  disposition  of 
any  parts  of  the  articles  enumerated  in  (b)  to  (e),  inclusive,  of  said  section;  only 
net  profits  exempt  are  those  received  or  accrued  to  manufactiu-er  from  sale  or  dis- 
position of  blasting  powder  and  dynamite,  cartridges,  loaded  and  unloaded,  caps 
and  primers  used  for  industrial  purposes;  fact  that  any  of  the  articles  named  in 
section  301  are  manufactured  and  sold  or  disposed  of  in  general  trade,  to  be  used 
for  sporting  purposes,  or  for  any  purposes  other  than  industrial,  will  not  exempt 
from  Uability  to  tax  net  profits  received  or  accrued  from  sale  or  disposition  of  such 
articles,     (f .  D.  2384;  art.  12.) 

Running  or  general  expenses  as  contemplated  by  section  302  of  the  act  of  Sep- 
tember 8,  1916,  constitute  allowable  deduction  from  gross  amount  of  income  re- 
ceived or  accrued  from  manufacture  in  the  United  States,  and  the  sale  or  dispo- 
sition of  munitions  or  parts  thereof,  to  extent  that  such  expenses  are  incurred 
and  paid  during  the  year  in  manufacture  of  articles  the  profits  from  sale  of  which 
are  included  in  gross  amount  of  income  returned;  such  expenses  include  rent, 
repairs,  maintenance,  heat,  light,  power,  insurance,  management,  salaries,  wages; 
where  other  business  is  carried  on  and  running  expenses  cover  those  incurred  in 
entire  business  and  can  not  be  segregated,  expenses  deductible  are  such  portion  of 
entire  expenses  as  gross  income  received  or  accrued  from  manufacture  and  sale  or 
disposition  of  war  mimitions  or  parts  thereof,  is  a  portion  of  entire  gross  income 
received  or  accrued  from  entire  business;  cost  of  new  biuldiugs,  new  machinery, 
or  eqiupment  should  be  charged  to  capital  account,  to  be  taken  care  of  through 
depreciation  or  amortization.     (T.  D.  2384;  art.  16.) 

Amount  deductible  from  gross  income  on  account  of  interest  is  amoimt  of  interest 
actually  paid  within  year  on  debts  or  loans  contracted  to  meet  needs  of  business 
of  manufacturing  such  articles,  and  proceeds  of  which  were  actually  used  to  meet 
such  needs;  this  deduction  must  not  include  interest  paid  on  debts  or  loans,  pro- 
ceeds of  which  were  used  to  meet  needs  of  any  other  business  in  which  manufac- 
turer may  be  engaged;  deduction  can  be  taken  only  from  gross  income  of  the  year 
in  which  interest  was  actually  paid.     (T.  D.  2384;  art.  17.) 

Taxes  deductible  are  those  taxes  of  all  kinds  actually  paid  during  year  in  wliich 
gross  income  was  received  or  accrued  and  which  were  imposed  with  respect  to 
business  or  property  relating  to  or  used  in  manufacture  of  articles,  profit  from  which 
is  returned  for  purpose  of  tax  imposed  by  Title  III  of  the  act  of  September  8,  1916; 
if  taxes  paid  by  manufactm'er  of  mimitions  or  parts  thereof  are  not  segregated  from 
those  paid  with  respect  to  other  business  or  property,  they  will  be  apportioned  in 
accordance  with  rule  for  apportioning  running  expenses,  and  amount  deductible 
from  gross  income  received  or  accrued  from  manufacture  and  sale  of  munitions  or 
parts  will  be  amount  thus  apportioned  and  made  apphcable  as  a  proper  charge 
against  the  income  from  the  manufacture  of  mimitions  or  of  parts  thereof.  (T.  D. 
2384;  art.  18.) 

Amount  to  be  deducted  from  gross  income  on  accoimt  of  losses  is  amount  of  losses 
actually  sustained  and  charged  off  during  the  year  for  which  the  return  is  made, 
and  which  were  sustained  on  account  of,  or  in  connection  with,  the  business  of  the 
manufacture  and  sale  or  disposition  of  munitions  or  parts  thereof,  and  include 
losses  from  fire,  flood,  storm,  accident,  or  other  casualty,  not  compensated  for  by 
insurance  or  otherwise,  the  casualty  losses  referred  to  being  only  those  which  relate 
to  this  business;  losses  sustained  in  connection  with  collateral  investments  or  in 
connection  with  any  other  business,  profits  from  which  are  not  taxable  imder 
Title  III  of  the  act  of  September  8,  1916,  can  not  be  deducted  from  gross  income. 
(T.  D.  2384;  art.  19.) 


468  MUNITION  manufacturers'  tax. 

Net  income  or  profits — Continued. 

Depreciation  deduction  authorized  by  the  act  of  September  8,  1916,  relates  to 
loss  due  to  use.  wea,r.  and  tear  of  physical  property  owned  and  used  by  the  manu- 
facturer but  wlxich  is  not  specifically  designed  or  installed  for  purpose  of  manu- 
facturing munitions  or  parts  thereof,  and  which,  without  material  alteration  and 
changes  may  be  used  in  any  other  business  in  which  person  may  be  engaged; 
annual  deduction  on  this  account  will  be  reasonable  allowance  determined  upon 
basis  of  cost  and  the  probable  niimber  of  years  constituting  life  of  propertj';  if 
sime  building  and  equipment  are  used  coincidently  for  purposes  other  than  manu- 
facture of  munitions  or  pirts  thereof,  amount  deductible  will  be  apportioned  in 
accordance  with  rule  for  apportioning  running  expenses.    .(T.  D.  2384;  art.  20) 

Provision  of  section  302  of  the  act  of  September  8,  1916,  authorizing  deduction 
to  meet  conditions  pecuHar  to  each  concern,  has  for  its  purpose  the  amortization 
of  values  of  buildings  and  machinery  constituting  special  plants,  which  will,  except 
for  salvage,  have  no  substantial  value  to  manufacturer  when  contracts  executed 
or  to  be  executed  for  manufacture  of  munitions  or  parts  thereof  have  been  fully 
performed;  method  of  estimating  annual  allowance  on  this  account  stated.  (T.  D. 
2381;  art.  21.) 

Neither  depreciation  nor  amortization  deduction  allowable  will  relate  to  property 
u'led  in  connection  with  any  other  business  carried  on  by  the  rnanufacturer;  amorti- 
zation applies  only  and  particularly  to  those  special  plants  and  equipment  whose 
life  and  value,  except  salvage,  will  terminate  with  the  end  of  the  business  for 
which  they  were  erected  and  equipped,  and  it  is  to  be  differentiated  from  depre- 
ciation in  that  the  latter  relates  to  property  whose  life  and  value  is  not  dependent 
upon  or  materially  affected  by  its  use  in  manufactui'e  of  munitions  or  parts  thereof. 
(T.  D.  2301;  art.  21.) 

I*ayment. 

Taxable  person  required  to  pay  tax  to  collector  with  whom  returns  was  filed 
on  or  before  expiration  of  30  days  from  date  of  notice  of  assessment  of  tax,  failing 
which,  such  taxable  person  will  be  Liable  to  penalty  equivalent  to  5  per  cent  of 
amount  of  tax  asse.ssed.     (T.  D.  2384;  art.  7.) 

Persons  liable. 

A  steel  company  which,  under  contract  to  deliver  shells  to  a  foreign  Government, 
manufactured  steel  of  the  characteristics  necessary  to  the  manufacture  of  shells, 
retained  ownership  through  all  subsequent  steps  by  subcontractors,  followed  up 
and  checked  every  operation  on  the  original  steel,  and  delivered  the  completed 
shells  to  the  foreign  Government,  was  a  "person  manufacturing  *  *  *  shells," 
Avithin  the  meaning  of  section  301  of  the  act  of  September  8,  1916,  it  appearing  that 
the  opei'ations  by  the  subcontractors  depended  on  the  composition  and  character- 
istics of  the  steei  made  in  the  initial  step,  the  relative  importance  of  which  step, 
as  compared  with  the  remaining  eight  by  the  subcontractors,  is  shown  by  the  fact 
that  bare  material  and  running  expenses  involved  therein  amounted  to  about  one- 
half  of  the  sum  paid  tio  the  subcontractors  for  work,  material,  and  profits.  (T.  D. 
2875;  June  26,  1919.     T.  D.  3003;  Apr.  21,  1920.     Ct.  Decs.) 

A  steel  company  which,  proceeding  under  a  subcontract,  selected  the  material 
required  in  shells,  made  the  steel  which  constituted  the  shells,  and  by  work  done 
upon  said  steel  segi'egated  it  from  the  general  field  of  commercial  use  and  limited 
it  to  shell  making,  the  six  several  steps  performed  constituting  about  40  per  cent 
of  the  cost  of  the  shells,  was  a  "'person  manufacturing  *  *  *  shells  *  *  * 
or  any  part  of  any  of  the  articles  named,"  within  the  meaning  of  section  301  of  the 
act  of  September  8,  1916,  though  29  further  steps  remained  to  be  taken  by  the 
contractor  and  though  some  of  the  material,  when  imperfect,  was  scrapped  and 
used  for  othel"  mechanical  purposes.     (Id.) 

A  company  which,  under  a  subcontract,  agreed  to  manufacture  and  furnish  to  a 
contractor  for  shells,  rough  steel  shell  forgings  of  the  chai'acter  provided  in  the 
contract  as  to  chemical  constituents,  tensile  strength,  size,  shape,  etc.,  and  which 
to  fulfill  its  contract,  either  made,  had  made,  or  bought  in  the  market  the  grade  of 
steel  required,  of  the  common  commercial  t>T)e  known  as  rounds,  which  rounds  it 
nicked  and  broke  into  18-inch  lengths,  which  it  then  put  through  two  forgings 
processes,  piercing  a  hole  and  lengthening  the  rounds,  the  output  being  a  hollow 
steel  body  or  shell  form  weighing  about  170  pounds,  is  a  "person  manufacturing 
*  *  *  shells  *  *  *  or  any  part  of"  a  shell,  Avithin  the  meaning  of  section 
301  of  the  act  of  September  8,  1916,  though  the  contractor,  to  make  the  shell  form 
suitable  for  use  as  a  shell  was  required  to  dress,  bore,  and  machine  it  down  to  77 
pounds  by  means  of  some  27  distinct  and  separate  processes.     (Id.) 


MUNITION   manufacturers'   TAX.  469 

Persons  liable — Continued. 

Tax  may  be  assessed  against  person  who  may  at  time  own  or  catry  on  business 
or  who  may  act  as  agent  for  such  person,  and  in  case  business  ceases  during  any 
calendar  year  tax  may  be  assessed  against  person  who  owned  or  carried  on  business 
at  time  it  ceased,  or  against  his  agent,  if  he  had  one,  carrying  on  the  business:  in 
either  case  person  against  whom  tax  is  assessed  will  be  liable  for  its  payment  and 
to  any  penalties  that  may  attach  by  reason  of  failure  to  comply  with  act.  (T.  D. 
2:i84;"art.  11.) 

Returns, 

I'.very  person  subject  to  tax  imposed  by  Title  III  of  the  act  of  September  8,  1  91  fi, 
required  to  make  return  of  annual  net  profits  for  year  ended  December  31,  1916, 
and  for  each  calendar  year  thereafter;  items  to  beset  forth  in  return  stated.  (T.  D. 
2.384;  arts.  4,  5.) 

Return  required  to  be  made  upon  blank  forms  prescribed  by  Commissioner  and 
approved  by  Secretary  of  the  Treasury,  and  which  may  be  had  of  collectors  of  dis- 
tricts in  which  taxable  persons  have  their  principal  places  of  business:  failure  to 
procure  or  receive  blank  form  will  not  relieve  taxable  person  from  liability  to  penalty 
if  he  fails  to  make  return  within  prescribed  ti  ne;  return  required  to  be  sworn  to 
before  officer  qualified  to  administer  oath,  by  owner  of  business,  if  owned  by  indi- 
A'idual,  or  by  two  members  of  firm,  if  owned  by  partnership,  or  by  two  principal 
ofiicers  of  company,  if  owned  by  corporation  or  association:  return  must  be  tiled 
with  collector  of  district  in  which  person  has  principal  place  of  V)usiness  on  or  before 
March  1  next  following  calendar  year  for  which  return  is  made,  and  collector  will 
forthwith  transmit  return  to  Commissioner.     (T.  D.  2384;  arts.  6,  7.) 

Failure  to  file  return  within  prescribed  time  subjects  person  making  return  to 
additional  tax  of  50  per  cent,  and  also  to  specific  penalty  not  in  excess  of  $10,000, 
or  to  imprisonment  not  in  excess  of  one  year,  or  both,  in  discretion  of  court:  provided, 
that  in  case  of  sickness  or  absence  of  person  required  to  make  or  verify  return,  col- 
lector may  grant  extension  of  time  not  exceeding  30  days  from  March  1 :  provided 
further,  that  if  return  is  not  made  within  prescribed  time,  but  is  voluntarily  and 
without  notice  from  collector  tiled  after  such  time,  and  it  is  shown  that  failure  to 
file  it  within  time  was  due  to  reasonal)le  cause  and  not  to  willful  neglect,  the  50 
per  cent  addition  will  not  be  made  to  the  tax.     (T.  D.  2384;  section  8. ) 

Fvery  person  engaged  in  manufacturing  any  of  the  articles  set  out  in  section  301 
of  the  act  of  September  8,  1916,  is  required  to  make  return  in  accordance  with  form 
prescribed  by  the  Commissioner  of  Internal  Revenue,  with  the  approval  of  the 
Secretary  of  the  Treasury,  as  authorized  by  section  304  of  the  act,  and  must  set 
forth  not  onlv  gi'oss  income  and  the  authorized  allowances  but  such  other  particulai-s 
as  the  form  calls  for.     (T.  D.  2384;  art.  22.) 

Subjects  of  taxation. 

Tax  imposed  by  Title  III  of  the  act  of  September  8,  1916,  is  in  addition  to  the 
income  tax,  and  is  an  amount  equivalent  to  12^  per  cent  of  entire  net  profits  received 
or  accrued  to  every  person  from  the  sale  or  disposition  of  (a)  explosives,  except 
l^lasting  powder  and  dynamite  used  for  industrial  purposea:  ( b)  cartridges,  caps, 
or  primers,  exclusive  of  those  used  for  industrial  purposes;  (c)  projectiles,  shells, 
or  torpedoes  of  any  kind,  including  shrapnel  o  •  fuses  or  complete  rounds  of  ammu- 
nition: (d)  firearms  of  any  kind  and  appendages,  including  small  arms,  cannon, 
machine  guns,  rifles,  and  bayonets;  (e)  electric  motor  boats,  submarine  or  sub- 
mersible vessels  or  boats:  and  (f)  anv  part  of  any  of  the  articles  enumerated  in  (b) 
to  (e),  inclusive.     (T.  I).  2384:  art.  2.) 

The  pertinent  subjects  of  inquiry  where  section  301  of  the  act  of  September  8, 
1916,  is  to  be  applied  are,  first,  whether  the  war  munitions  or  war  accessories  were 
articles  "manufactured  within  the  United  States";  second,  if  they  were  so  manu- 
factured, who  manufactured  such  articles  and  what  were  the  ""net  profits  actually 
received  or  accrued  *  *  *  from  the  sale  or  disposition  of  such  articles"';  third, 
if  they  were  so  manufactured  within  the  United  States,  who  manufactured  any  part 
of  such  articles  and  what  were  the  ' "  net  profits  actually  received  or  accrued  *  *  * 
from  the  sale  or  disposition  of  such  articles."  (T.  D.  2875;  June  26,  1919.  T.  D. 
3003;  Apr.  21,  1920.     Ct.  Decs.) 

The  broad  purpose  of  Congress  in  the  passage  of  section  301  of  the  act  of  September 
8,  1916,  was  to  select  as  the  subject  of  taxation  war  munitions  and  war  appliances; 
it  was  not  intended  to  tax  the  manufacturer  of  articles  or  parts  thereof,  which,  while 
susceptible  of  warlike  use,  were,  in  fact,  not  so  used,  but  remained  in  the  channels 
of  normal  commerce  and  use.     (Id.) 


470  MUSICAL  INSTRUMENTS MUTUAL  SAVINGS   BANKS. 

Violation  of  law  or  regulations. 

Any  person  subject  to  Title  III  of  the  act  of  September  8,  1916,  who  violates  any 
of  its  provisions  or  the  rej^ulations,  or  who  knowingly  makes  false  statements  in 
his  return,  or  refuses  to  give  information  called  for,  is  guilty  of  a  misdemeanor,  and 
upon  conviction  shall,  in  addition  to  paving  tax  to  which  liable,  be  fined  not  more 
than  $10,000  or  imprisonment  not  exceeding  one  year,  or  both,  in  discretion  of  coiu't. 
(T.  D.  2384;  art.  23.) 

MUSICAL  INSTRUMENTS. 

Excise  taxes — Automatic  organs. 

Automatic  organs  are  not  subject  to  the  tax  imposed  by  section  600  (b)  of  the  act  of 
October  3,  1917.     (T.  D.  2719;   Art.  XI.) 

Piano  players. 

The  tax  imposed  by  section  600  (b)  of  the  act  of  October  3, 1917,  is  3  per  cent  of  the 
price  for  which  the  piano  players  and  records  used  in  connection  therewith  are  sold 
by  the  manufacturer;  accessories  to  such  articles  other  than  records  are  not  taxable 
unless  sold  in  combination  therewith ;  a  piano  player  is  a  device  designed  to  play 
a  piano  mechanically  and  may  be  separate  from  the  piano  or  incorporated  in  it;  the 
device  and  the  piano  together  are  sometimes  known  as  a  player  piano;  the  tax  is 
upon  the  piano  player  and  not  upon  the  complete  player  piano  unless  the  price  of 
the  player  embodied  in  the  player  piano  can  not  be  separately  determined.  (T. 
D.  2719;  Art.  XI.) 

• Talking  machines. 

The  tax  imposed  by  section  600  (b)  of  the  act  of  October  3,  1917,  upon  grapho- 
phones,  phonographs,  talking  machines,  and  records  used  in  connection  therewith, 
is  3  per  cent  of  the  price  for  which  sold  by  manufacturer;  accessories,  other  than 
records,  are  not  taxable  unless  sold  in  combination;  toy  talking  machines  are  taxa- 
ble.   (T.D.2719;  Art.  XL) 

MUTUAL  DITCH  OR  IRRIGATION  COMPANIES. 

Capital  stock  tax — Exemption. 

Farmers '  or  other  mutual  ditch  or  irrigation  company  of  purely  local  character, 
income  of  which  consists  solely  of  assessments,  dues,  and  fees  collected  from  mem- 
bers for  sole  purpose  of  meeting  expenses,  is  exempt  from  tax  imposed  by  section 
407  of  act  of  September  8,  1916.  (T.  D.  23S3;  Oct.  19,  1916.  T.  D.  2750,  art  12; 
Aug.  9,  1918.) 

Income  taxes — Exemption. 

Mutual  ditch  or  irrigation  company  is  specifically  exempt  from  income  tax, 
provided  that  their  entire  income  consists  solely  of  assessments,  dues  and  fees 
collected  from  members  for  sole  purpose  of  meeting  expenses  incurred  in  pursuance 
of  purpose  for  which  organized;  if  any  such  organization  has  income  from  any  source 
other  than  assessments,  dues  and  fees  such  income  is  taxable,  and  organizations 
receiving  same  will  be  required  to  make  returns     (T.  D.  2690;   Art.  69.) 

MUTUAL  INSURANCE  COMPANIES. 

See  ''Insurance." 

MUTUAL  PROTECTIVE  ASSOCIATIONS. 


Insurance. 

See  "Insurance.'* 


MUTUAL  SAVINGS  BANKS. 


Capital  stock  tax — Exemption. 

Mutual  savings  bank  not  having  capital  stock  represented  by  shares  is  specifically 
exempt  from  tax  under  section  407  of  the  act  of  September  8,  1916.  (T.  D.  2383; 
Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Income  taxes — Exemption. 

Mutual  savings  banks  not  having  capital  stock  represented  by  shares  are  exempt 
from  tax  without  condition;  collector,  being  satisfied  that  organization  _ cornea 
within  exempted  class,  is  authorized  to  eliminate  it  from  his  list  and  relieve  it  from 
necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 


NAMES.  471 

NAMES. 

Excise  taxes — Medicinal  preparations. 

Preparations  made  in  acc(*daiice  with  formulas  contained  in  United  Statea 
Pliarmacopoeia  and  National  Formulary  by  pharmaceutical  manufacturers,  when 
not  held  out  or  recommended  as  proprietary  medicines  or  medicinal  proprietary 
articles  or  preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  out  if  so 
held  out  or  recommended  they  are  taxable  although  not  identified  by  any  name, 
trade-mark,  or  otherwise.     (T.  D.  2719;  Art.  XX.) 

Where  the  owner  of  a  formula  contracts  with  a  manufacturer  to  prepare  aii  article 
according  to  such  formula  and  to  deliver  it  to  him  in  complete,  salable  form,  the 
labels  bearing  the  formula  owner 's  name,  he  is  considered  the  manufacturer.  (T.  D. 
2719;  Art.  XXI.) 

A  person  who  bottles  or  otherwise  prepares  an  article  and  merely  for  advertising 
purposes  places  on  such  article  the  na.me  of  any  dealer  who  may  handle  it  shall 
be  deemed  manufacturer  if  names  of  both  persons  appear,  but  if  only  the  dealer's 
name  appears  he  shall  be  deemed  the  manufacturer.     (T.  D.  2719;  Art.  XXI.) 

If  article  or  its  container  has  on  it  both  a  trade-mark  or  trade  name  of  one  manu- 
facturer, and  the  indi\ddual  or  business  name  of  another,  the  owner  of  the  trade- 
mark or  trade  name  will  be  deemed  the  manufacturer;  if  the  article  or  its  container 
has  on  it  both  the  commercial  name  of  the  article  and  an  individual  or  business 
name,  the  latter  will  be  deemed  to  designate  the  manufacturer.  (T.  D.  2719;  Art. 
XXI.) 

Within  the  meaning  of  section  600  (h)  of  the  act  of  October  3,  1917,  a  manufacturer 
or  producer  is  a  person  who  prepares  an  article  or  has  it  prepared  and  sells  it,  and 
who  identifies  the  article  by  a  commercial  name,  trade-mark,  or  trade  name,  or  by 
other  means,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine 
or  a  medicinal  proprietary  article  or  preparation  or  as  a  remedy  or  specific.  (T.  D. 
2719;  Art.  XXr) 

Taxability  of  medicinal  preparation  under  section  600  (h)  of  the  act  of  October 
3,  1917,  is  determined  by  the  manner  in  which  it  is  prepared  or  the  way  in  which 
it  is  put  upon  the  market;  if  article  is  advertised  under  name  or  trade-mark  of 
manufacturer,  or  any  name  in  possessive  case  is  used  on  label  or  on  literature  de- 
scribing medicinal  preparation,  or  name  of  manufacturer  is  made  part  of  name  or 
title,  or  any  intimation  is  otherwise  given  that  article  is  of  distinctive  origin,  tax  is 
imposed;  where  medicinal  preparations  are  sold  under  what  appears  to  be  or  what  is 
intended  to  be  a  trade-mark  appropriated  to  the  article,  the  tax  attaches.  (T.  D. 
2719;  Art.  XXII.) 

Name,  initials,  or  monogram  of  manufacturer  printed  on  label  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  amounts 
to  a  holding  out  of  that  preparation  as  proprietary.     (T.  D.  2785;  Jan.  23,  1919.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  across 
middle  of  label  does  not  amount  to  a  holding  out  of  that  preparation  as  proprietary. 
(T.  D.  2785;  Jan.  23,  1919.) 

Name,  initials,  or  monogram  of  manufacturer  printed  on  label  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  is  not 
of  itself  a  trade-mark  under  section  600  (h)  of  the  act  of  October  3,  1917.  (T.  D. 
2785;  Jan.  23,  1919.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  other  manufacturers,  is  a  "trade-mark"  under  section 
600  (h)  of  the  act  of  October  3,  1917.     (T.  D.  2785;  Jan.  23,  1919.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  across 
middle  of  label  is  not  a  "trade-mark"  under  section  600  (h)  of  the  act  of  October  3, 
1917.     (T.  D.  2785;  Jan.  23,  1919.) 

Coined  name  used  fpr  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  other  manufacturers,  amounts  to  a  holding  out  of  that 
preparation  as  proprietary.     (T.  D.  2785;  Jan.  23,  1919.) 

Income  taxes — Claims. 

Claim  for  refund  of  assessed  tax  and  penalties  should  be  made  in  name  of  party 
assessed,  if  living,  but  if  dead,  claim  should  be  made  in  name  of  executor  or  admin- 
istrator, and  certified  copies  of  letters  of  administration  or  letters  testamentary  or 
other  similar  evidence  should  be  affixed  to  claim  to  show  that  claimant  is  adminis- 
trator, etc.     (T.  D.  2690;  arts.  265,  266.) 


472  2JARC0TICS. 

Income  taxes — Continued. 

Returns. 

Where  business  was  continuous  throughout  year,  no  change  in  management  or 
operation  other  than  change  in  name  of  corporation  having  occurred,  return  should 
be  mide  covering  business  transacted  throughout  the  year,  such  return  to  be  made 
by  corporation  in  name  which  it  bears  at  end  of  year,  with  notation  on  return  that 
name  had  been  changed,  giving  both  old  and  new  names;  if,  however,  distinctly 
new  corporation  was  organized  to  take  oA'er  property  of  old,  both  corporations  will 
be  required  to  make  separate  returns,  covering  periods  of  year  during  which  they 
were  respectively  in  charge  of  business.     (T.  D.  2690;  art.  206.) 

NARCOTICS. 
Conspiracy  to  violate  law. 

Indictment  charging  conspiracy  to  violate  section  2  of  the  act  of  December  17, 
1914,  need  not  negative  exceptions  found  in  such  statute;  demurrer  to  indictment 
overruled  in  case  of  United  States  i'.  0  "Hara.     (T.  D.  2392;  Nov.  6,  1916.     Ct.  Dec.) 

Constitutionality  of  law. 

Section  2  of  the  act  of  December  17,  1914,  being  a  revenue  measure,  is  not  an 
invasion  of  the  police  power  reserved  to  the  States,  and  is  constitutional.  (T.  D. 
2809;  Mar.  20,  1919.     Ct.  Dec.     T.  D.  2887;  July  12,  1919.    Ct.  Dec.) 

Evidence. 

It  is  proper  to  permit  physicians  to  testify  as  experts  as  to  well -recognized  methods 
among  medical  fraternity  of  treating  parsons  addicted  to  narcotics  for  purpose 
of  curing  them  of  the  habit,  with  view  to  .showing  that  physician  did  not  dispense 
narcotics  in  legitimate  manner;  evidence  from  physicians  to  effect  that  unless 
confined  an  addict  is  never  cured  of  the  habit  properlv  admitted.  (T.  D.  2887;  July 
12,  1919.     Ct.  Dec.) 

Indictment. 

Illegal  dispensing  of  narcotics  may  be  made  separate  count  in  indictment  as  to 
each  addict  involved,  and  evidence  may  be  admitted  tending  to  prove  sales  by 
physician  to  persons  other  than  those  mentioned  in  the  indictment.  (T.  D.  2887; 
July  12,  1919.     Ct.  Dec.) 

Object  of  law. 

The  object  of  the  act  of  December  17,  1914,  although  enacted  under  the  taxing 
power  of  Congress,  is  to  prevent  the  growing  use  of  narcotics,  deemed  a  menace 
to  the  nation  by  Congress,  the  act  having  a  moral  end  as  well  as  revenue  in  view. 
(T.  D.  2887;  July  12,1919.     Ct.  Dec.) 

Physicians — Prescriptions,  sales,  etc. 

Ruling  contained  in  T.  D.  2200,  of  May  11,  1915,  permitting  practitioner  to  dis- 
pense or  prescribe  narcotic  drugs  in  a  quantity  more  than  is  necessary  to  meet 
the  immediate  needs  of  a  patient,  revoked,  and  such  revocation  declared  appli- 
cable to  all  cases  whether  decreasing  dosage  is  indicated  or  not.  (T.  D.  2879; 
July  2,  1919.) 

Order  issued  by  practicing  and  registered  physician  for  morphine  to  habitual 
user  thereof,  the  order  not  being  issued  in  course  of  professional  treatment  in 
attempted  cure  of  habit,  but  being  issued  for  purpose  of  providing  user  with  mor- 
phine sufficient  to  keep  him  comfortable  by  maintaining  his  customary  use,  is 
not  a  physician's  prescription  within  exception  (b)  of  section  2  of  the  act  of  Decem- 
ber 17,  1914.     (T.  D.  2809;  Mar.  20,  1919.     Ct.  Dec.) 

Physician  who  furnished  narcotics  to  an  addict  in  decreasing  quantities  and 
claims  to  be  attempting  cure  of  addiction  is  acting  contrary  to  the  act  of  December 
17,  1914,  when  it  is  shown  that  the  physician  has  not  personally  attended  the  addict, 
or  has  given  such  addict  some  personal  attention,  but  not  suificient  to  show  that 
he  acted  in  good  faith.     (T.  D.  2887;  July  12,  1919.     Ct.  Dec.) 

Fact  that  physician  when  "in  the  course  of  his  professional  practice  only"'  is 
excepted  from  requirement  that  narcotics  shall  be  dispensed  upon  official  order 
form  does  not  provide  authority  for  physician  to  sell  narcotics,  if  he  does  not  do 
so  in  good  faith,  for  purpose  of  securing  cure  of  one  suffering  from  illness  or  to 
cure  him  of  the  morphine  habit;  the  exception  referred  to  must  be  construed 
Ftrictly,  and  those  who  set  up  any  such  exception  must  establish  it  as  being  within 
the  words,  as  well  as  within  the  reason,  thereof,     (T.  D.  2887;  July  12,1919.    Ct.  Dec.) 

Physician  who  sells,  dispenses,  or  distributes  500  one-sixth  grain  tablets  of  heroin 
not  in  the  course  of  his  regular  professional  practice  and  not  for  treatment  of  any 


XAKcoTics.  473 

Physicians — Prescriptions,  sales,  etc. — Continued. 

diFease  to  person  popularly  known  as  a  "dope  fiend,"  for  purpose  of  praiifying 
his  appetite  for  the  drup;  as  hal)itual  user  thereof,  commits  indictable  ol't'en-e. 
(T.  D.  2809;  Mar.  20,  1919.     Ct.  Dec.) 

The  first  sentence  of  section  2  of  the  act  of  December  17,  1914,  prohibits  iciail 
pales  of  morphine  by  dru<j^ists  to  persons  who  have  no  physician's  prescript  ion, 
who  have  no  order  lilank  therefor,  and  who  can  not  oVjtain  an  order  blank  bpcau-^e 
not  of  the  class  to  which  such  blanks  are  allowed  to  be  issued,  and  such  pnihibiiinn 
is  cr)nstitutionaI.     (T.  D.  2809;  Mar.  20,  1919.     Ct.  Dec.) 

Physician  who  sells,  jjives  away,  or  distributes  500  one-sixth  prain  tablets  <•{ 
heroin  not  in  pursuance  of  written  order  on  form  issued  on  blank  furnished  liy 
Commissioner  of  Internal  Revenue  commits  indictable  offense.  (T.  D.  2809; 
Mar.  20,  1919.     Ct.  Dec.) 

Article  11  of  Regulations  No.  35,  prohibiting  refilling  of  narcotic  prescriptions, 
modified,  so  that  prescriptions  calling  for  morpliine,  codeine,  or  heroin,  which  are 
written  by  registered  practitioners  for  patients  suffering  from  Spanish  influen/.a 
and  any  pulmonary  or  bronchial  affections,  may  be  refilled,  provided  tliat  at  time 
of  issuance  by  physicians  instructions  are  noted  in  body  of  such  prescriptions, 
"Repeat  if  necessaiy,"  and  druggist  filling  and  refilling  same  shall  note  thereon 
each  and  every  date  upon  whicli  such  prescription  is  refilled.  (T.  D.  2766;  Oct. 
22,   1918.) 

Notwithstanding  Harrison  narcotic  act,  section  2,  exception  (b),  excepting  sales 
of  the  prohibited  drugs  on  the  written  prescription  of  a  registered  physician,  a  sale 
by  a  druggist,  who  knows  that  the  prescription  M-as  issued  to  gratify  the  holdei's 
appetite,  and  not  to  cure  disease  or  alleA^ate  suffering,  Aiolates  the  law,  and  the 
phvsician  issuing  the  prescription,  knowing  it  is  to  be  filled  by  a  druggist  ha^■ing  such 
knowledge,  aids  and  abets  the  violation.     ^T.  D.  3085;  Oct.  27,  1920.     Ct.  Dec.  > 

Knowledge  by  a  druggist  that  a  prescription  under  the  Ilamson  narcotic  law 
was  issued  to  gratify  the  holder's  appetite,  and  not  to  cure  disease  or  alle\'iate  suffer- 
ing, is  essential  to  guilt,  and  negligent  failure  to  inquire  will  not  take  the  place  of 
knowledge.     (T.  D.  .3085;  Oct.  27,  1920.     Ct.  Dec.) 

The  undisputed  facts  that  the  physician  issued  prescriptions  only  for  narcotics; 
that  many  of  tlie  alleged  patients  were  described  in  his  prescriptions  as  addicts, 
and  had  the  physical  appearance  of  such ;  and  that  the  grescriptions  were  issued  to 
the  same  persons  repeatedly  and  o\er  long  periods  of  time  and  without  diminution 
in  the  quantity  presciibed,  indicating  that  no  cm-e  by  reduction  was  intended  by 
the  physician,  warranted  the  conclusion  that  the  druggists  must  have  known  when 
they  tilled  such  prescriptions  that  they  had  been  issued  merelv  to  satisfv  addiction. 
(T.  D.  3085;  Oct.  27,  1920.     Ct.  Dec.) 

On  a  trial  for  abetting  a  \'iolation  of  the  Harrison  narcotic  law  by  a  druggist, 
an  instruction  erroneously  authorizing  a  conviction,  though  the  druggist  had  no 
actual  knowledge  that  a  prescription  was  wrongfully  issued,  was  not  ground  for 
reversal,  where  reasonable  men  could  have  drawn  but  the  one  inference  that  the 
druggist  had  such  actual  knowledge.     (T.  D.  3085;  Oct.  27,  1920.     Ct.  Dec.) 

Regulations — Mandamus  to  abrogate. 

Writ  of  mandamus  directed  to  ('ommissioner  of  Internal  Revenue  and  Secretary 
of  the  Treasury  of  the  United  States  is  not  the  proper  remedy  to  abrogate  a  regula- 
tion (T.  D.  2309;  Mar.  11,  1916),  issued  imder  authority  of  act  of  December  17,  1914, 
popularly  known  as  Harrison  Narcotic  Law,  to  carry  into  effect  the  provisions  of 
section  6  of  such  act,  which  regulation  was  issued  in  the  exercise  of  official  discre- 
tion.    (T.  D.  2489;  May  11,  19f7.     Ct.  Dec.) 

Samples. 

Manufacturers  of  narcotics  may  lawfully  furnish  to  any  duly  accredited  special 
agent  or  customs  agent  of  the  Treasury  Department  samples  requried  in  order  to 
make  analyses  to  establish  allowance  of  drawback  on  manufactured  drugs  exported 
from  this  country,  taking  receipt  of  such  ofhcer  therefor,  which  will  be  filed  with 
official  narcotic  order  forms  and  records.     (T.  D.  2487;  Apr.  28,  1917.) 

Synthetic  substitutes. 

Ruling  contained  in  T.  D.  2194,  holding  synthetic  substitutes  lor  cocaine,  alpha 
or  beta  eucaine,  or  any  of  their  salts,  subject  to  the  provisions  of  the  act  of  Decem- 
ber 17,  1914,  and  requiring  manufacturers  of,  dealers  in,  and  physicians  prescribing 
any  such  substitutes  as  therein  defined  to  register  and  otherwise  conform  to  the 
Harrison  narcotic  law  and  the  regulations  issued  thereunder,  revoked,  to  take 
effect  April  10,  1917.    (T.  D.  2479;  Apr.  10.  1917.) 


474    NATIONAL,  FARM  LOAN  ASSOCIATIONS NATIONAL  FORMULARY. 

Unclaimed  freight  or  express  packages — Sale. 

When  sale  of  express  or  freight  package  containing  narcotic  drugs  is  to  be  made, 
collector  of  district  should  be  notified  sufficient  length  of  time  in  advance  to  permit 
detail  by  him  of  officer  to  inspect  packages  and  identify  such  as  contain  narcotic 
drugs;  revenue  officer  must  be  present  at  sale  to  see  that  packages  are  sold  to  those 
persons  only  who  are  registered  under  Federal  law  or  to  officers  of  Federal,  State,  or 
municipal  governments  exempt  from  its  provisions;  purchaser  must  at  time  of  pur- 
chase make  supplemental  inventory,  in  duplicate,  of  drugs  coming  into  his  pos- 
session, he  to  retain  original  for  file  with  his  order  forms,  and  forward  duplicate  to 
collector  who  is  required  to  notify  Internal  Revenue  Bureau  when  such  transactions 
take  place  and  furnish  name  and  address  of  purchaser.     (T.  D.  2712;  May  13,  1918.) 

NATIONAL  FARM  LOAN  ASSOCIATIONS. 

Capital  stock  tax — Exemption. 

National  farm  loan  associations,  as  provided  in  section  26  of  the  act  of  July  17, 
1916,  are  exempt  from  tax  imposed  bj^  section  407  of  act  of  September  8, 1916.  (T.  D. 
2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Income  taxes — Exemption. 

National  farm  loan  associations  organized  pursuant  to  act  of  July  17,  1916,  are 
exempt  from  tax  without  condition;  collector,  being  satisfied  that  organization 
comes  within  exempted  class,  is  authorized  to  eliminate  it  from  his  list  and  reheve 
it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

NATIONAL  FORMULARY. 

Medicinal  preparations. 

Use  of  distilled  spirits  for  nonbeverage  purposes  includes  manufacture  of  bona 
fide  United  States  Pharmacopoeia  or  National  Formulary  medical  extracts.  (T.  D. 
2559;  Oct.  26,  1916.) 

Instructions  with  reference  to  permit  to  make  United  States  Pharmacopoeia  or 
National  Formulary  products;  also,  with  reference  to  alcoholic  medicinal  compounds 
not  in  conformity  to  United  States  Pharmacopoeia  or  National  Formulary;  statement 
required  of  manufacturers;  demand  for  formula  and  process  by  which  article  is 
manufactured;  reference  of  matter  of  whether  compound  is  beverage  to  Commis- 
sioner of  Internal  Revenue.     (T.  D.  2576;  Nov.  10,  1917.     T.  D.  2788;  Feb.  6,  1919.) 

Such  United  States  Pharmacopoeia  or  National  Formulary  preparations  as 
aromatic  eUxirs,  tincture  of  aromatica,  and  similar  preparations,  which  are  used  by 
physicians  and  pharmacists  principally  as  vehicles,  and  which  are  potable,  may  be 
made  with  nonbeverage  alcohol  and  sold  in  good  faith  for  legitimate  uses;  container 
to  bear  stated  label.  (T.  D.  2699;  Apr.  16,  1918.  T.  D.  2760;  Oct.  9,  1918.  T.  D. 
2788;  Feb.  6,  1919.) 

Preparations  made  in  accordance  with  formulas  contained  in  United  States  Phar- 
macopoeia and  National  Formulary  by  pharmaceutical  manufacturers,  when  not 
held  out  or  recommended  as  proprietary  medicines  or  medicinal  proprietary  articles 
or  preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  but  if  so  held  out  or 
recommended  they  are  taxable  although  not  identified  by  any  name,  trade-mark, 
or  otherwise.     (T.  D.  2719;  Art.  XX.) 

When  it  is  desired  to  use  nonbeverage  alcohol  in  making  flavoring  extract  for 
which  no  specific  standard  or  prosess  has  been  prescribed  by  Secretary  of  Agricul- 
ture, manufacturer  must  furnish,  in  duplicate,  data  required  by  T.  D.  2576  with 
respect  to  alcoholic  medicinal  compounds  not  conforming  to  U.  S.  P.  or  N.  F.; 
samples  of  product  will  be  required  when  doubt  exists  as  to  nonbeverage  character 
of  same,  wliich  samples  will  be  forwarded  by  express,  charges  prepaid,  to  Division 
of  Chemistry,  Office  of  the  Commissioner  of  Internal  Revenue.  (T.  D.  2760; 
Oct.  9,  1918.) 

Manufacturers  of  preparations  in  which  sole  medication  is  salt  of  iron  will  not, 
with  certain  stated  exceptions,  be  considered  entitled  to  use  alcohol  without 
paying  special  tax;  use  of  alcohol  in  conformity  with  prescribed  standard  is  per- 
mitted in  compounding  preparations  containing  peptonate  of  iron  and  in  manu- 
facture of  preparations  corresponding  in  strength  of  iron  to  vinum  ferri  N.  F.; 
inclusion  of  fermentable  but  nonmedicinal  material  in  preparation  not  otherwise 
requiring  alcohol  will  not  be  regarded  as  sufficient  reason  for  using  it.  (T.  D. 
2760;  Oct.  9,  1918.) 


NATURAL  MINERAL   WATERS — NEWSPAPERS.  475 

Medicinal  preparations — Continued. 

In  the  case  of  alcoholic  medicinal  compounds  which  are  not  in  conformity  with 
the  United  States  PharmacopfTjia  or  National  Formulary,  the  manufacturer  will 
file  with  collector,  when  requesting  permit  for  use  of  nonbeverage  alcohol  or  non- 
beverage  wines,  the  following  data  in  duplicate:  The  name  of  the  preparation, 
by  whom  manufactured,  for  wliora  manufactured  in  cases  where  same  is  not  placed 
on  tin  market  by  tha  manufacturer,  the  advertising  matter  distributed  with  the 
preparation,  and  the  percentage  of  alcohol  by  volume  contained  in  the  finished 
product.     (T.  D.  2788;  Feb.  G,  1919.) 

Where  manufacturer  desires  to  make  United  States  Pharmacopoeia  or  National 
Formulary  products,  parmit  may  be  approved  by  collector  of  internal  revenue 
without  submitting  the  mitter  to  this  office;  and  as  to  such  products  a  statement 
of  the  names  by  classes,  such  as  '' tinctures,"  '"extracts,"  etc.,  and  that  they  con- 
form to  the  standards  si)ecified,  will  be  su^cient  without  any  further  description 
or  statement  of  formula.     (T.  D.  2788;  Feb.  6,  1919.) 

Standards  adopted  by  Bureau  of  Internal  Revenue  for  alcoholic  preparations 
in  which  nonbeverage  alcoliol  may  be  used  stated;  these  preparations  include 
United  iStates  Pliarmacopoi'ia  and  National  Formulary  preparations,  medicinal 
preparations,  tincture  of  Jamaica  ginger,  flavoring  extracts,  perfumes,  toilet  waters, 
etc.     (T.  D.  2940;  Oct.  29,  1919.) 

The  commercial  labels  that  are  p^ced  on  containers  of  all  preparations  other 
than  United  States  Pharmacopoeia  or  National  Formulary  must  be  tiled  with,  ap- 
plication for  permit  for  use  of  nonbeverage  distilled  spirits  or  wines,  otherwise  per- 
mit will  not  be  granted.     (T.  D.  2940;  Oct.  29,  1919.) 

NATURAL  MINERAL  WATERS. 

See  "Beverages.'' 

NAVY. 

See  "Army  and  Navy." 

NEAR  BEER. 

See  "Fermented  Liquors." 

NET  INCOME. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 

Definition. 

Net  income  is  difference  between  gross  income  and  the  sum  of  allowable  deduc- 
tions.    (T.  D.  2690;  art.  6.) 

NEW  YORK  LIMITED  PARTNERSHIPS. 

Capital  stock  tax. 

Limited  partnerships  of  the  New  York  type,  having  practically  no  characteris- 
tics of  a  corporation  or  joint-stock  company  except  limited  liability  as  to  some  of 
the  partners,  are  not  within  scope  of  tax  imposed  by  act  September  8,  1916.  (T. 
D.  2750,  art.  2;  Aug.  9,  1918.) 

NEWSPAPERS. 

Admission  tax — ^Reporters,  critics,  etc. 

Newspaper  critics  and  reporters  occupying  space  in  audience  must  pay  tax  im- 
posed by  section  700  of  act  of  October  3,  1917;  admissions  of  baseball  reporters 
occupying  special  space  at  baseball  parks,  and  admitted  by  passes  issued  by  base- 
ball writers  association,  and  newsboys  selling  newspapers,  are  exempt.  (T.  D. 
2681;  Mar.  26,  1918.) 

Transportation  charges. 

The  amounts  paid  for  transportation,  other  than  by  express,  of  newspapers,  are 
subject  to  the  tax  of  3  per  cent;  whenever  two  or  more  tickets  for  transportation 
are  sold  in  book  form  or  in  bulk,  tax  applies  to  aggregate  amount  paid  for  tickets  so 
purchased.     (T.  D.  2676;  Mar.  18,  1918.) 


476  homijstal  capital — kotice, 

nominal  capital. 

Definition. 

The  term  "nominal  capital,"  as  used  in  section  209  of  the  act  of  October  3,  1917, 
means  in  general  a  small  or  negligible  capital  whose  use  in  a  particular  trade  or 
business  is  incidental;  certain  businesses  not  construed  as  having  nominal  capital 
for  purposes  of  excess  profits  tax,  named.     (T.  D.  2694;  art.  74.) 

NONALCOHOLIC   BEVERAGES. 

See  "Beverages." 

NONBEVERAGE    ALCOHOL. 

See  "Alcohol." 

NONRESIDENTS. 
Estate  taxes. 

See  "Estate  Taxes." 

Excess  profits  tax. 

See  "Excess  Profits  Tax." 

Excise  taxes. 

See  "Excise  Taxes." 

Income  taxes. 

See  "Income  Taxes  (Corporatione)" ;  "Income  Taxes  (Individuale).'! 

NOTES. 

See  "Promissory  Notes." 

NOTICE. 

Caution  notices. 

See  specific  heads. 

Estate  tax — Excessive  payment. 

"Time  of  notification,"  within  section  207  of  the  estate  tax  law.  Title  II,  act  of 
September  8,  1916,  is  the  date  on  which  notice  of  the  amount  of  such  "excess  part  of 
the  tax"  is  received  by  the  executor,  whether  such  notice  is  given  by  mail  or  other- 
wise.    (T.  D.  2770;  Nov.  6,  1918.) 

Noni'esident  decedents. 

Thirty-day  notice  (Form  705)  must  be  filed,  within  30  days  after  death  of  decedent 
whose  estate  is  taxable,  for  all  property  of  any  kind  located  or  legally  situate  in  this 
country,  by  agents  or  representatives,  donees,  transferees,  trustees,  or  fiduciaries  of 
decedent  dying  domiciled  abroad,  whether  alien  or  citi7,en  of  United  States;  with 
what  collector  notice  must  be  filed;  extension  of  time  for  filing  notice;  notice  to 
commissioner  of  filing  of  notice.     (T.  D.  2454;  Feb.  28,  1917.) 

~- —  Resident  decedent.  , 

Regulation  prescribing  when  30-clay  notice  (Form  705)  must  be  filed  by  others  than 
executors  or  administrators;  surviving  husband  or  wife;  heirs;  donees;  trustees; 
fiduciaries;  others  holding  at,  or  taking  immediately  upon,  decedent's  death,  prop- 
erty inclusive  in  gross  estate  under  definition  of  section  202  of  act  of  September  8, 
1916.     (T.  D.  2454;  Feb.  28,  1917.) 

Income  taxes — Assessment. 

All  persons  shall  be  notified  of  the  amount  for  which  they  are  respectively  liable 
on  or  before  the  1st  day  of  June  of  each  successive  year.     (T.  D.  2690;  art.  38.) 

In  cases  of  refusal  or  neglect  to  make  return  and  in  cases  of  intentional  or  fraudu- 
lent return,  commissioner  shall,  upon  discovery  thereof,  at  any  time  within  three 
years  after  said  return  is  due  or  has  been  made  make  return  upon  information  ob- 
tained as  provided  for  by  law,  or  require  necessary  corrections  to  be  made,  and 
assessment  thereof  shall  be  paid  immediately  upon  notification  of  amount  thereof; 
if  assessment  remains  unpaid  for  10  days  after  notice  and  demand  there  shall  be 
added  stated  penalties  and  interest.     (T.  D.  2690;  art.  42.) 

Where  additional  assessments  are  made  as  result  of  examination  or  audit  of  return, 
taxpayer  shall,  immediately  following  making  of  assessment,  be  notified  of  amount 


OATHS — OBSOLESCENCB.  477 

Income  taxes — Assessment — Continued, 
thereof,  and  such  taxes  shall  be  paid  within  10  daye  from  date  of  such  notice.     (T. 
D.  2690;  art.  230.) 

■ Claims. 

Where  collector  discovci-s  from  schedule  of  abated  taxes  that  mistake  has  occurred 
either  in  ha\ang  abated  a  larger  amount  than  that  claimed  or  in  abating  a  tax  pre- 
viously abated,  he  should  irameiliately  notify  Commissioner  of  such  fact,  so  that 
order  may  be  ret.'alled,  and  error  be  corrected  by  issuing  of  new  one  in  its  place;  in 
^llch  case  no  credit  for  any  amount  whatever  should  be  taken  upon  Form  51B,  or 
upon  quarterly  account,  until  order  of  abatement  and  schedule  hav'C  been  corrected. 
(T.  D.  2690;  art.  260.) 

■ Collection  and  payment. 

Tax  is  to  be  paid  upon  noti(!e  from  collector  of  internal  revenue  of  amount  of  tax 
due,  and  at  all  events  not  later  than  June  15;  as  to  Wix  un])iud  on  June  15,  and  for 
1 0  days  after  notice  and  demand  therefor  penalty  is  5  per  cent  fif  amount  of  tax  unpaid 
and  interest  at  rate  of  1  per  cent  per  month  upon  such  tax  from  time  same  became 
due,  except  from  estates  of  insane,  deceased,  or  insohent  persons;  collectors  should 
issue  Form  17  for  purpose  of  fixing  definitely  date  when  penalty  accrues  and  interest 
begins  to  run,  and  copy  of  notice  should  be  filed.     (T.  D.  2690;  arte.  39,  41.) 

\\liere  returns  are  made  on  basis  of  calendar  year  corporations  against  Avhich  taxes 
are  assessed  shall  be  notified  of  the  amount  thereof  on  or  before  June  1  of  each  suc- 
cessive year,  and  taxes  shall  be  paid  on  or  before  June  15  of  year  in  which  assessment 
is  made;  corporation  making  returns  on  basis  of  fiscal  year  other  than  calendar 
year  shall  be  notified  of  amount  assessed  against  it  on  or  before  last  day  of  90-day 
period  next  following  date  when  return  was  due,  and  taxes  shall  be  paid  within  105 
days  from  due  date  of  the  return.     (T.  D.  2690;  art.  230.) 

Returns. 

The  notice  from  the  collector,  provided  for  in  subsection  3176  of  section  16  of  the 
act  of  September  8,  1916,  is  the  note  or  memorandum  prescribed  by  subsection  3173 
of  said  section.     (T.  D.  2690;  art.  54.) 

Return  on  basis  of  fiscal  year  other  than  calendar  year  can  not  be  accepted  unless 
such  fiscal  year  shall  have  been  established  by  proper  notice  to  collector,  and  if  in 
absence  of  such  notice  and  designation  return  is  filed  subsequent  to  date  when  it 
was  required  to  be  filed,  if  made  on  calendar  year  basis,  it  will  be  considered  delin- 
quent, and  corporation  will  be  liable  to  penalty  for  failure  to  file  return  within  pre- 
scribed time.     (T.  D.  2690;  art.  203.) 

Manufacturers  of  wines. 

All  parties  producing  not  exceeding  1,000  gallons  of  wine  per  year,  and  who 
receive  no  wine  in  bond,  mtist  file  notice  on  Form  698.  two  copies  to  be  filed  with 
collector,  and  one  retained  on  winery  premises;  notice  must  describe  and  show 
location  of  buildings,  size  and  use  of  each,  number  of  fermenters  and  of  wine  tanks 
respectively,  and  size  of  each,  and  estimated  quantity  of  finished  wine  to  be 
prodticed;  duplicate  of  notice  on  which  registry  number  will  be  noted  should  be 
forwarded  to  Commissioner  of  Internal  Revenue.     (T.  D.  2765;  Oct.  21,  1918.) 

Each  person  entitled  to  and  desiring  to  avail  himself  of  exemption  provided  by 
section  402  (b)  of  act  September  8,  1916.  must  file  notice  with  collector  of  internal 
revenue  before  commencing  manufactiu-e  of  wine;  such  notice  must  be  on  paper 
8  inches  by  10^  inches  in  size  and  in  stated  form.     (T.  D.  2765;  Oct.  21,  1918.; 

OATHS. 

Particular  proceedings. 
See  specific  heads. 

OBSOLESCENCE. 

Excess  profits  tax— AUowance  in  computation  of  invested  capital. 

Basis  of  computation  of  invested  capital  is  found  in  amount  of  cash  and  other 
property  paid  in,  which  computation  must  take  properly  into  account  surplus  and 
undivided  profits;  in  computation  of  such  surplus  and  undiAdded  profits  recogni- 
tion must  first  be  given  expenses  incurred  and  losses  sustained  from  original  organi- 
zation of  business  concern  down  to  taxable  year,  including  reasonable  allowance 
for  depletion,  depreciation,  or  obsolescence  of  property  "originally  acquired;  if 
value  appreciation  of  kind  not  subject  to  income  tax  (other  than  that  allowed  under 


478  OBSOLESCENCE. 

Excess  profits  tax— Allowance  in  computation  of  invested  capital — Contd. 
article  55  of  Regulations  No.  41)  has  been  taken  up  in  accounts,  deduction  must  be 
made  in  respect  of  such  appreciation;  in  computation  of  invested  capital  for  any 
year  full  effect  must  be  given  to  any  liquidation  of  original  capital.  (T.  D.  2694; 
art.  42.) 

^Vhere  through  failure  to  provide  for  depletion,  depreciation,  obsolescence,  or 
other  expenses  or  losses,  or  where  for  any  cause  books  of  account  of  taxpayer  do  not 
show  true  paid-in  or  earned  surplus  and  undivided  profits,  in  computation  of  in- 
vested capital  such  adjustments  shall  be  made  as  are  necessary  to  arrive  at  corract 
amount;  where  taxpayer  claims  additions  to  vcapital  account,  i)ooks  of  account  will 
be  presumed  to  shov;^  true  facts,  and  burden  of  proof  will  rest  upon  taxpayer,  and 
such  additions  will  be  accepted  only  to  extent  and  under  certain  specifically-stated 
conditions.     (T.  D.  2694;  art.  64.) 

Rules  for  valuation  of  tangible  property,  subject  to  requirements  of  article  42  of 
Regulations  No.  41  as  to  allowance  for  depletion,  depreciation,  and  obsolescence, 
stated;  presumed  that  tangil)le  assets  employed  in  the  trade  or  business  were 
acquired  with  cash  either  paid  in  directly  or  derived  from  trade  or  business,  but 
taxpayer  entitled  to  show  that  such  assets  were  paid  in  as  tangible  property.  (T.  D. 
2694;  art.  67.) 

Income  taxes — ^Deductions. 

No  deduction  from  inventory  value  of  merchandise  or  material  will  be  allowed 
except  where  inventory  includes  goods  or  materials  which,  by  reason  of  obso- 
lescence or  damage,  are  unsalable;  when  such  deduction  is  claimed,  facts  con- 
nected therewith,  including  statement  of  cost  of  goods,  value  at  which  they  were 
inventoried,  and  present  condition  must  be  filed  with  return.  (T.  D.  2690;  art. 
160.) 

Though  no  definite  rate  has  been  fixed  by  which  deduction  on  account  of  depre- 
ciation in  value  of  property  subject  to  wear  and  tear  is  to  be  computed,  it  is  contem- 
plated that  such  allowance  shall  be  computed  upon  basis  of  cost  of  property  and 
probable  number  of  years  constituting  its  life;  deduction  relates  solely  to  loss  due 
to  use,  wear  and  tear,  and  matter  of  obsolescence  is  not  relevant.  (T.  D.  2690; 
art.  162.) 

Depreciation  computed  on  total  invoice  cost  of  merchandise  in  stock  is  not  an  allow- 
able deduction,  except  that  if  portion  of  such  merchandise  is  unsalable  by  reason 
of  obsolescence  or  damage,  depreciation  deduction  not  in  excess  of  decline  in  value 
during  taxable  year  will  be  allowed.     (T.  D.  2690;  art.  169.) 

\Miere  a  patent  becomes  obsolete  prior  to  its  expiration,  corporation  may  deduct 
from  gross  income  such  proportion  of  its  original  cost  (less  any  amount  previously 
charged  off)  as  number  of  years  of  its  remaimng  life  bears  to  whole  number  of  years 
intervening  between  date  it  was  acquired  and  date  it  legally  expires.  (T.  D. 
2690;  art.  174.) 

WTiere  designs,  drawings,  patterns,  or  models,  for  which  corporation  has  made 
expenditures,  result  in  production  of  goods  which  prove  to  be  salable  for  certain 
length  of  time  and  then  become  obsolete  and  can  not  be  sold,  amount  expended  for 
such  designs,  etc.,  less  any  amounts  claimed  as  depreciation  or  as  return  of  capital, 
may  be  charged  off,  be  included  in,  and  deducted  as  loss  incident  to  business, 
provided  full  and  complete  information  is  reported  to  satisfaction  of  Commissioner 
of  Internal  Revenue.     (T.  D.  2690;  art.  177.) 

Amounts  representing  losses  on  account  of  obsolescence  of  physical  property  may 
be  included  as  deduction  from  gross  income  as  a  loss,  provided  such  amounts  have 
been  recorded  in  books  following  condemnation  and  withdrawal  from  use  of  the 
obsolete  property;  amount  of  obsolescence  that  may  be  claimed  as  deduction  shall 
be  ascertained  by  deducting  from  cost  of  property  total  amount  previously  claimed 
and  deducted  on  account  of  depreciation,  plus  residual  value  at  time  of  obsoles- 
cence, or  plus  amount  received  for  sale  of  property;  obsolescence  deduction  must 
not  include  accumulated  depreciation  applicable  to  prior  years.    (T.  D.2690;  art.  178.) 

AMiere  no  depreciation  has  been  charged  off  and  deducted  from  gross  income  of 
prior  years,  amount  allowable  as  deduction  for  year  in  which  property  becomes 
obsolete  shall  be  ascertained  by  deducting  from  property  its  residual  value  plus 
amount  equal  to  depreciation  actually  sustained  during  the  prior  period  and  which 
might  have  been  deducted  when  computed  at  rate  apphcable  to  same  or  similar 
property;  amount  of  such  depreciation  as  applicable  to  former  years  may  be  made 
basis  of  amended  returns  and  claim  for  refund  of  taxes  overpaid  by  reason  of  fact  that 
no  depreciation  deduction  was  claimed  in  those  years.     (T.  D.  2690;  art.  179.) 


OCCUPATIONAL  TAXES.  479 

OCCTJPATIONAL  TAXES. 

Act  published. 

Extract  from  act  of  September  8,  1916,  relating  to  taxes  on  occupations,  pub- 
lished for  information  of  internal-revenue  officers  and  others  concerned.  (1.  D. 
2364;  Sept.  11,  1916.) 

Bowling  alleys. 

Bowling  alleys  are  exempt  under  act  of  September  8,  1916,  if  tax  would  fall  upon 
State  treasury;  otherwise  tax  is  due  on  account  of  bowling  alleys  in  State  armories, 
fire  houses,  etc.,  and  also  in  clubs,  fraternity  houses,  lodge  halls,  charitable  insti- 
tutions, Y.  M.  0.  A.  buildings,  hotels,  boarding  houses,  etc.  (T.  D.  2462;  Feb. 
16,  1917.) 

Brokers. 

A  bank  which  does  not  hold  itself  out  to  the  public  as  engaged  in  negotiating 
purchases  or  sales  of  stock,  bonds,  etc.,  but  merely  negotiates  the  purchase  and 
sale  thereof  for  depositors  and  other  patrons,  without  remuneration  and  for  their 
accommodation  only,  does  not  thereby  incur  liability  to  special  tax  as  a  broker. 
(T.  D.  2782;  Dec.  24,  1918.) 

One  who  holds  himself  out  as  dealing  in  exchange,  and  in  regular  course  of  busi- 
ness accepts  orders  and  takes  them  to  a  bank  for  execution  by  the  latter,  receiving 
substantial  rcmimeration  for  his  services,  is  liable  to  tax  as  a  broker.  (T.  D.  2785; 
Jan.  23,  1919.) 

A  bank  which,  in  addition  to  its  banking  business,  acts  as  tmstee,  receiver, 
executor,  or  administrator,  or  engages  in  underwriting  or  promoting  nevf  enter- 
prises or  refinancing  old  enterprises,  or  buys  and  sells  securities  on  its  o%vn  account 
for  profit,  is  subject  to  tax  imposed  by  first  paragraph  of  section  3  of  the  act  of  October 
22,  1914,  upon  total  amount  of  its  capital,  including  sm-plus  and  undivided  profits, 
unless  it  be  shown  that  specific  portion  of  its  capital  is  used  in  such  other  business 
and  that  such  use  does  not  constitute  banking.  (T.  D.  2895;  July  21,  1919.  Ct. 
Dec.) 

Mere  showing  that  specific  portion  of  the  capital,  including  surj^lus  and  un- 
divided profits,  is  used  in  such  other  business  is  not  alone  sufficient  to  show  that 
such  capital  is  not  used  in  banking.     (Id.) 

Capital  stock  tax. 

See  "Capital  Stock  Tax." 

Income  taxes — Deduction. 

Business  or  privilege  taxes  may  be  deducted  either  as  taxes  or  items  of  expense, 
but  not  under  both  heads.     (T.  D.  2690;  art.  8.) 

Lecture  lyceuxns. 

Statement  of  matters  involved  in  case  of  Redpath  Lyceum  Bureau  v.  Pickering, 
in  order  that  decision  holding  that  the  Redpath  Co.  is  not  a  lecture  lyceum  within 
eighth  subdivision  of  section  3  of  the  act  of  October  22,  1914,  may  be  properly 
understood.     (T.  D.  2448;  Feb.  14,  1917.     Ct.  Dec.) 

Exemption  of  lecture  lyceums  under  clause  7  of  sectioji  3  of  the  act  of  October  22, 
1914,  does  not  apply  to  lecture  lyceum  bureau  which  is  proprietor  of  shows  or 
exhibitions.     (T.  O.  2684;  Mar.  28,  1918.     Ct.  Dec.) 

The  term  "lecture  lyceums,"  as  used  in  clause  8  of  section  3  of  the  act  of  October 
22,  1914,  defines  no  well-kn«rwn  method  of  public  entertainment  save  as  the  mean- 
ing may  be  gathered  from  the  aggregation  of  the  two  words;  there  is  no  system  of 
entertainments  known  as  lecture  lyceums;  it  does  not  include  mere  independent 
show  units  engaged  for  the  occasion,  whether  shown  alone  or  as  an  antidote  for 
somnolence.     (T.  D.  2684;  Mar.  28,  1918.     Ct.  Dec.) 

Pool  tables. 

Pool  tables  are  exempt  under  act  of  September  8, 1916,  if  tax  would  fall  upon  State 
treasury;  otherwise  tax  is  due  on  account  of  pool  tables  in  State  armories,  fire  houses, 
etc.,  and  also  in  clubs,  fraternity;  houses,  lodge  halls,  charitable  institutions, 
Y.  M.  0.  A.  buildings,  hotels,  boarding  houses,  etc.    (T.  D.  2462;  Feb.  16,  1917.) 


480  OIL. 

Post  exchanges— Billiard  tables,  etc. 

AMiere  post  exchanges  are  under  complete  control  of  the  Secretary  of  the  ^"avy 
as  govermnental  agencies  they  are  not  liable  to  special  tax  on  account  of  billiard 
or  pool  tables  or  bowling  alleys  operated  by  them.     (T.  D.  2439;  Jan.  27,  1917.) 

"Private  home" — ^Definition. 

The  words  ''private  home,"  as  used  in  act  of  September  8,  1916,  were  intended  to 
be  taken  in  their  common  and  ordinary  meaning  as  describing  indi^ddual  or  family 
residences;  it  has  accordingly  been  held  that  occupation  tax  is  applicable  to  pool 
or  billiard  tables  and  bowling  alleys  in  clubs,  fraternity  houses,  lodge  halls,  chari- 
table institutions,  Y.  M.  C.  A.  buildings,  hotels,  boarding  houses,  etc.  (T.  D. 
2462;  Feb.  16,  1917.) 

Schedule. 

Re^  ised  schedule  of  occupations  subject  to  tax  published  for  information  of  inter- 
nal revenue  officers  and  others  concerned.     (T.  D.  2558;  Oct.  26,  1918.) 

Theaters. 

Where  theater  proprietor  makes  retiirn  of  special  tax  within  time  required  by  law 
])ut  shows  seating  capacity  to  be  smaller  than  it  actually  is,  50  per  cent  penalty  does 
not  attach  to  later  payment  covering  same  period  at  proper  rate,  but  if  first  return  was 
fraudulent  liability  to  100  per  cent  penalty  will  be  regarded  as  incurred;  same  rule 
applies  where  liability  to  tax  at  rate  lower  than  that  to  which  taxpayer  is  actually 
liable  is  indicated  bv  misstatement  of  population  of  place  in  which  the  theater  is 
located.     (T.  D.  277-5;  Nov.  29,  1918.) 

Where,  after  payment  of  special  tax,  seating  capacity  of  theater  is  increased 
beyond  that  which  tax  previously  paid  is  sufficient  to  cover,  tax  at  higher  rate  must 
be  paid  covering  period  beginning  with  first  day  of  month  in  which  seating  capacity 
is  increased  and  ending  June  30  following;  if  return  disclosing  new  liability  is  not 
made  during  month  in  which  change  takes  place,  liability  to  penalty  of  50  per  cent  of 
new  tax  is  incured;  payment  of  tax  at  higher  rate  does  not  entitle  taxpayer  to 
refund  of  any  part  of  amount  first  paid.     {T.  D.  2775;  Nov.  29,  1918.) 

OIL. 

Definition. 

The  word  "oil,"  as  used  in  subdi\-ision  (d)  of  section  500  of  the  act  of  October  3, 
1917,  means  crude  petroleum  and  such  of  its  products  as  mav  be  transported  by 
pipeline.     (T.  D.  2676;  Mar.  18,  1918.) 

Excise  taxes. 

Floor  oils  and  floor  wax  are  not  subject  to  tax  imposed  by  section  600  (g)  of  the  act 
of  October  3,  1917.     (T.  D.  2719;   Art.  XVIII.) 

Tax  imposed  by  section  600  (g)  of  the  act  of  October  3,  1917,  is  2  per  cent  of  price 
ff>r  which  hair  oils  are  sold  by  iJie  manufacturer.     (T.  D.  2719;  Art.  XVIII.) 

Income  taxes — Depletion  and  depreciation. 

Section  14  of  the  act  of  September  8,  1916,  amending  section  3225,  Re\ased  Stat- 
utes, providing  that  it  shall  not  apply  to  statements  or  returns  made  or  to  be  made 
in  good  faith  regarding  annual  depreciation  of  oil  or  gas  wells  and  mines,  does  not 
puiport  to  be  retroactive  in  its  operation.     (T.  D.  2661;  Mar.  5,  1918.     Ct.  Dec.) 

In  case  of  lessee,  capitaj  to  be  returned  is  amount  paid  in  cash  or  its  equivalent 
as  bonus  or  otherwise  l3y  lessee  for  lease,  plus  expenses  incurred  in  developing  prop- 
erty (exclusive  of  physical  property)  prior  to  receipt  of  income  therefrom  sufficient 
to  meet  all  deductible  expenses,  after  which  time  as  to  both  owner  and  lessee,  such 
incidental  expenses  as  are  paid  for  wages,  fuel,  etc.,  in  connection  with  drilling  of 
wells  and  further  develojjment  of  property  may  be,  at  option  of  operator,  deducted 
as  operating  expense  or  charged  to  capital  account.     (T.  D.  2690;  art.  170.) 

In  case  of  operating  fee  owner,  amoimt  returnable  through  depletion  deductions  is 
fair  market  value  cf  property  (exclusiA-e  of  cost  of  phj^sical  property)  as  of  ilarch  1, 
1913,  if  acquired  prior  to  that  date,  or  actual  cost  of  property  if  acquired  subsequent 
to  that  date,  plus,  in  either  case,  cost  of  developm«ent  (otter  than  cost  of  physical 
property  incident  to  such  development)  up  to  point  at  which  income  from  developed 
territory  equals  or  exceeds  deductible  expenses.     (T.  D.  2690;  art.  170.) 

Essence  of  sections  5  and  12  of  the  act  of  September  8, 1916,  as  amended  by  the  act 
of  October  6,  1917,  is  that  owner  or  operator  of  gas  or  oil  properties  shall  secure 


OIL.  481 

Income  taxes-  Depletion  and  depreciation— Continued. 

through  an  aggregate  of  annual  depletion  deductione  the  return  of  amount  of  cajjital 
actually  invested,  or  amount  not  in  excess  of  fair  market  value  as  of  March  1, 191  :^,  of 
properties  owned  prior  to  that  date.     (T.  D.  2G90;  art.  170.) 

As  to  both  fee  owner  and  lessee,  capital  invested  in  physical  property,  upon  wliich 
depreciation  deduction  is  computed,  should  be  segregated  in  books  of  account  from 
that  invested  in  oil  or  gas  territory  or  in  lease  or  leases,  with  respect  to  which  de<luc- 
tion  for  depletion  or  return  of  capital  is  claimed,  and  credits  for  depreciation  may  be 
made  in  same  manner  as  pro\iaed  for  depletion.     (T.  D.  2690;  art.  170.) 

Both  owners  and  lessees  operating  oil  or  gas  properties  will,  in  addition  to  and 
sqiarate  from  deduction  allowable  for  depletion  or  return  of  capital,  be  permitted 
to  deduct  reasonable  allowance  for  depreciation  of  physical  property,  such  as  ma- 
chinery, tools,  equipment,  pipes  etc.,  amount  deductil)le  on  this  account  to  be  such 
an  amount,  based  upon  its  capitalized  value  (cost)  equitably  distributed  over  its  use- 
ful life,  as  will  bring  it  to  its  true  salvage  value  when  no  "longer  useful  for  purpose 
for  which  property  was  acquired.     (T.  1).  2690;   art.  170.) 

^^llere  operator  is  owner  of  fee,  value  determined  and  set  up  as  of  March  1, 1913,  or 
cost  of  property  if  acquired  subsequent  to  that  date,  or,  if  operator  is  lessee,  actual 
amount  paid  for  lease,  plus,  in  case  of  both  owner  and  lessee,  cost  of  subsequent  de- 
velopment, exclusive  of  physical  property,  if  such  cost  is  capitalized,  will  be  basis 
for  determining  depletion  deduction  or  deduction  for  return  of  capital  for  all  sub- 
sequent years  during  continuance  of  ownership  under  which  value  was  fixed  or  by 
which  investment  was  made;  during  such  ov/nership  there  can  be  no  revaluation  for 
purpose  of  deduction  if  it  should  be  found  that  quantity  of  oil  or  gas  was  underesti- 
mated at  the  time  value  was  fixed  or  property  was  acquired,  or  at  time  lease  contract 
was  entered  into  or  purchased.     (T.  D.  2690;  art.  170.) 

If  quantity  of  oil  or  gas  can  not  be  determined  with  certainty,  depletion  deduction 
will  be  computed  in  accordance  with  rules  set  out  in  T.  D.  2447,  except  thatlessees 
may  compute  deductions  for  return  of  capital  (cost  of  lease  and  development)  in  same 
manner  as  owners  in  fee;  that  is,  they  may  extinguish  such  capital  on  basis  of  re- 
duction in  flow  and  production  as  compared  ■vidth  preceding  year,  or,  in  case  of  lease- 
hold properties  brought  in  or  developed  during  year,  depletion  deduction  may  he 
computed  on  basis  of  decline  in  settled  flow  and  production,  as  evidenced  by  te^ta 
and  gauges  made  at  end  of  year  as  compared  with  similar  tests  and  gauges  made  at 
time  settled  flow  was  determined ;  for  purpose  of  computing  depletion  territory  com- 
prehended in  given  lease  will  be  considered  unit  with  respect  to  which  depletion 
deduction  may  be  claimed  and  allowed.     (T.  D.  2690;  art.  170.) 

Every  individual  or  corporation  entitled  to  deduction  on  account  of  depletion  or  for 
return  of  capital  invested  shall  keep  accurate  ledger  account,  in  which,  in  case  of  fee 
owner,  shall  be  charged  fair  market  value  as  of  March  1 ,  1913,  or  cost,  if  acquired  sub- 
sequent to  that  date,  of  oil  or  gas  property,  plus  cost  of  development,  or,  in  case  of 
lessee,  amount  actually  originally  invested  in  lease  and  its  development;  this 
amount  shall  be  credited  as  amount  claimed  each  year  as  deduction  on  account  of 
depletion  or  as  return  of  capital,  to  end  that  when  credits  to  account  equal  debits  no 
further  deductions  on  either  account,  with  respect  to  this  property  and  capital  in- 
vested therein,  will  be  allowed;  or,  in  lieu  of  direct  credit  to  property  account, 
amounts  so  claimed  and  allowed  as  deduction  may  be  credited  to  depletion  reserve 
account.     (T.  D.  2690;   art.  170.) 

Estimate  subject  to  approval  of  Commissioner  of  Internal  Revenue,  required  to 
be  made  of  probable  quantity  of  oil  or  gas  contained  in  or  to  be  recovered  from  terri- 
tory with  respect  to  which  investment  is  made;  invested  capital  will  be  divided  by 
ntimber  of  units  of  oil  or  gas  so  estimated ,  and  quotient  will  be  per  unit  cost  or  amount 
of  capital  invested  in  each  unit  recoverable;  this  quotient,  when  multiplied  by 
number  of  units  removed  from  territory  in  one  year,  will  determine  amount  which 
will  be  allowably  deducted  from  gross  income  for  that  year  on  account  of  depletion 
or  as  return  of  iuA-ested  capital  until  total  of  such  deductions  shall  equal  capital  in- 
vested.    (T.  D.  2690;  art.  170.) 

If  indi\'idual  or  corporation  charges  expense  of  drilling  wells  or  further  develop- 
ment to  capital  account,  the  same,  in  so  far  as  expense  is  represented  by  physical 
property,  may  be  taken  into  account  in  determirung  reasonable  allowance  for  de- 
preciation during  each  year  until  property  account  thus  augmented  has  been  ex- 
tinguished through  annual  depreciation  deauctions,  after  which  no  further  deduction 
en  this  account  will  be  allowed;  in  case  of  a  going  or  producing  business,  cost  of 
drilling  nonproductive  wells  may  be  deducted  from  gross  income  ae  operating  ex- 
pense.    (T.D.  2690;  art.  170.) 

70120^—21 31 


482  OLEOMARGARINB. 

Income  taxes — Continued. 
Returns. 

Individual  or  corporation  owning  and  operating  oil  or  gas  properties  required  to 
attach  to  each  return  a  statement  showing  certain  specified  data;  If  operator  is 
lessee  that  fact  should  be  stated,  and  to  return  made  by  such  lessee  there  should  be 
attached  a  statement  showing  certain  specified  matters.     (T.  D.  2690;  art.  170.) 

Transportation — Application  of  tax. 

"^Tiere  a  person,  corporation,  partnership,  or  association,  engaged  in  business,  for 
the  account  of  himself  or  itself,  transports  oil  by  pipe  line,  and,  at  times,  for  hire, 
furnishes  such  facility  for  the  account  of  any  other  person,  corporation,  partnership, 
or  association,  the  one  furnishing  such  facility  is  a  carrier  witliin  the  meaning  of  the 
word  as  used  in  Title  V  of  the  act  of  October  3,  1917,  and  tax  imposed  by  section  501 
applies,  whether  for  his  or  its  account  or  for  the  account  of  others;  when  facility  is 
used  exclusively  for  transporting  property  of  proprietor,  and  not  for  hire,  proprietor 
is  not  a  carrier."  (T.  D.  2676;  Mar.  18,  1918.) 

Computation  of  tax. 

"Where  proprietor  of  pipe  line,  at  times,  for  hire,  transports  oil  of  another,  basis  of 
computation  of  tax  shall  be  current  lawful  rates  of  carrier  and,  in  absence  thereof, 
current  lawful  rates  of  carriers  for  like  service;  if  basis  of  tax  can  not  be  readily  de- 
termined in  manner  stated,  facts  should  be  forthwith  reported  by  carrier  to  Commis- 
eioner  of  Internal  Revenue  for  his  determination.     (T.  D.  2676;  Mar.  18, 1918.) 

OLEOMARGARINE. 

Packages. 

j\Ianufacturers  permitted  to  use  as  original  containers  for  packing  oleomargarine 
paper  or  fiber  boxes,  provided  boxes  are  durable  and  of  substantial  character;  pro- 
visions of  existing  regulations  governing  marking  and  branding  and  affixing  and 
canceling  of  tax -paid  stamps  declared  applicable  to  original  packages  of  paper  or 
fiber,  except  that  such  stamps  may  be  affixed  by  paste  or  glue,  without  addition  of 
tacks,  staples,  or  brads,  and  without  using  shellac  or  other  waterproofing  material  to 
cover  the  stamps;  such  original  containers  to  be  of  such  texture  as  ^^•ill  meet  re- 
quirements for  transportation  of  common  carriers  under  existing  classifications; 
manufactm-ers  and  wholesalers  permitted  to  sell  only  in  original  packages,  and  re- 
tailers must  sell  only  from  original  stamped  package  in  quantities  not  exceeding  10 
pounds  and  shall  pack  oleomargarine  sold  by  them  in  suitable  wood  or  paper  retaU 
packages  properly  marked  and  branded;  par.  1,  page  44,  Regulations  No.  9,  amended. 
(T.  D.  2764;  Oct.  21,  1918.     T.  D.  2774;  Nov.  19,  1918.) 

Paragraph  1,  page  42,  Regulations  No.  9,  relative  to  affixing  caution  notices, 
Form  219,  to  original  oleomargarine  containers,  modified  to  permit  of  such  notices 
being  printed  on  the  container,  instead  of  affixing  such  notices  by  means  of  a  label ; 
modification  is  not  mandatory,  and  manufacturers  may  adopt  either  of  the  approved 
methods  of  affixing  said  labels  as  meets  their  convenience.  (T.  D.  2968;  Feb.  4, 
1920.     T.  D.  3025;  June  2,  1920.) 

Records. 

All  transactions  involving  withdrawal  or  sale  of  oleomargarine  must  be  entered  by 
manufacturer  or  wholesale  dealer  on  Government  record  books  60  or  61,  as  case  may 
be  (or  Forms  216  or  217  if  substituted  for  record  60  or  61),  in  the  order  and  at  the  time 
they  occur,  sales  to  wholesalers  to  be  segregated  and  reported  on  separate  pages  in 
last  part  of  monthly  return;  effective  on  and  after  July  1,  1917.  (T.  D.  2502;  June 
22,  1917.) 

Witlidrawal  for  use  of  United  States — Application. 

Manufacturer  must  file  application  in  duplicate  on  Form  664  for  permit  to  make 
withdrawal  of  product  in  specific  lots  from  his  factory,  and  in  addition  to  giving 
number  of  factory,  district,  and  State,  the  number  of  original  or  statutory  packages 
and  contents  of  each,  and  the  number  of  inner  packages,  if  any,  and  weight  of  each, 
shall  be  set  forth  in  each  application  as  well  as  the  total  quantity  covered,  rate  of 
tax  applicable,  amount  of  tax  to  be  remitted,  and  the  institution  or  name  of  the 
person  or  officer  to  whom,  and  the  address  to  which,  shipment  or  delivery  is  to  be 
made;  these  applications  may  be  forwarded  direct  to  the  Commissioner  of  Internal 
Revenue,  in  which  case  the  duplicate  application  will  be  forwarded  by  the  Com- 
missioner to  the  collector,  or  filed  with  the  collector  for  the  district,  in  which  case 
the  collector  must  forward  the  original  application  immediately  to  the  Commissioner; 


OLEOMAKGARINE.  483 

Withdrawal  for  use  of  United  States — Application — Continued, 
application  should  be  filed  suflBcient  time  in  advance  of  date  upon  which  with- 
drawal is  contemplated  to  be  made  to  allow  of  receipt  and  issuance  of  permit  by 
the  Commissioner  and  receipt  thereof  by  the  manufacturer  prior  to  that  date.     (T.  D, 
2982;  Jan.  22,  1920.) 

■ Bills  of  lading. 

Where  product  withdrawn  is  transported  by  common  carrier,  the  manufacturer 
must  file  with  the  collector  of  the  district  in  which  the  factory  makina:  withdrawal 
is  located  bills  of  lading  in  duplicate  covering  each  shipment  from  the  factory  to 
the  point  of  final  destination;  one  of  these  bills  of  lading,  which  must  be  filed 
promptly  after  withdrawal  is  made,  will  be  filed  with  the  copy  of  the  application 
and  permit  which  it  covers  in  the  collector's  office,  and  the  collector  ^nll  forward 
original  certificate  of  receipt,  with  the  other  copy  of  Ijill  of  lading,  to  the  Commis- 
sioner with  his  monthlv  statement  of  account  as  a  voucher  for  credit  taken  therein. 
(T.  1).  2982;  Jan.  22,  1920.) 

Bond  for  transportation  and  delivery. 

The  manufacturer  is  required  to  furnish  transportation  and  delivery  bond  in 
duplicate  on  Form  665  with  satisfactory  sureties  and  in  penal  sum  of  not  less  than 
the  tax  on  the  total  quantity  specified  in  the  requisition;  this  bond,  which  shall 
state  quantity  of  product  requisitioned,  number  of  factory,  and  its  location,  includ- 
ing the  district  and  State  from  which  \vithdrawal  is  to  be  made,  and  the  institution 
or  name  of  the  person  or  officer  to  whom,  and  address  to  which,  shipment  or  delivery 
is  to  be  made,  may  be  executed  by  corporate  surety  or  individual  sureties,  in  the 
latter  case  each  individual  surety  being  required  to  show  qualification  on  Form  "i3, 
executed  in  duplicate,  and  the  duplicate  form  to  be  attached  to  the  duplicate  bond; 
the  original  and  duplicate  bond  must  be  filed  with  the  collector  for  the  district  ia 
which  the  factory  is  located,  who  will,  if  the  bond  meets  his  approval,  enter  an 
indorsement  to  that  effect  on  both  the  original  and  duplicate,  and  forward  the 
duplicate  immediately  to  the  Commissioner  of  Internal  Revenue.  (T.  D.  2982;  Jan. 
22,  1920.) 

— —  Certificate  of  receipt  by  Government  ofl3.cer. 

The  Government  recei^•ing  officer  at  the  place  of  delivery  should  inspect  each 
shipment,  in  order  that  he  may  certify  as  to  the  quantity  received  and  the  date  of 
receipt,  his  certificate  to  be  made  on  Form  667  in  duplicate  and  forwarded  promptly 
to  the  manufacturer,  who  must  file  both  copies  of  the  certificate  of  receipt  with  tJio 
collector  of  internal  revenue  for  the  district  within  30  days  of  date  of  -wdthdrawal; 
where  there  is  loss  of  goods  in  transit,  the  receipt  should  specify  the  number  of 
statutory  packages,  the  number  of  inner  packages,  if  any,  and  the  total  quantity 
so  lost,  and  the  amount  reported  lost  or  any  difference  between  the  quantity  with- 
drawn under  permit  and  that  certified  to  by  the  receiving  officer  will  remain  ag 
charged  against  the  transportation  bond,  and  assessment  of  tax  thereon  will  be 
made  against  the  manufacturer  in  the  absence  of  evidence  shoT\'ing  that  the  goods 
not  covered  by  the  receiving  officer's  certificate  were  actually  destroyed.  (T.  D. 
2982;  Jan.  22,  1920.) 

— —  Collector's  account;  credit  on  bond. 

The  bond  covering  the  total  quantity  of  product  requisitioned  will  be  credited 
by  the  collector  upon  receipt  by  him  of  certificate  on  Form  667,  and  the  collector 
will  forward  the  original  certificate  of  receipt  to  the  Commissioner  with  his  monthly 
statement  of  account  as  a  voucher  for  credit  taken  therein.  (T.  D.  2982;  Jan.  22, 
1920.) 

Departmental  requisition. 

Whenever  oleomargaiine  is  purchasea  ror  use  ol  tne  United  states  and  it  is  pro- 
posed to  make  withdrawals,  tax  free,  from  the  place  of  manufacture,  requisition 
in  duplicate  on  Form  663,  approved  by  head  of  department  or  head  of  bureau,  or 
other  organization,  if  independent  of  a  department,  must  be  filed  Avith  the  Com- 
missioner of  Internal  Revenue;  this  requisition  must  specify  the  total  quantity 
of  the  product  contracted  for  at  a  price  not  including  the  tax  thereon,  the  name  of 
the  manufacturer,  his  factory  number,  district  and  State,  the  location  of  the  factory 
and  the  institution  and  name  of  the  person  or  ofiicer  to  whom,  and  address  to  which, 
shipment  or  delivery  is  to  be  made;  one  copy  of  the  requisition  vnW  be  forwarded 
by  the  Commissioner  to  the  collector  of  internal  revenue  for  the  district  in  which  ia 
located  the  factory  designated  to  furnish  the  product.     (T.  D.  2982;  Jan,  22,  1920.) 


484     ORCHESTRAL  CONCERTS — OUTDOOR  GENERAL,  AMUSEMENT  PARKS. 

Withdrawal  for  use  of  United  States — Continued. 
• Entries  in  manvif acturer's  records  and  reports. 

Each  ^^'ithdra\val  of  a  product  from  the  factory  shall  be  entered  by  the  manu- 
facturer in  his  revenue  book  on  the  day  withdrawal  is  made  and  shall  be  included 
in  his  monthly  or  annual  report  under  an  appropriate  heading  and  carried  in  the 
recapitulation  as  a  special  credit.     (T.  D.  2982;  Jan.  22,  1920.) 

Packing,  branding,  or  stenciling. 

Oleomargarine,  put  up  in  cartons  or  other  packages  of  less  than  10  pounds  each, 
must  be  inclosed  in  packages  of  not  less  than  10  pounds  each,  as  required  by  section 
6,  act  of  August  2,  188G,  and  each  such  statutory  package  shall,  in  addition  to  brand- 
ing and  stenciling  required  by  other  regulations,  have  branded  or  stenciled  thereon 
"For  use  of  U.  S.  Government,"  together  with  number  of  permit  and  date  thereof, 
the  letters  and  figures  therein  to  correspond  in  size  and  style  with  other  stenciling 
required  by  such  other  regulations.     (T.  D.  2982;  Jan.  22,  1920.) 

Permit. 

Requisition  and  bond  having  been  filed,  permit  in  duplicate  on  Form  666  for 
each  withdrawal,  for  which  application  is  made  and  approved,  will  be  issued  by 
the  Commissioner  and  forwarded  to  the  collector,  and  the  original  permit  will  be 
delivered  by  the  collector  to  the  manufacturer  to  be  retained  as  authority  for  making 
the  ^vithdrawal;  no  more  than  the  quantity  named  in  the  permit  may  be  withdrawn 
thereunder  and  no  withdrawal  shall  be  made  in  advance  of  the  issue  of  a  permit; 
withdra\\'als  must  be  made  within  a  reasonable  time  after  receipt  of  permit  or  else 
request  should  be  made  for  cancellation  of  such  permit;  all  products  withdrawn  in 
advance  of  issue  of  permit  will  be  held  subject  to  tax  and  a  manufacturer  who 
\iolates  the  law  by  withdrawing  products  on  which  tax  has  not  been  paid,  without 
permit,  will  be  liable  also  to  statutory  penalties.     (T.  D.  2982;  Jan.  22,  1920.) 

ORCHESTKAL  CONCERTS. 

Admissions — Cabarets. 

The  words  '  'cabaret  or  other  similar  entertainment, "  as  used  in  section  700  of  the 
act  of  October  3,  1917,  include  every  hotel,  or  room  therein,  restaurant,  hall,  or 
other  public  place,  at  or  in  which,  in  connection  with  service  or  sale  of  food  or 
other  refreshments  or  merchandise,  any  vaudeville  or  other  performance  or  diversion 
in  way  of  acting,  singing,  declamation,  or  dancing,  either  with  or  without  instru- 
mental or  other  music,  is  conducted;  every  form  of  entertainment  so  conducted  ia 
included,  except  that  furnished  by  orchestras  such  as  were  usual  in  hotels  and 
restaurants  before  advent  of  cabarets,  performing  instrumental  music  only,  unac- 
companied by  any  other  form  of  entertainment.     (T.  D.  2681;  Mar.  26,  1918.) 

i 
ORGANIZATION  EXPENSES. 
Definition. 

' '  Organization  expenses' '  constitute  a  capital  investment,  such  expenses  being 
offset  by  the  asset  value  of  the  corporate  franchise,  an  intangible  asset  of  a  somewhat 
permanent  character  and  in  many  instances  of  substantial  value.  (T.  D.  2499; 
June  11,  1917.) 

ORGANIZED  FOR  PROFIT. 

Definition. 

A  corporation  is  organized  for  profit,  within  act  September  8,  1916,  if  its  stock- 
holders or  members  may  benefit  pecuniarily  from  its  operations.     (T.  D.  2750, 

art.  2;  Aug.  9,  1918.) 

OTHER  SIMILAR  PLACES. 
Definition. 

''Other  similar  places,"  as  used  in  eection  313  (a)  of  the  act  of  October  3,  1917, 
includes  all  places  where  soft  drinks  are  sold.     (T.  D.  2719;  Art.  XXIX.) 

OUTDOOR  GENERAL  AMUSEMENT  PARKS. 

Admissions  tax. 

See  "Admissions.", 


OUTSTANDING  STOCK — PANAMA  CANAL.  485 

Defiiiition. 

The  term  "outdoor  general  amusement  parks, "  as  used  in  section  700  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con- 
eiderable  variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  inclosures  or  on  vacant  lots;  outdoor  amusement  parks  include 
similar  enterprises  conducted  on  piers,  but  not  motion  picture  or  other  theaters 
known  as  "airdromes—"     (T.  D.  2681;  Mar.  26,  1918.) 

OUTSTANDING  STOCK. 

Definition. 

Capital  stock  that  has  once  been  issued  by  a  corporation  is  regarded  as  being 
"outstanding,"  even  though  it  is  afterwards  acquired  by  the  company  for  value 
and  carried  on  the  books  as  treasury  stock.     (T.  D.  2417;  Dec.  16,  1916.) 

OWNERSHIP. 

See  "Title." 

Certificates. 

See  "Certificates  of  Ownership." 

PAID. 

Definition. 

"Paid' '  or  '  'actually  paid , ' '  within  meaning  of  Title  I,  of  the  act  of  September  8, 
1916,  as  amended  by  the  act  of  October  3,  1917,  does  not  necessarilj'  contemplate 
that  there  shall  be  an  actual  disbursement  in  cash  or  its  equivalent;  if  amount 
involved  represents  actual  expense  or  element  of  cost  in  production  of  income  of 
year,  it  will  be  properly  deductible  even  though  not  actually  disbursed  in  cash, 
provided  it  is  so  entered  upon  books  of  company  as  to  constitute  a  liability  against 
its  assets,  and  provided  further  that  income  is  returned  upon  an  accrued  basis. 
(T.  D.  2690;  art.  126.) 

PANAMA  CANAL. 
Commission — Wine  tax. 

Wines  purchased  for  use  of  United  States  or  for  Panama  Canal  Commission  may 
be  delivered  free  of  tax;  applications  for  necessary  withdrawal  permitted  in  such 
cases,  should  be  made  under  section  3464,  Revised  Statutes.  (T.  D.  2387;  Oct. 
30,  1916.) 

Taxes  imposed  by  sections  313,  315,  and  GOO  of  the  act  of  October  3,  1917, 
apply  to  articles,  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory 
elsewhere  in  the  United  States  than  a  State  and  to  articles  going  from  United  States 
to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone,  except  that 
under  acts  of  Congress  articles  going  from  United  States  into  the  West  Indian 
Islands,  or  into  the  Philippine  Islands  or  Porto  Rico,  are  exempt  to  same  extent 
as  articles  exported  from  a  State  to  a  foreign  country.     (T.  D.  2781;  Dec.  20,  1918. 

Exportation  of  wines. 

Domestic  wines  may  be  exported  to  foreign  countries  or  may  be  shipped  to  Porto 
Rico,  the  Philippine  Islands,  and  to  the  Panama  Canal  Zone,  free  of  tax;  like 
exemption,  however,  does  not  apply  to  shipments  to  the  island  of  Guam.  (T.  D.) 
2387;  Oct.  30,  1916.) 

Stamp  tax  on  drafts.  ^ 

The  stamp  tax  imposed  by  subdivision  (b)  of  Schedule  A  of  the  act  of  October 
3,  1917,  attaches  to  time  drafts  coA^ering  articles  shipped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone, 
and,  although  time  drafts  coA'ering  shipments  to  the  Virgin  Islands,  the  Philippine 
Islands,  and  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles 
shipped  to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or  Porto 
Rico  must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified. 
(T.  D.  2782;  Dec.  24,  1918.) 

General  rule  that  time  drafts  are  subject  to  stamp  tax  imposed  by  act  of  October 
3,  1917,  when  delivered  within  territorial  jurisdiction  of  United  States,  and  not 


486  PAECEL  POST — PARENT   AND   CHILD. 

Stamp  tax  on  drafts — Continued, 
otherwise,  is  applicable  to  time  drafts  used  between  the  territorial  jurisdiction  of 
the  United  States  (including  the  States,  the  District  of  Columbia,  the  Territory  of 
Hawaii,  and  the  Territory  of  Alaska),  and  the  Canal  Zone,  Philippine  Islands,  the 
Virgin  Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.  (T.  D.  2795; 
Feb.  26,  1919.) 

Transportation  tax. 

Transportation  of  property  by  water  from  port  of  the  United  States  to  Porto  Rico, 
Philippine  Islands,  the  Virgin  Islands,  and  the  Canal  Zone  is  not  subject  to  trans- 
portation tax  imposed  by  section  500  of  act  of  October  3,  1917;  rail  transportation  of 
property  from  interior  point  in  United  States  for  transshipment  to  Philippine 
Islands,  Porto  Rico,  and  Virgin  Islands  is  transportation  of  property  "consigned 
from  one  point  in  the  United  States  to  another,"  but  is  exempt  from  internal-revenue 
taxes  by  reason  of  special  acts  of  Congress;  such  transportation  of  property  destined 
to  the  Canal  Zone  is  not  exempt.     (T.  D.  2795;  Feb.  26,  1919.) 

PARCEL  POST. 

Stamp  taxes. 

Parcel-post  packages  mailed  in  this  country  to  Porto  Rico  and  such  packages 
mailed  in  Porto  Rico  to  other  points  therein  are  not  subject  to  stamp  tax.  (T.  D. 
2599;  Dec.  3,  1917.) 

PARENT  AND  CHILD. 
Admissions. 

Tax  imposed  by  section  700  of  the  act  of  October  3,  1917,  on  the  admission  of 
children  under  12  years  of  age,  must  be  collected  in  all  cases  at  the  full  rate  of  1 
cent  for  each  10  cents  or  fraction  thereof,  except  where  distinctive  tickets  are  issued 
for  children  imder  12  years,  or  tickets  for  their  use  are  indelibly  stamped  to  show 
that  they  are  good  only  for  the  admission  of  children  under  12  years,  or  vv^here,  in 
absence  of  tickets,  tax  is  paid  at  time  of  admission  of  children  under  12  years; 
children  under  12  years  of  age  when  admitted  free  are  not  taxable.  (T.  D.  2681; 
Mar.  26,  1918.) 

Children  under  12  years  of  age  when  admitted  free  are  not  taxable  under  section 
700  of  the  act  of  October  3,  1917.     (T.  D.  2681;  Mar.  26,  1918.) 

Income  taxes — Deduction  of  allowances. 

As  a  rule,  allowances  which  father  gives  to  his  minor  children,  whether  said  to 
be  in  consideration  of  serAice  or  otherwise,  are  not  allowable  deductions  in  return 
of  income,  nor  are  they  income  to  the  children.     (T.  D.  2690;  art.  8.) 

Exemptions. 

Exemption  of  $200  for  each  dependent  child  provided  by  section  7  of  act  of  Sep- 
tember 8,  1916,  as  amended,  is  given  in  respect  of  income  tax,  and  is,  therefore,  ap- 
plicable under  both  the  act  of  September  8,  1916,  as  amended,  and  the  act  of  Octo- 
ber 3,  1917,  under  same  conditions  of  fact.     (T.  D.  2690;  art.  14.) 

Returns. 

Fiduciaries  acting  for  minors  or  other  incompetents  required  to  make  returns,  in 
cases  arising  under  section  2  (b)  of  the  act  of  September  8,  1916,  as  amended,  when 
income  of  estate  or  trust,  as  an  entity,  is  $1,000  or  over,  return  to  be  made  on  Form 
1040  or  1040A;  fiduciaries  must  make  returns  on  Form  1041  whenever  interests  of 
beneficiary  in  net  income  of  estate  or  trust  is  81,000  or  over  for  an  unmarried  bene- 
ficiary, and  whenever  interest  of  married  beneficiary  is  $2,000  or  over.  (T.  D.  2690; 
art.  27.) 

Fiduciaries  acting  for  minors  or  other  incompetents,  required  to  make  returns 
according  to  marital  status  of  beneficiary;  whenever  interest  of  beueficiaryin  net 
income  of  estate  or  trust  is  $1,000  or  over,  for  an  munarried  beneficiary,  or  in  case 
of  married  beneficiary,  whenever  interest  is  $2,000  or  over,  fiduciaries  are  required 
to  make  return.     (T.  D.  2690;  art.  27.) 

Income  received  by  minor  child  from  sources  other  than  parent  should  be  included 
by  parent  in  his  return;  fact  that  such  income  is  not  aj^propriated  by  parentis 
immaterial;  where  income  is  from  separate  estate  and  parent  has  been  appointed 
guardian,  and  conditions  are  such  that  income  so  received  is  to  be  held  for  use  of 
child,  it  shall  not  be  included  in  parent's  return,  but  shall  be  accounted  for  other-: 
wise  for  piu-poses  of  tax,  in  manner  and  form  as  called  for  by  facts  of  particular  case. 
(T.  D.  2690;  art.  29.) 


PARKS — PARTNERSHIP.  487 

PARKS. 

Outdoor  general  amusement  parks. 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con- 
siderable variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  inclosures  or  on  vacant  lots;  outdoor  amusement  parks  in- 
clude similar  enterprises  conducted  on  piers,  but  not  motion  picture  or  otner  thea- 
ters known  as  "airdromes."     (T.  D.  2681;  Mar.  26,  1918.) 

A  dance  hall  located  within  an  outdoor  general  amusement  park  loses  its  char- 
acter as  an  "amusement  within  an  outdoor  general  amusement  park"  during 
those  seasons  when  the  various  other  amusement  ventures  connected  with  the  park 
are  not  operated,  and  admissions  to  such  a  dance  hall  are  taxable  if  the  charge  for 
admission  exceeds  5  cents.     (T.  D.  2782;  Dec.  24,  1918.) 

Exemption  of  charges  which  are  in  fact  for  privilege  of  using  equipment  in  amuse- 
ment parks  is  intended  to  apply  to  those  cases  where  use  by  the  patron  is  direct, 
personal,  and  independent,  and  therefore  not  to  merry-go-rounds.  (T.  D.  2782; 
Dec.  24,  1918.) 

Zoological  parks. 

Admission  to  public  zoological  parks  and  other  entertainment  enterprises  con- 
ducted by  or  under  direction  of  Government  or  State,  or  political  subdivision  of 
either,  are  not  taxable.     (T.  D.  2681;  Mar.  26,  1918.) 

PARTIAL  PAYMENTS. 

Advance  payments  of  taxes. 

Instructions  mth  reference  to  time  for  making  advance  payments  in  installments 
or  in  whole,  of  income  and  excess-profits  taxes  under  section  1009  of  act  of  October 
3,  1917;  interest  on  payments;  ascertainment  of  fourth  installment;  receipt  to 
taxpayer;  refund  of  excess  payment;  entries  to  be  made  on  specified  forms;  inter- 
est table.     (T.  D.  2622;  Dec.  26,  1917.    T.  D.  2674;  Mar.  18,  1918.) 

Income  taxes — ^Gross  income. 

Where  corporation  sells  property  on  installment  plan,  title  passing  at  time  of  sale, 
again  to  be  returned  as  income  for  year  in  which  sale  was  made,  will  be  excess  of 
contract  price  over  fair  market  price  or  value  as  of  March  1,  1913,  if  property  was 
acquired  prior  to  that  date,  or  of  contract  price  over  cost  if  acquired  subsequent  to 
that  date.     (T.  D.  2690 ;  art.  116.) 

Corporation  selling  merchandise  on  installment  basis,  title  passing  to  vendee  at 
time  of  sale,  will  treat  such  contracts  as  accounts  receivable  and  as  sales  during  the 
year  at  their  face  value,  accounting  for  as  income  the  difference  between  the  cost 
and  sales  price.     (T.  D.  2690;  art.  120.) 

Net  income. 

Where  buyer  of  property  of  corporation  sold  on  installment  plan,  title  passing  at 
time  of  sale,  forfeits  his  contract  and  fails  to  meet  any  of  the  pajnnents  contracted 
to  be  made,  selling  corporation  may  deduct  from  its  gross  income  as  a  loss  such 
proportion  of  defaulted  payments  as  was  previously  returned  as  gross  income.  (T. 
D.  2690;  art.  116.) 

PARTNERSHIP. 
Capital  stock  tax. 

Pennsylvania  partnerships  with  limited  liability  and  similar  so-called  limited 
partnerships  or  partnership  associations  having  perpetual  succession  and  capable  of 
taking  title  to  real  estate  and  suing  in  common  name,  are  subject  to  tax  imposed  by 
act  September  8,  1916,  although  thev  may  not  issue  stock  certificates  to  evidence 
the  shares  of  the  members.     (T.  D.  2750,  art.  2,  Appendix  A;  Aug,  9,  1918.) 

Limited  partnerships  of  the  New  York  type,  having  practically  no  characteristics 
of  a  corporation  or  joint-stock  company  except  limited  liability  as  to  some  of  the 
partners,  are  not  within  scope  of  tax  imposed  by  act  September  8,  1916.  (T.  D. 
2750,  art.  2;  Aug.  9,  1918.) 

Common-law  partnership — Definition. 

Common-law  partnerships  are  not  associations  within  the  meaning  of  the  income- 
tax  law.     (T.  D.  2690;  art.  63.) 


488  PARTNEBSHIP. 

Excess  profits  tax — Computation. 

WTiere  taxpayer  who  is  engaged  in  a  trade  or  business,  net  income  from  which  is 
subject  to  taxation  at  rate  of  8  per  cent,  imposed  by  section  209  of  the  act  of  October 
3,  1917,  makes  return  for  period  of  less  than  12  months,  the  deduction  of  $3,000  or 
$6,000  allowed  under  that  section  will  be  reduced  to  an  amount  which  bears  the 
same  ratio  to  such  full  deduction  as  the  number  of  months  in  the  period  bears  to  12 
months;  this  ruling  applies  only  in  case  of  taxpayer  who  is  entitled  to  make  return 
for  period  of  less  than  a  full  year,  and  is  not  to  be  construed  as  authorizing  a  corpora- 
tion or  partnership  which  has  already  established  fiscal  year  ending  in  1917,  but 
part  of  which  falls  within  1916,  to  compute  the  tax  in  any  other  manner  than  as 
prescribed  in  article  19  of  Regulations  41.     (T.  D.  2689;  Apr.  1,  1918.) 

T\Tiere  taxpayer  who  is  engaged  in  trade  or  business,  net  income  from  which  is 
subject  to  taxation  at  rates  imposed  by  section  201  of  the  act  of  October  3,  1917, 
makes  return  for  period  of  less  than  12  months,  the  invested  capital  used,  in  apply- 
ing the  rates  of  tax,  will  be  an  amount  which  bears  the  same  ratio  to  such  full  aA^erage 
invested  capital  as  the  number  of  months  in  the  period  for  which  the  return  is  made 
bears  to  12  months;  this  ruling  applies  only  in  case  of  taxpayer  who  (because  of 
haA'ing  just  established  a  fiscal  year,  or  of  having  just  organized  or  engaged  in  busi- 
ness, or  for  other  like  reasons)  is  entitled  to  make  return  for  period  of  less  than  full 
year,  and  is  not  to  be  construed  as  authorizing  a  corporation  or  partnership  which 
has  already  established  a  fiscal  year,  ending  in  1917,  but  part  of  which  falls  within 
1916,  to  compute  its  tax  in  any  other  manner  than  as  prescribed  in  article  19  of 
Regulations  41.     (T.  D.  2689;  Apr.  1,  1918.) 

Fiscal  year. 

Partnership  whose  fiscal  year  ended  with  last  day  of  any  month  in  1917  other  than 
December,  may,  not  later  than  30  days  before  March  1,  1918,  give  to  collector  of 
district  in  which  its  principal  place  of  business  is  located,  notice  in  writing  of  date 
thus  fixed  as  closing  of  fiscal  j'ear;  unless  such  notice  is  given,  income  tax  return  for 
purposes  of  excess-profits  tax  shall  be  filed  upon  basis  of  calendar  year  1917. 
(T.  D.  2632;  Jan.  21,  1918.) 

AMiere  partnership  keeps  its  books  upon  basis  of  fiscal  year  ending  on  last  day  of 
any  month  other  than  December  31,  and  it  is  impracticable  to  make  satisfactory 
return  upon  basis  of  calendar  year  collector  may  accept  return  upon  basis  of  its 
fiscal  year,  even  though  notice  was  not  given  not  later  than  30  days  before  March  1, 
1918,  as  prescribed  by  T.  D.  2632;  if  partnership  has  already  filed  return  upon  basis 
of  calendar  vear,  collector  mav  accept  amended  return  upon  basis  of  fiscal  year. 
(T.  D.  2677; "Mar.  23,  1918.) 

• Invested  capital. 

In  determining  liability  under  section  209  of  the  act  of  October  3,  1917,  income 
derived  from  a  single  timber-land  deal  by  a  partnership,  whose  principal  business 
is  dealing  in  lumber,  can  not,  by  reason  of  section  201  of  the  act,  be  considered  and 
treated  separate  and  apart  from  other  partnership  income  or  profits.  (T.  D.  3080; 
Oct.  19,  1920.     Ct.  Dec.) 

The  term  "invested  capital,"  as  used  in  section  209  of  the  act  of  October  3,  1917, 
includes  all  working  capital  consisting  of  money  or  property  employed  in  the  busi- 
ness or  for  its  benefit,  and  furnished  or  paid  in  by  one  or  more  of  the  partners.  (T.  D. 
3080;  Oct.  19,  1920.     Ct.  Dec.) 

Where,  during  the  year  1917,  a  partnership  had  invested  capital,  as  above  defined, 
more  than  nominal  in  amount,  excess  profits  taxes  upon  its  income  could  not  be 
assessed  at  the  lower  rate  proAdded  bv  section  209  or  the  act  of  October  3,  1917. 
(T.  D.  3080;  Oct.  19,  1920.     Ct.  Dec.) 

A  partnership  which  had  invested  capital  more  than  nominal  in  amount  can  not 
complain  of  regulations  promulgated  or  of  the  method  employed  in  determining 
the  amount  of  such  capital,  where  the  arbitary  or  supposititious  invested  capital 
fixed  upon  v.-as  larger  in  amount  than  the  invested  capital  actually  possessed  and 
employed,  and  the  taxes  imposed  Avere  correspondingly  diminished.  (T.  D.  3080; 
Oct.  19,  1920.     Ct.  Dec.) 

Members  of  a  partnership  Avho  are  paid  neither  a  salary  nor  commissions  for  their 
eer\-ices,  but  who  buy  and  sell  lumber  and  undertake  and  assume  all  the  risks  and 
enjoy  all  the  benefits  of  a  merchandising  business,  employing  a  large  amount  of 
capital,  are  not  brokers.     (T.  D.  3080:  Oct.  19,  1920.     Ct.  Dec.) 

Property  of  member  of  partnership  deposited  with  bank  and  pledged  as  collateral 
Becurity  for  the  repayment  of  a  loan  by  or  for  the  benefit  of  the  partnership  in  pur- 
Burance  of  the  articles  of  partnership  is  part  of  the  invested  capital  of  such  partner- 
ship.    (T.  D.  3080;  Oct.  19,  1920.    Ct.  Dec.) 


PARTNEESHIP.  489 

Excess  profits  tax — Continued. 
• Net  income. 

Investments  in  obligations  of  United  States  by  partnership  from  capital,  eurplus, 
or  undivided  profits  will  be  included  in  invested  capital  for  purpose  of  computing 
deduction  and  rate  of  taxation  under  excess-profits  tax  law;  but  undivided  profits 
earned  during  the  taxable  year  can  not  be  included  in  invested  capital.  (T.  D. 
2541;  Oct.  20,  1917.) 

In  any  case  in  which  deduction  provided  for  in  sections  203,  204,  205,  or  210,  of 
acl  of  October  3,  1917,  is  greater  than  15  per  cent  of  the  invested  capital  and  there- 
fore can  not  be  fairly  allowed  under  the  first  rate  or  bracket  of  section  201,  any 
remaining  portion  of  the  deduction  will  be  allowed  under  the  second  bracket  and 
continued  if  necessary  into  succeeding  bracket  or  brackets  until  entire  amount  of 
deduction  is  allowed.     (T.  D.  2602;  Dec.  3,  1917.) 

In  computing  net  income,  partnership  allowed  to  deduct  as  an  expense  reason- 
able salaries  or  compensation  paid  partners  for  personal  serAdces;  as  to  foreign  part- 
nerships deduction  limited  to  those  portions  of  salaries  or  compensation  which  are 
paid  for  ser\ices  rendered  \nth  respect  to  trade  or  business  carried  on  in  United 
States;  partner  in  indi\idual  capacity  is  subject  to  excess-profits  tax,  if  any,  at  the 
8  per  cent  rate  under  section  209  of  act  of  October  3,  1917,  with  respect  to  salary  or 
compensation  from  partnership  for  personal  8er\dces  (including  any  amounts  al- 
lowed to  partnership  as  deduction  for  payment  prior  to  Mar.  1,  1918.)  (T.  D. 
2611;  Dec.  20,  1917.     T.  D.  2612;  Dec.  20,  1917.) 

In  computing  net  income  partnership  will  be  allowed  to  deduct  amounts  paid 
during  year  to  individual  partner  as  interest  upon  any  bona  fide  loan,  but  no  deduc- 
tion for  so-called  interest  upon  capital  will  be  recognized.  (T.  D.  2613;  Dec.  20, 
1917.) 

• — —  Returns. 

A  partnership,  entitled  to  make  return  for  period  of  less  than  full  year,  will  be 
required  to  make  such  return  if  the  net  income  for  such  period  is  at  the  rate  of  $6,000 
per  year  or  more.     (T.  D.  2689;  Apr.  1.  1918.) 

Partnerships  having  a  net  income  of  $6,000  or  over  required  to  render  returns  for 
purpose  of  excess-profits  tax.     (T.  D.  2690;  art.  30.) 

Taxability. 

A  partner  in  indi\ddual  capacity  not  considered  as  engaged  in  trade  or  business 
with  respect  to  his  share  in  profits  of  partnership,  and  consequently  not  subject  to 
excess-profits  tax  thereon.     (T.  D.  2612;  Dec.  20,  1917.) 

In  case  of  excessive  payments  by  indi\dduals  or  partnerships  amounts  allowed 
should  ordinarily  be  treated  as  partnership  shares  and  would  thus  be  free  from 
excess-profits  tax  to  recipient.     (T.  D.  2696;  Apr.  10,  1918.) 

Income  taxes — Basis. 

Partnership  shall  have  privilege  of  fixing  and  making  return  on  basis  of  fiscal  year; 
if  fiscal  year  (other  than  calendar  year)  ends  in  a  calendar  year  for  which  there  is  a 
rate  of  tax  different  from  the  rate  for  preceding  calendar  year,  each  partner's  share 
of  partnership  profits  shall  be  divided  in  proportion  of  different  calendar  years  com- 
posing said  fiscal  year,  and  rate  of  tax  for  respective  calendar  years  shall  apply  to 
that  part  of  such  profits  as  thus  falls  within  said  calendar  years;  partnership  may 
designate  last  day  of  any  month  as  close  of  fiscal  year,  and  in  each  case  where  fiscal 
year  differs  from  calendar^  year  partnership  shall,  not  less  than  30  days  prior  to 
March  1,  give  notice  in  writing  to  collector  that  day  thus  designated  is  closing  day 
of  fiscal  year.     (T.  D.  2690;  art.  31.) 

The  income-tax  law  of  1913  is  so  framed  as  to  deal  with  gains  and  profits  of  a 
partnership  as  if  they  were  the  gains  and  profits  of  the  individual  partners. 
(T.  D.    2858;  June  9, 1919.    Ct.  Dec.) 

Exemptions. 

< 'haracter  of  partnership  profits  divisible  between  persons  has  no  reference  (except 
as  otherwise  specially  provided  for  in  section  8  (e )  of  the  act  of  September  8,  1916,  as 
amended)  to  any  character  which,  as  income  accruing  to  partnership,  it  may  have 
borne  prior  to  receipt  by  partnership,  and  hence,  with  exception  noted,  income  re- 
ceived by  partnership  can  not  be  traced  to  source  beyond  partnership  for  purpose  of 
claiming  individual  exemption.     (T.  D.  2690;  art.  30.) 

When  income  of  partnership  is  taxable  to  individual  partners,  as  under  present 
income-tax  law,  each  partner  is  treated  as  owner  of  proportionate  part  of  Liberty 
loan  bonds  held  by  partnership  and  entitled  to  exemption  on  account  of  such 
ownership  as  if  such  partner  owned  such  proportionate  part  of  bonds  directly.  (T.  D. 
2762;  Oct.  18,  1918.) 


490  PAKTNERSHIP. 

Incoine  taxes — Continued. 

Exemptions — Continued. 

When  income  of  partnership  is  taxable  to  partnership  as  such,  as  under  present 
excess-profits  tax  law,  partnership  is  treated  as  owner  of  Liberty  loan  bonds  held 
by  it  and  entitled  to  exemption  from  taxes  assessed  upon  income  of  partnership  as 
such.     (T.  D.  2762;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  upon  individual  partner  on  share  of  partnership 
income  such  partner,  if  partner  at  time  of  original  subscription  by  partnership  for 
bonds  of  Fourth  Liberty  Loan,  is  treated  as  original  subscriber  for  proportionate 
part  of  such  bonds  and  is  entitled  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues,  as  if  he  had  subscribed  dii'ectly  for  such  proportionate  part.  (T.  D. 
2762;  Oct.  18,  1918.) 

With  reference  to  tax  assessed  to  partnership  upon  partnership  income  as  a  whole, 
such  partnership  is  original  subscriber  and  entitled  to  collateral  exemption  of 
interest  on  Libertv  bonds  of  pre-vious  issues  on  account  of  such  original  subscription 
for  bonds  of  Fourth  Liberty  Loan.     (T.  D.  2762;  Oct.  18,  1918.) 

— —  Imposition  of  tax. 

Partnerships,  as  such,  are  exempt  from  income  tax  on  net  income;  partners  must 
include  respective  shares  of  partnership  income  (whether  distributed  or  not)  in  re- 
turns required  of  each  partner;  section  8  (e)  prescribes  method  of  computation  for 
both  partnerships  and  partners  for  purpose  of  income  tax.     (T.  D.  2690;  art.  3.) 

Salaries,  etc.,  and  rents  paid  by  domestic  corporations,  resident  individuals,  or 
partnerships,  to  nonresident  alien  employees  for  services  rendered  entirely  in  a 
foreign  country  and  for  property  located  in  a  foreign  country,  are  not  subject  to 
deduction  and  withholding  of  the  normal  tax,  and  such  payments  of  income  will 
not  be  subiect  to  tax  in  hands  of  recipient  as  from  source  within  United  States. 
(T.  D.  2690;  art.  32.) 

ITet  income. 

Premiums  paid  on  life  insurance  policies  covering  lives  of  officers,  employees,  or 
those  financially  interested  in  any  business  conducted  as  a  partnership,  or  by  an 
individual,  shall  not  be  deducted  in  computing  net  income  of  such  individual  or  in 
comouting  profits  of  such  partnership  for  purpose  of  paragraph  (e)  of  section  8  of  the 
act  of  September  8,  1916,  as  amended.     (T.  D.  2690;  art.'^SO.) 

WTiere  result  of  partnership  operation  is  a  net  loss,  loss  will  be  divisible  between 
partners  in  same  proportion  as  net  income  would  have  been  divisible,  and  may  be 
used  by  individual  partners  in  their  returns  of  income.     (T.  D.  2690;  art.  30.) 

Amount  of  dividends  received  by  partners  shall  be  allowed  as  a  credit  for  purpose 
of  computing  normal  income  tax.     (T.  D.  2690;  art.  30.1 

Amounts  expended  by  partnerships  engaged  in  business,  in  paying  all  or  portions 
of  regular  compensation  of  officers  or  employees,  who  have  for  all  or  part  of  the  period 
of  the  war  joined  the  naval  or  military  forces  of  the  United  States,  or  have  under- 
taken services  for  the  Government  at  reduced  or  nominal  compensation,  constitute, 
during  the  continuance  of  the  war,  ordinary  and  necessary  expenses  of  doing  busi- 
ness and  are  allowable  as  deductions  in  computing  net  income.  (T.  D.  2660;  Mar. 
1,  1918.) 

Member  of  partnership  need  not  include  as  part  of  net  income  subject  to  normal 
tax,  income  tax  law  of  1913,  such  of  his  income  derived  from  or  through  a  partner- 
ship as  has  been  I'eceived  by  partnership  in  shape  of  dividends  on  stocks  owned  by 
it  in  corporations  taxable  upon  their  net  income.  (T.  D.  2858;  June  9,  1919. 
Ct.  Dec.) 

Member  of  firm  engaged  in  business  of  manufacturing  is  not  entitled  under  Sec- 
tion II,  subdivision  B,  act  October  3,  1913,  to  deduct  from  his  gross  income  loss 
sustained  from  sale  of  shares  of  stock.     (T.  D.  3029;  June  19,  1920.     Ct.  Dec.) 

The  language  "losses  *  *  *  incurred  in  trade,"  as  used  in  Section  II,  sub- 
division B,  act  of  October  3,  1913,  means  losses  incurred  in  the  actual  business  of 
the  taxpayer  as  distinguished  from  isolated  transactions.  (T.  D.  3029;  June  19, 
1920.     Ct.  Dec.) 

Returns. 

Income  of  partnership  accrues  to  individual  partner  at  time  his  distributive 
interest  is  determined ;  retiirns  by  individuals  should  include  incomes  accruing  from 
business  of  partnerships  for  business  years  of  partnerships  as  may  have  been  defi- 
nitely ascertained  by  means  of  book  balance,  whether  distributed  or  not;  partners 
must  make  returns  of  income  as  individuals,  for  calendar  year,  and  should  include 


PARTNERSHIP.  491 

Income  taxes — Continued. 

Returns — Continued. 

their  interest  in  profits  ascertained  at  end  of  business  year  falling  -within  calendar 
year  for  which  individual  return  is  being  rendered.     (T.  D.  2690;  art,  4.) 

Individuals  entitled  to  share  in  partnership  net  income  required  to  include  in 
their  returns  their  respective  shares  of  such  net  income,  whether  distril)Uted  or  not; 
partners  will  exclude  such  part  of  net  income  as  may  have  been  received  by  part- 
nership from  sources  exempt  iron  tax  under  section  4  of  the  act  of  September  8, 1916, 
as  amended,  and  which  shall  have  been  included  by  partnership  in  its  statement  of 
net  income  distributed  to  partners;  partners  shall  include  proportionate  share  of 
partnership  net  income  derived  from  dividends.     (T.  D.  2690;  art.  30.) 

When  it  shall  appear  from  disclosure  that  actual  owner  of  stock  of  domestic  cor- 
poration or  resident  alien  corporation  ls  nonresident  alien  partnership,  all  certifi- 
cates making  disclosure  shall  be  transferred  to  the  commissioner  for  information  of 
collector,  but  no  return  will  be  made  by  such  partnership,  and  no  amount  will  be  re- 
tained by  the  representative  of  such  partnership  in  the  United  States,  unless  and  until 
such  representative  shall  be  so  instructed  by  the  commissioner.    (T.  D.  2690;  art.  32  ) 

Time  for  filing  returns  extended  to  August  15,  1919,  as  to  partnerships  and  per 
sonal  service  corporations  having  fiscal  year  ended  January  31,  February  28,  March 
31,  or  April  30,  1919.     (T.  D.  2383;  July  9,  1919.) 

Return  of  partnership  shall  be  o|)en  to  inspection  by  officers  and  employees  of 
Treasury  Department  whose  official  duties  require  such  inspection  and  by  the 
Solicitor  of  Internal  Revenue;  and  by  any  indi-vidual  (or  his  duly  constituted 
attorney  in  fact  or  legal  representative)  who  was  member  of  such  partnership  during 
any  part  of  time  covered  by  the  return,  upon  satisfactory  evidence  of  such  fact 
being  furnished.     (T.  D.  2961;  Jan.  7,  1920.) 

Copy  of  income  return  may  be  furnished  by  the  Commissioner  to  person  who 
made  the  return  or  to  his  duly  constituted  attorney,  or  if  person  is  deceased,  to  his 
executor  or  administrator,  or,  if  entity  is  in  hands  of  receiver,  trustee  in  bankruptcy, 
guardian,  or  similar  legal  custodian,  to  the  receiver  or  other  custodian  upon  written 
application  for  same,  accompanied  by  satisfactory  evidence  that  applicant  comes 
within  this  provision;  "person  who  made  the  return,"  as  herein  used,  refers  in  case 
of  an  individual  return  to  the  indi^ddual  whose  return  is  desired,  and  in  case  of 
return  of  corporation,  etc.,  or  fiduciary,  to  the  corporation,  etc.,  or  fiduciary,  a 
copy  of  whose  return  is  desired;  corporation  may  also  designate  officer  or  individual 
to  whom  copy  made  by  corporation  may  be  furnished,  and  upon  sufficient  evidence 
of  such  action  and  of  identity  of  officer  or  individual,  copy  may  be  furnished  to 
such  person;  copy  of  partnership  return  will  be  furnished  to  partners  only  in  case 
all  the  partners  join  in  the  request  therefor,  and  if  partnership  has  been  dissolved 
the  members  sm'vi\ing  may  be  furnished  a  copy  if  all  the  members  surviving  join 
in  the  request.     (T.  D.  2962;  Jan.  7,  1920.) 

Withliolding  normal  tax. 

Form  1001,  revised,  shall  be  used  when  personal  exemption  is  claimed  against 
interest  on  bonds  containing  tax-free  covenant  by  citizens  or  residents  of  United 
States,  and  when  presenting  coupons  from  bonds  not  containing  tax-free  covenant ; 
by  domestic  partnerships,  corporations,  or  associations;  by  nom-esident  alien  ])art- 
nerships;  and  by  foreign  corporations  having  office  or  place  of  business  in  United 
States,  whether  or  not  such  bonds  contain  tax-free  covenant.  In  case  citizens  or  resi- 
dent individual  receives  interest  on  bond  containing  tax-free  covenant  in  excess 
of  amount  of  personal  exemption  which  individual  may  claim,  any  such  excess  must 
be  reported  on  Form  1000,  revised.     (T.  C.  2690;  art.  43.) 

Limited  partnership — Definition. 

Limited  partnership  in  partnership  having  one  or  more  special  partners  who  may 
share  in  profits  of  firm  but  whose  liability  for  debts  of  company  is  limited  to  amount 
of  capital  invested  by  such  special  partner  or  partners.     (T.  D.  2690;  art.  62.) 

Limited  partnerships  of  the  Pennsylvania  type,  which  offer  opportunity  for  limit- 
ing liability  of  all  the  members,  provide  for  transferability  of  partnership  .shares, 
and  capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are  corpora- 
tions or  joint-stock  companies;  limited  partnerships  of  New  York  type,  which  can 
not  Umit  liability  of  general  partners,  although  special  partners  enjoy  limited  lia- 
bility so  long  as  they  observe  statutory  conditions,  and  which  are  dissolved  by  death 
or  attempted  transfer  of  interest  of  general  partner,  and  which  can  not  take  real 
estate  or  sue  in  partnership  name,  are  partnerships;  in  doubtful  cases  Limited  part- 
nerships Avill  be  treated  as  coiporations  unless  they  submit  satisfactory  proof  that 
they  are  not  in  effect  so  organized.     (T.  D.  2711;  May  9,  1918.) 


492  PASSENGER  TEANSPORTATION — PATENTS. 

"Person"  includes,  "when. 

The  word  ''person"  within  Regulations  No.  40,  Part"  1,  relating  to  etamp  taxps  on 
Bales  and  transfers  of  shares  of  stock  and  like  securities,  includes  the  plural  as  well  as 
the  singular,  and  shall  be  taken  to  refer  to  individuals,  partnerships,  associations, 
and  corporations,  except  where  it  is  plain  from  the  context  that  different  meaning  is 
intended.     (T.  D.  2608;  Nov.  30,  1917.) 

Wine  makers. 

Wines  made  by  a  partnership  or  those  produced  by  a  winery  owned  and  operated 
by  several  heads  of  families  jointly  are  not  exempt  from  tax  under  section  402 
(b)  of  act  September  8,  1916,  as  being  for  family  use.     (T.  D.  2765;  Oct.  21,  1918.) 

PASSENGER  TRANSPORTATION. 

See  "Transportation  Tax."- 


Places  of  entertainment. 

See  "  Admissions. "- 


PASSES. 


PATENTS. 


Excess  profits  tax — Invested  capital. 

Patents  paid  in  for  stock  or  shares  must  be  valued  at  either  actual  cash  value  at 
the  time  of  pavment  or  the  par  value  of  the  stock  or  shares  issued  therefor,  whichever 
1=:  lower.     (T.'D.  2694;  art.  56.) 

liules  governing  cases  where  stock  or  shares  (or  stock  or  shares  and  bonds  or  other 
obligations)  have,  prior  to  March  3,  1917,  been  issued  for  a  mixed  aggregate  of  tan- 
gible property,  patents  and  copyrights,  and  good  will  or  other  intangible  property, 
stated.     (T.  D.  2694;  art.  59.) 

Subject  to  limitations  stated  invested  capital  of  individual  is  measured  by  total 
of  actual  cash  paid  into  trade  or  business,  tangible  property  paid  into  trade  or  busi- 
ness, patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises, 
and  other  tangible  property.     (T.  D.  2694;  art.  66.) 

Patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises  and 
other  similar  intangible  assets  may  be  included  in  invested  capital  at  value  not  to 
exceed  actual  cash  paid  therefor,  or  actual  cash  value  at  time  of  jjayment  of  tangible 
property  paid  therefor,  but  only  if  bona  fide  payment  was  made  therefor  specifi- 
cally as  such  in  cash  or  tangible  property.     (T.  D.  2694;  art.  68.) 

Income  taxes — ^Net  income. 

(Jorporation  disposing  of  patents  by  sale  should  determine  profit  or  loss  arising 
therefrom  by  computing  difference  between  selling  price  and  the  cost  or  value  as 
of  March  1,  1913,  if  acquired  before  that  date;  apparent  profit  or  loss  should  be  in- 
creased or  decreased,  as  case  may  be,  by  amounts  deducted  since  March  1, 1913,  as 
return  of  capital  invested  in  such  patents.     (T.  D.  2690;  art.  109.) 

Owner  of  patent  may  deduct  from  gross  income  each  year,  until  capital  invested 
therein  is  extinguished,  sum  ascertained  by  dividing  cost  of  patent  by  number  of 
years  constituting  its  life  or  bv  number  representing  years  of  its  life  remaining  after 
date  of  acquirement.     (T.  D.  2690;  art.  113.) 

Royalties  received  in  accordance  with  contract  by  which  corporation  has  assigned 
patent  rights  to  manufacture  machines,  etc.,  are  income  and  should  be  so  accounted 
for.     (T.  D.  2690;  art.  113.) 

Corporations  disposing  of  patents  by  sale  should  determine  profit  or  loss  by  com- 
puting difference  between  selling  price  and  value  as  of  March  1,  1913,  if  acquired 
prior  to  that  date,  or  between  selling  price  and  cost,  if  acquired  subsequent  to  such 
date;  profit  or  loss  thus  ascertained  should  be  increased  or  decreased,  as  case  may 
be,  by  amount  deducted  on  account  of  depreciation  of  such  patents  since  March  1, 
1913,  or  since  date  of  purchase  if  acquired  after  that  date.     (T.  D.  2690;  art.  157.) 

Where  a  patent  becomes  obsolete  prior  to  its  expiration,  corporation  may  deduct 
from  gross  income  such  proportion  of  its  original  cost  (less  any  amount  previously 
charged  off)  as  number  of  years  of  its  remaining  life  bairs  to  whole  number  of  years 
intervening  between  date  it  was  acquired  and  date  it  legally  expires.  (T.  D, 
2690;  art.  174.) 


PATENT  MEDICINES — PENALTIES.  493 

Incorae  taxes — Net  income — Continued. 

Deduction  for  any  given  year  for  return  of  capital  invested  in  patents  at  time  of 
iseue  will  be  an  amount  equal  to  one-seventeenth  of  actual  cost,  in  cash  or  its  equiv- 
alent, of  such  patents;  where  patent  has  been  secured  from  Government,  its  coi-t 
will  be  represented  by  various  Government  fees,  cost  of  drawings,  models,  attor- 
ney's fees,  etc.,  actually  paid,  but  where  patent  has  been  purchased  for  cash  con- 
siderationj  amount  paicl  therefor  would  represent  capital  invested  therein;  where 
payment  for  patent  was  made  in  stocks  or  other  securities,  actual  cash  value  of  such 
Btwk  or  securities  at  time  of  purchase  will  represent  cost  or  capital  invested ;  if  pat- 
ent was  purchased  after  part  of  its  life  had  expired,  cost  for  purpose  of  deduction 
for  return  of  capital  ^^•ill  be  ratably  spread  over  remaining  years  of  its  life;  in  deter- 
mining amount  deductible  on  account  of  expiring  life,  only  actual  cost  and  not 
estimated  value  as  of  !March  1,  1913,  or  any  other  date,  will  be  considered.  (T.  D. 
2690;  art.  174.) 

PATENT   MEDICINES. 

See  "Proprietary  Medicines." 

PAYMENT. 
Paying  agents. 

\VhereYer  a  foreign  country  or  foreign  corporation  issuing  bonds  has  appointed  a 
paying  agent  in  this  country,  charged  \vith  duty  of  paying  interest  upon  such  bonds, 
such  agent  shall  be  source  of  information ;  if  such  country  or  corporation  has  no  such 
agent  then  last  bank  or  collecting  agent  in  this  country  shall  be  source  of  informa- 
tion; in  case  of  dividends  on  stock  of  foreign  corporation,  first  bank  or  collecting 
agent  accepting  such  item  for  collection  shall  be  source  of  information.  (T.  D. 
2759;  Oct.  2,  1918.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  citizens  or  residents  of  United  States,  individual  or  fiduciary,  or  by 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  insurance 
companies,  or  partnerships,  ownership  certificate  lOOlA  shall  be  executed  by 
actual  owner,  or  by  his  duly  authorized  agent,  when  presenting  item  for  collection, 
whether  item  is  dividend  or  interest  payment,  except  in  case  of  foreign  country  or 
foreign  corporation  having  paying  agent  in  this  country  and  issuing  bonds  con- 
taining "  tax-free"  covenant  clause;  in  such  cases  paying  agent  will  withhold  normal 
tax  upon  interest  on  such  bonds,  and  ownership  certificate.  Form  1000,  projjcrly 
modified  to  show  that  debtor  has  paying  agent  in  this  country,  should  be  used,  unless 
owner  desiies  to  claim  exemption,  when  Form  lOOlA  should  be  used.  (T.  D.  2759; 
Oct.  2,  1918.) 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall 
accompany  coupon  to  paying  agent  in  this  country,  or  if  there  is  no  such  agent,  then 
to  last  bank  or  collecting  agent  handling  item  in  this  country;  when  more  than  one 
coupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from  same 
issue  of  bonds,  single  certificate  may  be  used;  when  foreign  items  have  been  prop- 
erly indorsed,  certificates  shall  be  attached  and  forwarded  to  Commissioner  of 
Internal  Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of 
month  following  that  during  which  items  were  accepted,  accompanied  by  letter  of 
transmittal,  showing  number  of  certificates  and  aggregate  amount  of  foreign  items 
disclosed  thereon.    "(T.  D.  2759;  Oct.  2,  1918.) 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of 
information,  ownership  certificate  shall  accompany  coupon  to  such  agent  or  source 
of  information,  who  shall  forward  ownership  certificate  to  Commissioner  of  Internal 
ReA'enue,  in  manner  provided  where  duty  is  placed  upon  licensee,  provided  that 
in  case  ownership  certificate.  Form  1000,  is  used,  paying  agent  shall  make  return 
on  Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

Taxes. 

See  specific  heads. 

PEDDLERS. 
Tobacco. 

Act  of  September  7,  1916,  amending  subsection  11  of  BCction  3244,  Revieed  Stat- 
utes, defining  "peddler"  of  tobacco,  published  for  information  of  internal-revenue 
officers  and  others  concerned.     (T.  D.  2376;  Oct.  3,  1916.) 


PENALTIES. 


Violation  of  laws  and  regulations. 
See  specific  heads. 


494         PENNSYLVANIA  PARTNERSHIPS — PERSONAL  INJURIES. 

PENNSYLVANIA  PARTNERSHIPS. 

Capital  stock  tax. 

Pennsylvania  partnerships  with  limited  liability  and  similar  so-called  limited 
partnerships  or  partnership  associations,  ha\ang  perpetual  succession  and  capable 
of  taking  title  to  real  estate  and  suing  in  common  name,  are  subject  to  tax  imposed 
by  act  September  8,  1916,  although  they  may  not  issue  stock  certificates  to  evidence 
the  shares  of  the  members.     (T.  D.  2750,  art.  2,  Appendix  A;  Aug.  9,  1918.) 

PENSIONS. 
Income  taxes. 

Pensions  paid  by  United  States,  private  institutions,  or  individuals  are  to  be 
accounted  for  in  all  cases  where  income  of  pensioner  is  liable  for  income  tax.  (T.  D. 
2690;  art.  4.) 

Amounts  paid  for  pensions  to  retired  employees  or  to  their  families  or  others 
dependent  on  them,  or  on  account  of  injuries  received  by  employees,  or  lump-sum 
amounts  paid  as  compensation  for  injuries,  are  proper  deductions  as  ordinary  and 
necessary  expenses;  such  deduction  shall  be  limited  to  amount  not  compensated  for 
by  insurance  or  otherwise;  no  deduction  shall  be  made  for  contributions  to  pension 
fund  resources  of  which  are  held  by  corporation,  amount  deductible  in  such  case 
being  amount  actually  paid  to  employee.     (T.  D.  2690;  art.  136.) 

PERFUMERY. 

See  "Toilet  Preparations." 

PERISHABLE   PROPERTY. 

Sales  by  carriers. 

If  perishable  consignment  be  sold  under  emergency  conditions  for  benefit  of 
whom  it  may  concern,  net  amount  realized  therefrom  shall  be  considered  transpor- 
tation charge,  and  3  per  cent  tax  shall  apply  to  such  amount  and  be  paid  by  the 
purchaser;  provided,  however,  that  if  such  amount  be  in  excess  of  actual  trans- 
portation charges  tax  shall  not  apply  to  such  excess.     (T.  D.  2676;  Mar.  18,  1918.) 

PERSON. 

Definition. 

The  word  "person"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes 
on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  the  plural  as 
well  as  the  singular,  and  shall  be  taken  to  refer  to  individuals,  partnerships,  asso- 
ciations, and  corporations,  except  where  it  is  plain  from  the  context  that  different 
meaning  is  intended.     (T.  D.  2608;  Nov.  30,  1917.) 

The  word  "person"  within  Regulations  No.  40,  Part  2,  relating  to  stamp  taxes 
upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  includes 
the  plural  as  well  as  the  singular,  and  refers  to  individuals,  partnerships,  associa- 
tions, and  corporations,  except  where  it  is  plain  from  the  context  that  different 
meaning  is  intended.     (T.  D.  2608;  Nov.  30.  1917.) 

Term  "person,"  when  used  in  Regulations  No.  38,  includes  such  partnerships, 
corporations,  or  associations  as  are  engaged  in  manufacture  in  the  United  States 
and  in  the  sale  or  disposition  of  articles  enumerated  in  section  301  of  Title  III 
of  the  act  of  September  8,  1916,  or  parts  thereof.     (T.  D.  2384;  art.  1.) 

PERSONAL  INJURIES. 

Income  taxes — Damages. 

Amount  received  as  result  of  suit  or  compromise  for  personal  injury,  being  similar 
to  proceeds  of  accident  insurance,  must  be  accounted  for  as  income.  (T.  D.  2G90; 
art.  4.) 

Amount  received  by  individual  as  result  of  suit  or  compromise  for  personal  in- 
jvu*ies  sustained  by  him  through  accident  is  not  income  taxable  under  Title  I  of  act 
September  8,  1916,  as  amended  by  Title  XII  of  act  October  3,  1917,  and  of  Title 
I  of  act  October  3,  1917.    (T.  D.  2747;  July  12,  1918.) 


PETROLEUM — PHAEMACISTS.  495 

Incoine  taxes — Continued. 

Insurance  policy  proceeds. 

Proceeds  of  accident  insurance  policy  received  by  individual  on  account  of  per- 
sonal injuries  sustained  through  accident  are  not  income  taxable  under  Title  I  of 
act  September  8,  191G,  as  amended  by  Title  XII  of  act  October  3,  1917,  and  of  Title 
I  of  act  October  3,  1917.     (T.  D.  2747;  July  12,  1918.) 

Pensions. 

Amounts  paid  for  pensions  to  retired  employees  or  to  their  families  or  others 
dependent  on  them,  or  on  account  of  injuries  received  by  employees,  or  lump-sum 
amounts  paid  as  compensation  for  injuries,  are  proper  deductions  as  ordinary  and 
necessary  expenses;  such  deduction  shall  be  limited  to  amount  not  compensated 
for  by  insurance  or  otherwise;  no  deduction  shall  be  made  for  contributions  to 
pension  fund  resources  of  which  are  held  by  corporation,  amount  deductible  in 
Buch  case  being  amount  actually  paid  to  employee.    (T.  D.  2690;  art.  136.) 

PETROLEUM. 
See"OU." 

Definition. 

The  word  "oil,  "  aa  used  in  subdivision  (d)  of  section  500  of  the  act  of  October  3, 
1917,  means  crude  petroleum  and  such  of  its  products  as  may  be  transported  by 
pipe  line.     (T.  D.  2676;  Mar.  18,  1918.) 

Jelly — Excise  tax. 

Tax  imposed  by  section  600  (g)  of  the  act  of  October  3,  1917,  is  2  per  cent  of  price 
for  which  petroleum  jellies  are  sold  by  manufacturer.     (T.  D.  2719;  Art.  XVIIl.) 

Transportation — Application  of  tax. 

Where  a  person,  corporation,  partnership,  or  association,  engaged  in  business 
for  the  account  of  himself  or  itself,  transports  oil  by  pipe  line  and  at  times  for  hire 
furnishes  such  faciUty  for  the  account  of  any  other  person,  corporation,  partner- 
ship, or  association,  the  one  furnishing  such  facility  is  a  carrier  mtliLn  the  meaning 
of  the  word  as  used  in  Title  V  of  the  act  of  October  3,  1917,  and  tax  imposed  by 
section  501  applies,  whether  for  his  or  its  account  or  for  the  account  of  others;  when 
facility  is  used  exclusively  for  transporting  property  of  proprietor  and  not  for  hire 
proprietor  is  not  a  carrier."  (T.  D.  2676;  Mar.  18,  1918.) 

■ Computation  of  tax. 

Where  proprietor  of  pipe  line  at  times,  for  hire,  transports  oil  of  another,  basis  of 
computation  of  tax  shall  be  current  lawful  rates  of  carrier  and  in  absence  thereof, 
current  lawfid  rates  of  carriers  for  like  service;  if  basis  of  tax  can  not  be  readily 
determined  in  manner  stated  facts  should  be  forthwith  reported  by  carrier  to  Com- 
missioner of  Internal  Revenue  for  his  determination.     (T.  D.  2676";  Mar.  18,  1918.) 

PHARMACISTS. 
Alcohol. 

Preparations  such  as  aromatic  elixirs,  tincture  of  aromatica  and  similar  prepara- 
tions used  by  physicians  and  pharmacists  principally  as  vehicles,  even  though 
potable,  may  be  sold  in  good  faith  for  legitimate  uses  "without  pa\TQent  of  special 
tax,  provided  thev  are  made  in  conformity  with  U.  S.  P.  or  N.  F.  (T.  D.  2760; 
Oct.  9,  1918.     T.  b.  2788;  Feb.  6,  1919.) 

Use  of  alcohol  by  manufacturing  chemists  or  flavoring  extract  manufacturers  re- 
covered from  dregs  or  marc  of  percolation  or  extraction  in  any  other  manner  than 
that  prescribed  by  section  3246,  Revised  Statutes,  as  amended  by  act  March  3, 
1915,  without  payment  of  special  tax,  will  not  be  permitted.  (T.  D.  2760;  Oct. 
9,  1918.) 

Apothecaries  will  not  be  charged  with  liability  to  special  tax  on  account  of  sale 
in  quantities  not  exceeding  one  pint  of  alcohol  for  bathing  or  antiseptic  purposes, 
provided  it  is  compounded  prior  to  sale,  but  not  in  bulk  or  in  advance  of  orders,  in 
such  manner  as  to  make  it  unfit  for  use  as  beverage;  approved  formulas  for  purpose 
of  rendering  alcohol  unfit  for  beverage  stated;  containers  of  alcohol  treated  in  such 
manner  must  bear  "poison"  labels.     (T.  D.  2760;  Oct.  9,  1918.) 

Where  nonbeverage  alcohol  is  used  in  manufacture  of  U.  S.  P.  or  N.  F.  prepara- 
tions, such  as  aromatic  elixirs,  tincture  of  aromatica,  etc.,  container  must  bear  label 


496  PHARMACISTS. 

Alcohol — Continued . 
upon  which  shall  appear  prescribed  statement.     (T.  D.  2760;  Oct.  9,  1918.     T.    D. 
2788,  Feb.  6,  1919.) 

Apothecaries  who  make  sales  of  alcoholic  liquors  not  compounded  in  such  man- 
ner as  to  render  them  unfit  for  beverage  purposes,  even  though  under  physicians' 
prescriptions  and  for  purely  medicinal  purposes,  will  be  held  liable  to  special  tax; 
such  persons  should,  for  their  own  protection,  see  that  prescriptions  requu'ing  use  of 
alcoholic  liquors  also  show  other  ingredients  added  and  rendering  compounds  unfit 
iiji-  beverage  use.     (T.  D.  2760;  Oct.  9,  1918.) 

A  pharmacist  is  in  no  sense  a  denaturer  of  alcohol.     (T.  D.  2576;  Nov.  10,  1917.) 

Pharmacists  who  hold  permit  and  have  given  bond  permitted  to  sell  nonbeverage 
al(?ohol  without  physician's  prescription  to  persons  who  do  not  hold  permits  and 
who  have  not  given  bonds,  in  quantities  not  exceeding  1  pint,  but  not  in  advance 
of  orders,  provided  they  first  medicate  same  in  accordance  with  any  one  of  certain 
formulas;  container  of  such  alcohol  to  bear  "Poison' '  label.  (T.  D,  2576;  Nov.  10, 
1917;  T.  D.  2788,  Feb.  6,  1919.) 

So-called  nonbeverage  alcohol  taxable  at  rate  of  $2.20  per  proof  gallon  must  not 
be  dispensed  under  physician's  prescription,  unless  in  compounding  thereof  same 
is  so  medicated  as  to  render  it  absolutely  unfit  for  use  as  a  beverage;  in  case  of  pre- 
scription compounding  druggist  will  be  held  responsible  as  to  sufficiency  of  medica- 
tion.    (T.  D.  2593;  Nov.  27,  1917.) 

Every  physician  or  other  person  desiring  to  purchase  or  use  homeopathic  attenua- 
tions, potencies,  or  dilutions,  or  nonbeverage  alcohol  for  making  same,  must  qualify 
by  filing  bond  and  obtaining  permit  except  that  homeopathic  physician  or  any 
other  person  may  obtain  from  pharmacist  not  exceeding  2  drachms  of  any  attenua- 
tion, etc.,  at  one  time  without  filing  bond  and  obtaining  permit;  physician  may 
dispense  such  attenuations,  etc.,  in  quantities  ordinarily  prescribed  to  patients 
and  such  patients  need  not  file  bonds  or  hold  permits.  (T.  D.  -2699;  Apr.  16,  1918. 
T.  D.  2788;  Feb.  6,  1919.) 

Homeopathic  pharmacists,  in  order  to  obtain  and  use  nonbeverage  alcohol  in 
manufacture  of  potencies,  attenuations,  or  dilutions,  or  sell  the  same,  required  to 
make  application  and  obtain  permit  and  give  bond  in  same  manner  as  any  other 
user  or  dealer  in  nonbeverage  alcohol  (see  T.  D.  2559  and  T.  D.  2576);  such  pharma- 
cists in  order  to  obtain  and  use  nonbeverage  alcohol  must  under  all  circumstances 
qualify  by  filing  bond  and  obtaining  permit  regardless  of  manufacture  and  sale  of  the 
dilutions.     (T.  D.  2699;  Apr.  16,  1918.     T.  D.  2788:  Feb.  6,   1919.) 

Special  tax  must  be  paid  as  retail  or  wholesale  liquor  dealer  by  homeopathic 
pharmacist  covering  sale  of  nonbeverage  alcohol  and  dilutions.  (T.  D.  2699;  Apr. 
16,  1918.) 

Homeopathic  pharmacists  who  ai"e  unwilling  to  take  out  permits  and  give  bonda 
required  may  purchase  and  use  beverage  alcohol  produced  from  materials 
fermented  prior  to  11  o'clock  p.  m.,  September  8,  1917,  and  taxable  at  the  bever- 
age rate.     (T.  D.  2G99;  Apr.  16,  1918.     T.  D.  2788;  Feb.  6,   1919.) 

Such  United  States  Pharmacopoeia  or  National  Formulary  preparations  as  aro- 
matic elixirs,  tincture  of  aromatic,  and  similar  preparations,  which  are  used  by  phy- 
sicians and  pharmacists  principally  as  vehicles,  and  which  are  potable,  may  be  made 
with  nonbeverage  alcohol  and  sold  in  good  faith  for  legitimate  uses;  container  to 
bear  .stated  label.     (T.  D.  2699;  Apr.  16,  1918.     T.  D.  2788;  Feb.  6.  1919.) 

Distilled  spirits. 

Permits  to  use  or  sell  distilled  spirits  for  other  than  beverage  purposes  will  not 
be  issued  to  retail  liquor  dealers,  except  pharmacists  and  such  other  retail  dealers 
as  do  not  sell  beverage  spirits.     (T.  D.  2576;  Nov.  10,  1917.) 

All  distilled  spirits  in  possession  of  manufacturing  chemists,  pharmacists,  or  any 
other  person  held  for  sale,  although  not  for  sale  as  distilled  spirits  on  October  4,  1917, 
are  subject  to  additional  floor  tax  at  $1.10  or  $2.10  per  proof  gallon,  as  case  may  be; 
distilled  spirits  in  possession  of  manufacturers  on  October  4,  1917,  which  in  legiti- 
mate processes  of  manufacture  had  been  rendered  unfit  for  use  as  beverages  are  not 
eubject  to  additional  floor  tax.  (T.  D.  2566;  Oct.  27,  1917.  Overruled,  T.  D.  2643; 
Jan.  28,  1918.) 

Apothecaries  are  allowed  to  carry  distilled  spirits  and  ^vine  in  stock  and  use 
them  in  preparation  of  tinctures  and  other  U.  S.  P.  preparations  and  in  compounding 
of  bona  fide  prescriptions  without  paying  special  tax.     ( T.  D.  2760;  Oct.  9,  1918. ) 

Any  licensed  pharmacist  or  druggist  may  fill  physicians'  prescriptions  (1 )  if 
his  name  appears  on  the  prescription  in  the  physician  e  handwriting,  and  (2;  if 


PHEXACETIX — PHILIPriNE  ISLANDS.  497 

Distilled  spirits — Continued, 
he  has  made  application  and  rcLoived  permit,  Fonn  737,  in  accordance  with  y)ro- 
vifioiisof  T.  D.  2788.  and  (3"i  if  he  has  qualified  as  retail  liquor  dealer  by  payment  of 
special  tax;  no  such  prescription  may  be  refilled.     (T.  P.  2881;  July  3,"l9!!».  1 

Druggist  iilliug  physicians"  prescriptions  shall  preserve  in  separate,  carefully 
guarded  file  one  copy  of  every  prescription  filled  and  once  a  month  shall  transmit 
to  collector  a  list  showing  names  of  physicians,  names  of  patients,  and  total  quantity 
dispensed  to  each  patient  during  the  month;  whenever  jjhysician  is  prescribing 
more-than  normal  quantities,  or  any  patient  is  procuring  more  than  normal  quan- 
tity, collector  shall  report  f:^,cts  to  Commissioner  and  the  -Ignited  States  attorney. 
(T'  D.  2881;  July  3,  1919.) 

Pharmacists  should  refuse  to  fill  prescriptions  if  they  have  reason  to  belie\e 
that  physicians  are  dispensing  for  other  than  strictly  legitimate  medicinal  uses, 
or  that  patient  is  securing  quantities  in  excess  of  amount  required  for  lesitimate 
uses.     (T.  D.  2881;  July  3,  1919.  i 

ViTiolesale  or  retail  liquor  dealers  having  stoc-lcs  of  wines  or  liquors  on  hand  may  .sell 
to  pharmacists  holding  peraiit  upon  receipt  of  order  on  Form  739  and  in  conformity 
AvithT-  D.  27S8  until  sujjplies  are  exhausted;  wholesale  or  retail  dealers  who  are 
not  licensed  druggists  or  pharmacists  will  not  be  permitted  to  qualify,  after  their 
present  stocks  are  exhausted,  to  deal  in  either  beverage  or  nonbeverage  spirits. 
(T.  D.  2S81;  July  3,  1919.)  Revoked  in  so  far  as  applicable  to  wholesale  dealers 
who  are  not  licensed  pharmacists  or  druggists.     (T.  T).  2959;  Jan.  5.  1920. ~i 

Nonbeverage  distilled  spirits  or  alcohol  tax  paid  at  rate  of  .$2.20  per  gallon  may 
be  used  in  filling  physicians'  prescriptions  in  accordance  herewith  whether  spirits 
or  alcohol  is  medicated  or  denatured  so  as  to  render  it  unfit  for  be\erage  use  or 
whether  it  is  not  so  medicated  or  denatured;  regulations  or  instructiors  incon- 
sistent herewith  revoked.     (T.  D.  2934;  Oct.  10,  19] 9.) 

Wholesale  pharmacists  may  continue  to  qualify  for  sale  of  Honors  or  wines  for 
nonbeverage  purposes  in  conformity  with  T.  D.  2*^788.     (T.  D.  2881;  July  3,  1919.) 

Excise  taxes. 

Preparations  made  in  accordance  with  formulas  contained  in  United  States  Pharma- 
copoeia and  National  Formulary  by  pharmaceutical  manufacturers,  when  not  held 
out  or  recommended  as  proprietarj-  medicines  or  medicinal  proprietary  articles  or 
preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  but  if  so  held  out  or 
recommended  they  are  taxable  although  not  identified  by  any  name,  trade-mark, 
or  otherwise.     (T.'D.  2719;  Art.  XX.) 

Medicinal  preparation  held  out  or  recommended  as  proprietary  or  as  a  rem.edy 
or  specific  for  disease  is  taxable  (a  i  even  if  sold,  in  first  instance,  only  to  physicians 
and  druggists,  (bj  even  if  a  "bacterin,"'  and  (cj  even  if  an  imcompounded'natural 
substance  merely  dried  or  re'ined,     (T.  D.  2785;  Jan.  23,  1919.) 

Narcotics. 

See  "Narcotics." 
Wines. 

All  wines  used  by  manufacturing  chemist?  or  apothecaries  in  preparations  made 
by  them  and  all  compounds  and  preparations  sold  by  them  as  wines,  howe\er 
specially  designated,  are  subject  to  tax  as  wine.     (T.  D."^  2387;  Oct.  30,  1916.) 

Apothecaries  are  allowed  to  carry  distilled  spirits  and  wine  in  stock  and  use 
them  in  preparation  of  tinctures  and  other  U.  S.  P.  preparations  and  in  compound- 
ing of  bona  fide  prescriptions  without  paying  special  tax.     (T.  D.  2760;  Oct.  9,  1918.) 

WTiolesale  pharmacists  mav  continue  to  qualify  for  sale  of  liquors  or  wines  for  non- 
beA-erage  purposes  in  conformity  \nth  T.  D.  2788.     (T.  D.  2881 ;  July  3,  1919.) 


Denatured  alcohol. 
See  "Alcohol." 

Estate  tax. 


PHENACETIN. 


PHILIPPINE  ISLANDS. 


Section  200  of  the  act  of  September  S.  1916.  defines  the  United  States  as  including 
continental  T'nited  States,  Alaska,  and  Hawaii:  under  this  definition,  property  in 
the  United  States  of  deceased  residents  of  Porto  Rico  or  the  Philippine  Islands 
is  taxable  as  the  property  of  nonresidents,  though  the  tax  is  not  imposed  in  Porto 
Rico  or  the  Philippine  Islands.     (T.  D.  2378;  Art.  II.) 

70420°— 21 32 


498  PHYSICIANS. 

Excise  taxes. 

Taxes  imposed  by  sections  313,  315,  and  600  of  act  of  October  3,  1917,  apply  to 
articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory  or  else- 
where in  the  United  States  than  in  a  State,  and  to  articles  sold  in  commerce  be- 
tween United  States  and  any  of  its  islands  or  other  possessions  except  the  West 
Indian  Islands  acquired  from  Denmark.     (T.  D.  2739;  June  24,  1918.) 

Affidavit  containing  itemized  list  of  articles  sold  in  foreign  commerce  upon  which 
tax  has  been  paid,  giving  names  of  consignees,  destination,  amount  of  tax,  month 
in  which  paid,  and  statement  that  goods  were  actually  delivered  to  consignee  named 
in  a  foreign  country  or  the  Philippine  Islands  or  Porto  Rico,  pursuant  to  sale  by 
claimant  by  one  of  the  methods  recognized  in  T.  D.  2781,  and  that  affiant  has  re- 
ceived advice  to  the  effect,  may  be  accepted  as  satisfactory  evidence  in  support 
of  claim  for  recovery  back  of  excise  taxes  paid  under  Title  VI  of  the  act  of  October 
3,  1917,  in  cases  where  because  of  number  of  shipments  and  small  amount  of  tax 
involved  in  each  it  is  impracticable  to  furnish  copies  of  invoices  covering  goods 
sold,  ship's  receipts,  or  copies  of  through  bills  of  lading.  (T.  D.  2785;  Jan.  23, 
1919.) 

Taxes  imposed  by  sections,  313,  315,  and  600  of  the  act  of  October  3,  1917, 
apply  to  articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory 
elsewhere  in  the  United  States  than  a  State  and  to  articles  going  from  the  United 
States  to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone,  except 
that  under  acts  of  Congress  articles  going  from  United  States  into  the  West  Indian 
Islands,  or  into  the  Philippine  Islands  or  Porto  Rico,  are  exempt  to  same  extent  as 
articles  exported  from  a  State  to  a  foreign  country.     (T.  D.  2781;  Dec.  20,  1918.) 

Stamp  taxes. 

The  stamp  tax  imposed  by  subdivision  (b)  of  Schedule  A  of  the  act  of  October  3, 
1917,  attaches  to  time  drafts  covering  articles  shipped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone,  and, 
although  time  drafts  covering  shipments  to  the  Virgin  Islands,  the  Philippine 
Islands,  and  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles 
shipped  to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or  Porto 
Rico  must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified. 
(T.  D.  2782;  Dec.  24,  1918.) 

General  rule  that  time  drafts  are  subject  to  stamp  tax  imposed  by  act  of  October 
3,  1917,  when  delivered  within  territorial  jurisdiction  of  United  States., _  and  not 
otherwise,  is  applicable  to  time  drafts  used  between  the  territorial  jurisdiction  of  the 
United  States  (including  the  States,  the  District  of  Columbia,  the  Territory  of 
Hawaii,  and  the  Territory  of  Alaska),  and  the  Canal  Zone,  Philippine  Islands,  the 
Virgin  Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.  (T.  D.  2795; 
Feb.  26,  1919.) 

Transportation  tax. 

Transportation  of  property  by  water  from  port  of  the  United  States  to  Porto  Rico, 
Philippine  Islands,  the  Virgin  Islands,  and  the  Canal  Zone  is  not  subject  to  trans- 
portation tax  imposed  by  section  500  of  act  of  October  3,  1917;  rail  transportation 
of  property  from  interior  point  in  United  States  for  transshipment  to  Philippine 
Islands,  Porto  Rico,  and  Virgin  Islands  is  transportation  of  property  "consigned 
from  one  point  in  the  United  States  to  another,"  but  is  exempt  from  internal 
revenue  taxes  by  reason  of  special  acts  of  Congress;  such  transportation  of  property 
destined  to  the  Canal  Zone  is  not  exempt.     (T.  D.  2795;  Feb.  26,  1919.) 

Wine  exportations. 

Domestic  wines  may  be  exported  to  foreign  countries  or  may  be  shipped  to  Porto 
Rico,  the  Philippine  Islands,  and  to  the  Panama  Canal  Zone,  free  of  tax;  like 
exemption,  however,  does  not  apply  to  shipments  to  the  island  of  Guam.  (T.  D. 
2387;  Oct.  30,  1916.)  For  regulations,  see  T.  D.  2416,  Dec.  12,  1916;  T.  D.  2505, 
June  25,  1917. 

PHYSICIANS. 

Excise  tax  on  boats  used  by. 

Boat  used  by  physician  in  visiting  patients  is  not  used  for  trade,  but  for  other 
serious  purpose,  and  is  subject  to  tax  imposed  by  section  603  of  act  October  3,  1917. 
(T.  D.  2753;  Aug.  23,  1918.) 


PHYSICIANS.  499 

Income  tax — Information  at  source. 

Fees  paid  to  doctors  aggregating  less  than  $800  for  the  year  need  not  be  reported. 
(T.  D.  2670;  Mar.  11,  1918.) 

Net  income. 

In  case  of  professional  man  who  rents  properly  for  residential  purposes  but  re- 
ceives there  patients  or  callers  in  connection  with  his  professional  work  (place  of 
business  being  elsewhere),  no  part  of  rent  is  deductible  as  business  expense.  (T.  D. 
2ti!)0;  art.  8.) 

Narcotics. 

Physician  who  furnished  narcotics  to  an  addict  in  decreasing  quantities  and 
claims  to  be  attempting  cure  of  addiction  is  acting  contrary  to  the  act  of  December 
17,  1914,  when  it  is  shown  that  the  physician  has  not  personally  attended  the  addict, 
or  has  given  such  addict  some  personal  attention,  but  not  sufhcient  to  show  that  he 
acted  in  good  faith.     (T.  D.  2887;  .July  12,  1919.     Ct.  Dec.) 

Fact  that  physician  when  "in  the  course  of  his  professional  practice  only"  is 
excepted  from  requirement  that  narcotics  shall  be  dispensed  upon  official  order 
form  does  not  provide  authority  for  physician  to  sell  narcotics,  if  he  does  not  do  so 
in  good  faith,  for  piupose  of  securing  cure  of  one  suffering  from  illness  or  to  cure  him 
of  the  morphine  habit;  the  exception  referred  to  must  be  construed  strictly,  and 
those  who  set  up  any  such  exception  n\ust  establish  it  as  being  within  the  words,  as 
well  as  within  the  reason,  thereof.     (T.  D.  2887;  July  12,  1919.     Ct.  Dec.) 

Physician  who  sells,  dispenses,  or  distributes  500  one-sixth  grain  tablets  of  heroin 
not  in  the  course  of  his  regular  professional  practice  and  not  for  treatment  of  any 
disease  to  person  popularly  known  as  a  "dope  fiend"  for  piupose  of  gratifying  his 
appetite  for  the  drug  as  habitual  user  thereof,  commits  indictable  offense.  (T.  D. 
2809;  Mar.  20,  1919.     Ct.  Dec.) 

Illegal  dispensing  of  narcotics  may  be  made  separate  count  in  indictment  as  to 
each  addict  involved,  and  evidence  may  be  admitted  tending  to  prove  sales  by 
physician  to  persons  other  than  those  mentioned  in  the  indictmenf.  (T.  D.  2887; 
July  12,  1919.     Ct.  Dec.) 

It  is  proper  to  permit  physicians  to  testify  as  experts  as  to  well-recognized  methods 
among  medical  fraternity  of  treating  persons  addicted  to  narcotics  for  purpose  of 
curing  them  of  the  habit,  -vvith  Adew  to  showing  that  physician  did  not  dispense 
narcotics  in  legitimate  manner;  evidence  from  physicians  to  effect  that  unless 
confined  an  addict  is  never  ciu'ed  of  the  habit  properly  admitted.  (T.  D.  2887; 
July  12,  1919.     Ct.  Dec.) 

Physician  who  sells,  gives  away,  or  distributes  500  one-sixth  grain  tablets  of  heroin 
not  in  pm'suance  of  written  order  on  form  issued  on  blank  furnished  by  Commissioner 
of  Internal  Revenue  commits  indictable  offense.  (T.  D.  2809;  Mar.  20,  1919. 
Ct.  Dec.) 

Nonbeverage  alcohol. 

Every  physician  or  other  person  desiring  to  purchase  or  use  homeopathic*  atten- 
uations, potencies,  or  dilutions,  or  nonbeverage  alcohol  for  making  same,  must 
qualify  by  filing  bond  and  obtaining  permit  except  that  homeopathic  physician 
or  any  other  person  may  obtain  from  pharmacist  not  exceeding  two  drachms  of  any 
attenuation,  etc.,  at  one  time  without  filing  bond  and  obtaining  permit;  physician 
may  dispense  such  attenuations,  etc.,  in  quantities  ordinarily  prescribed  to  pa- 
tients, and  such  patients  need  not  file  bonds  of  hold  permits.  (T.  D.  2699;  Apr. 
16,  1918.) 

Homeopathic  physicians  who  are  unwilling  to  take  out  permits  and  give  bonds 
required  may  purchase  and  use  beverage  alcohol  produced  from  materials  fermented 
prior  to  11  o'clock  p.  m.,  September  8,  1917,  and  taxable  at  the  rate  of  $3.20  per 
proof  gallon.    (T.  D.  2699;  Apr.  16,  1918.) 

Such  United  States  Pharmacopoeia  or  Natonal  Formulary  preparations  as  aro- 
matic elixirs,  tincture  of  aromatica,  and  similar  preparations,  which  are  used  by 
Ehysicians  and  pharmacists  principally  as  vehicles,  and  which  are  potable,  may 
e  made  with  nonbeA^erage  alcohol  and  sold  in  good  faith  for  legitimate  uses;  con- 
tainer to  bear  stated  label.     (T.  D.  2699;  Apr.  i6,  1918.     T.  D.  2788;  Feb.  6, 1919.) 

Prescriptions — Alcohol. 

So-called  nonbeverage  alcohol  taxable  at  rate  of  $2.20  per  proof  gallon  must  not 
be  dispensed  under  physician's  prescription,  unless  in  compounding  thereof  same 
is  ao  medicated  as  to  render  it  absolutely  unfit  for  use  aa  a  beverage;  in  case  of  pre- 


500  PHYSICIANS. 

Prescriptions — Alcohol — Continued, 
ecription  compounding  druggist  will  be  held  responsible  as  to  sufficiency  of  medi- 
cation.    (T.  D.  2593;  Nov.  27,  1917.) 

Apothecaries  who  make  sales  of  alcoholic  liquors  not  compounded  in  such  manner 
as  to  render  them  unfit  for  beverage  purposes,  even  though  under  physicians'  pre- 
scriptions and  for  purely  medicinal  purposes,  will  be  held  liable  to  special  tax; 
such  persons  should,  for  their  own  protection,  see  that  prescriptions  requiring  use 
of  alcoholic  liquors  also  show  other  ingredients  added  and  rendering  compounds 
unfit  for  beverage  use.    (T.  D.  2760;  Oct.  9,  1918.) 

Preparations  such  as  aromatic  elixirs,  tincture  of  aromatica,  and  similar  prepara- 
tions used  by  physicians  and  pharmacists  principally  as  vehicles,  even  though 
potable,  may  be  sold  in  good  faith  for  legitmate  uses  without  payment  of  special 
tax,  provided  they  are  made  in  conformity  with  U.  S.  P.  or  N.  F.  (T.  D.  27G0; 
Oct.  9,  1918.     T.  b.  2788;  Feb.  6,  .1919.) 

• Distilled  spirits. 

Pharmacists  who  are  not  qualified  as  retail  liquor  dealers  may  procure  iionbev- 
erage  spirits  on  same  terms  as  pharmacists  who  are  holders  of  special  tax  stamps  as 
dealers,  but  must  dispense  same  only  on  prescription  of  physician  or  veterinarian 
duly  authorized  to  practice  under  Federal  or  State  laws,  and  only  when  denatured 
in  conformity  with  T.  D.  2496;  compounding  must  not  be  in  advance  of  receipt 
by  pharmacists  of  prescription;  this  requirement  does  not  extend  to  spirits  to  be 
used  in  compounding  regular  prescriptions  for  internal  use,  where  spirits  are  other- 
wise 30  medicated  as  to  render  them  unfit  for  use  as  beverages.  (T.  D.  2559;  Oct. 
26,  1917.     See  T.  D.  2-576;  Nov.  10,  1917.) 

Pharmacists  who  hold  permit  and  have  given  bond  permitted  to  sell  nonbeverage 
alcohol,  without  physician's  prescription,  to  persons  who  do  not  hold  permits  and 
who  have  not  given  bond,  in  ((uantities  not  exceeding  one  pint,  but  not  in  advance 
of  orders,  provided  they  first  medicate  same  in  accordance  with,  any  one  of  specified 
formulas.     (T.  D.  2576;  Nov.  10,  1917.) 

Apothecaries  are  allowed  to  carry  distilled  spirits  and  wine  in  stock  and  use  them 
in  preparation  of  tinctures  and  other  U.  S.  P.  preparations  and  in  compounding  of 
bona  fide  prescriptions  without  paying  special  tax.    (T.  D.  2760;  Oct.  9,  1918.) 

Physicians  may  prescribe  wines  and  liquors  for  internal  use,  or  liquor  for  external 
uses,  but  in  every  such  case  each  prescription  shall  be  in  duplicate,  and  both 
copies  be  signed  in  physician's  handwriting;  quantity  prescribed  for  single  patient 
at  given  time  shall  not  exceed  one  quart,  and  in  no  case  shall  phy.sician  prescribe 
alcoholic  liquors  unless  patient  is  under  his  constant  personal  supervision;  all 
prescriptions  shall  indicate  clearly  name  and  address  of  patient,  condition  or  illness 
for  which  prescribed,  and  name  of  pharmacist  to  whom  prescription  is  to  be  pre- 
sented for  filling.     (T.  D.  2881;  July  3,  1919.) 

Pharmacists  should  refuse  to  fill  prescriptions  if  they  have  reason  to  believe  that 
physicians  are  dispensing  for  other  than  strictly  legitimate  medicinal  uses,  or 
that  patient  is  securing  quantities  in  excess  of  amount  required  for  legitimate 
uses.*  (T.  D.  2881;  July  3,  1919.) 

Physician  shall  keep  record  in  which  separate  page  or  pages  shall  be  allotted 
each  patient  for  whom  alcoholic  licjuors  are  prescribed,  and  shall  enter  therein, 
under  patient's  name  and  address,  date  of  each  prescription,  amount  and  kind  of 
liquors  dispensed  by  each  prescription,  and  name  of  pharmacist  filling  same. 
(T.  D.  2881;  Julys,  1919.) 

Druggist  filling  physicians'  prescriptions  shall  preserve  in  separate,  carefully 
guarded  file  one  copy  of  every  prescription  filled,  and  once  a  month  shall  transmit 
to  collector  a  list  showing  names  of  physicians,  names  of  patients,  and  total  quantity 
dispensed  to  each  patient  during  the  month;  whenever  physician  is  prescribing 
more  than  normal  quantities,  or  any  patient  is  procuring  more  than  normal  quan- 
tity, collector  shall  report  facts  to  Commissioner  and  the  United  States  attorney. 
(T.  D.  2881;  July  3,  1919.) 

Any  licensed  pharmacist  or  druggist  may  fill  physicians'  prescriptions  (1)  if  his 
name  appears  on  the  prescription  in  the  physician's  handwriting,  and  (2)  if  he 
has  made  application  and  received  permit.  Form  737,  in  accordance  with  pro- 
visions of  T.  D.  2788,  and  (3)  if  he  has  qualified  as  retail  liquor  dealer  by  payment 
of  special  tax;  no  such  prescription  may  be  refilled.     (T.  D.  2881 ;  July  3,  1919.) 

Wholesale  or  retail  liquor  dealers  having  stocks  of  wines  or  liquors  on  hand  may 
sell  to  pharmacists  holding  permit,  upon  receipt  of  order  on  Form  739  and  in  con- 
formity with  T.  D.  2788,  until  supplies  are  exhausted;  wholesale  or  retail  dealero 


PIPE   LINES.  501 

Prescriptions — Continued. 

• Distilled  spirits — Continued. 

who  are  not  licensed  druggists  or  pharmacists  will  not  be  permitted  to  qualify, 
after  their  present  stocks  are  exhausted,  to  deal  in  either  beverage  or  nonbeverage 
spirits.  (T.  D.  2881;  July  3,  1919.)  Revoked  in  so  far  as  applicable  to  wholesale 
liquor  dealers  who  are  not  licensed  pharmacists  or  druggists.  [T.  D.  2959;  Jan.  5, 
1920.) 

Nonbeverage  distilled  spirits  or  alcohol  tax  paid  at  rate  of  $2.20  per  gallon  may  be 
used  in  filling  physicians'  prescriptions  in  accordance  herewith,  whether  spirits  or 
alcohol  is  medicated  or  denatured  so  as  to  render  it  unfit  for  beverage  use  or  whether 
it  is  not  so  medicated  or  denatured;  regulations  or  instructions  inconsistent  here- 
with revoked.     ^T.  D.  2934;  Oct.  10,  1919.) 

Narcotics. 

See  ■'  Narcotics." 

Article  11  of  Regulations  No.  35,  prohibiting  refilling  of  narcotic  prescriptions, 
modified,  so  that  prescriptions  calling  for  morphine,  codeine,  or  herom,  which  are 
written  by  registered  practitioners  for  patients  suffering  from  Spanish  influenza 
and  any  pulmonary  or  bronchial  affections,  may  be  refilled,  provided  that  at  time 
of  issuance  by  physicians  instructions  are  noted  in  body  of  such  prescriptions, 
"Repeat  if  necessary,"  and  druggist  filling  and  refilling  same  shall  note  thereon  each 
and  every  date  upon  which  such  prescription  is  refilled.    (T.  D.  27(56;  Oct.  22,  1918.) 

Order  issued  by  practicing  and  registered  physician  for  morphine  to  habitual 
user  thereof,  the  order  not  being  issued  in  course  of  professional  treatment  in  at- 
tempted cure  of  habit,  but  being  issued  for  purpose  of  providing  user  with  morphine 
sufficient  to  keep  Mm  comfortable  by  maintaining  his  customary  use,  is  not  a 
phvsician's  prescription  within  exception  (bi  of  section  2  of  the  act  of  December 
17,"  1914.     (T.  D.  2809;  Mar.  20,  1919.     Ct.  Dec.) 

The  first  sentence  of  section  2  of  the  act  of  December  17,  1914,  prohibits  retail 
sales  of  morpMne  by  druggists  to  persons  who  have  no  physician's  prescription, 
who  have  no  order  blank  therefor,  and  who  can  not  obtain  an  order  blank  because 
not  of  the  class  to  which  such  blanks  are  allowed  to  be  issued,  and  such  prohibition 
is  constitutional.     (T.  D.  2809;  Mar.  20,  1919.     Ct.  Dec.) 

Ruling  contained  in  T.  D.  2200,  of  May  11,  1915,  permitting  practitioner  to  dis- 
pense or  perscribe  narcotic  drugs  in  a  quantity  more  than  is  necessary  to  meet  the 
immediate  needs  of  a  patient,  revoked,  and  such  revocation  declared  applicable 
to  all  cases  whether  decreasing  dosage  is  indicated  or  not.     (T.  D.  2879 ;  July  2,  1919.) 

Theaters — Admission  tax. 

Doctors  for  theaters  are  exempt  from  tax  imposed  by  section  700  of  act  of  October 
3,  1917,  when  entering  theater  in  course  of  their  employment,  but  must  pay  it  when 
attending  as  mere  spectators  and  occupjdng  seats  in  the  audience.  (T.  D.  2681; 
Mar.  26,  1918.) 

PIPE  LINES. 
Fermented  malt  liquors. 

Temporary  regulation  providing  that  until  further  notice  brewers  having  estab- 
lished pipe  line  for  transfer  of  fermented  liquors  may  set  aside  and  utilize  one  or 
more  cisterns  pertaining  thereto  for  containing  liquors  containing  not  to  exceed  one- 
half  of  1  per  cent  of  alcohol  by  volume  for  transfer  through  the  pipe  line  for  sole  pur- 
pose of  bottling,  under  certain  conditionsand  restrictions;  duties  of  deputy  collector 
in  attendance.     (T.  D.  2359;  Sept.  9,  1916.) 

Fermented  malt  liquor  may  be  conveyed  by  pipe  line  without  tax  payment  from 
brewery  premises  where  produced  to  continguous  industrial  distillery  of  either  class 
established  under  act  of  October  3.  1913,  there  to  be  used  as  distilling  material, 
Avhere  the  brewery  premises  and  the  industrial  distillery  premises  are  separate  and 
distinct,  and  for  which  requisite  notices  and  bonds  shall  ha\  e  been  given;  must  be 
complete  separation  by  substantial  unbroken  partitions  between  brewery  and  dis- 
tillery from  cellar  to  roof  where. tliev  are  in  same  building  or  separate  buildings 
immediately  adjoining.     (T.  D.  2564^;  Oct.  26,  1917.) 

Residue  from  industrial  distilleries  containing  less  than  one-half  of  1  per  cent  of 
alcohol  by  volume  may  be  transferred  to  other  premises  for  bottling  or  otherwise  by 
way  of  separate  pipe  line,  Avhich  may  be  connected  on  bottling  premises  with  tank 
or  with  the  filling  machine  commonly  used  for  bottling  fermented  licjuors  received 
from  brewery  premises;  such  pipes  must  be  open  to  inspection  throughout  their 
entire  lengths.     (T.  D.  2564;  Oct.  26,  1917.) 


502  PLACE — PLEASURE   CLUBS. 

Oil  transportation — Application  of  act. 

WTiere  a  person,  corporation,  partnership,  or  association,  engaged  in  business, 
for  the  account  of  himself  or  itself,  transports  oil  by  pipe  Line,  and,  at  times,  for  hire, 
furnishes  such  facility  for  the  account  of  any  other  person,  corporation,  partnership, 
or  association,  the  one  furnishing  such  facility  is  a  carrier  within  the  meaning  of 
the  word  as  used  in  Title  V  of  the  act  of  October  3,  1917,  and  tax  imposed  by  section 
501  applies,  whether  for  his  or  its  account  or  for  the  account  of  others;  when  facility 
is  used  exclusively  for  transporting  property  of  proprietor,  and  not  for  hire,  pro- 
prietor is  not  a  carrier.     (T.  D.  2676;  Mar.  18,  1918.) 

Computation  of  tax. 

Where  proprietor  of  pipe  line,  at  times,  for  hire,  transports  oil  of  another,  basig 
of  computation  of  tax  shall  be  current  lawful  rates  of  carrier  and,  in  absence  thereof, 
current  lawful  rates  of  carriers  for  like  service;  if  basis  of  tax  can  not  be  readily  deter- 
mined in  manner  stated,  facts  should  be  forthwith  reported  by  carrier  to  Commis- 
sioner of  Internal  Revenue  for  his  determination.     (T.  D.  2676;  Mar.  18,  1918.) 

PLACE. 

Definition. 

The  word  "place,"  as  used  in  section  700  of  the  act  of  October  3,  1917,  is  not 
defined  in  the  section,  but  the  context  indicates  that  in  general  only  admissions 
to  places  of  amusement  and  entertainment  were  intended  to  be  taxable.  (T.  D. 
2681;  Mar.  26,  1918.) 

PLANTATIONS. 
Income  taxes — Returns. 
Sec  "Farmers." 

PLAYING  CARDS. 
Excise  taxes. 

The  tax  imposed  by  section  609  (f)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  the 
price  for  which  the  sporting  goods  and  games  enumerated,  except  playing  cards, 
are  sold  by  the  manufacturer;  the  game  of  cribbage  is  taxable  as  a  whole,  although 
it  consists  partly  of  playing  cards  on  which  a  tax  has  been  paid;  card  games  to  be 
played  by  adults  as  well  as  children,  other  than  ordinary  playing  cards,  are  sub- 
ject to  the  tax.     (T.  D.  2719;  Art.  XVII.) 

Inventories  and  returns. 

Manufacturers  and  importers  of  playing  cards  required  to  render  sworn  inventory, 
in  duplicate,  on  or  before  October  31,  1917,  showing  number  of  packs  of  cards  and 
number  of  stamps;  on  October  31,  1917,  or  ten  days  thereafter,  return  covering 
period  October  4  to  31  required,  which  return  must  be  rendered  for  each  subsequent 
month  on  last  day  thereof,  or  on  or  before  10th  day  of  succeeding  month,  until  sup- 
ply of  stamps  at  old  rate  is  exhausted;  verification  of  inventories  and  returns. 
(T.  D.  2538;  Oct.  10,  1917.) 

Stamp  taxes. 

Additional  tax  imposed  by  Title  VIII,  Schedule  A,  act  of  October  3,  1917,  does 
not  apply  to  cards  manufactured  and  removed  tax  paid  prior  to  October  4,  in  hands 
of  jobbers  and  retail  dealers,  unless  packs  to  which  stamps  are  affixed  have  been 
broken  and  cards  repacked  in  new  cases,  in  which  event  dealers  so  packing  same 
would  be  liable  to  tax  as  in  case  of  original  manufacturer  under  provisions  of  T.  D. 
1100.     (T.  D.  2538;  Oct.  10,  1917.     T.  D.  2543;  Oct.  19,  1917.) 

Additional  tax  upon  playing  cards,  imposed  under  subdivision  13  of  Schedule  A, 
act  of  October  3,  1917,  became  effective  on  and  after  October  4,  1917,  but  this  addi- 
tional tax  attaches  only  to  playing  cards  manufactured  or  imported  and  sold  or 
removed  for  sale  on  and  after  that  date,  and  is  to  be  paid  by  the  manufacturers  or 
importers;  such  tax  does  not  apply  to  tax-paid  stocks  in  hands  of  wholesale  or  retail 
dealers,  who  may  sell  all  cards  tax  paid  at  2  cents  under  act  of  August  28,  1894, 
which  they  had  on  hand  on  October  4, 1917,  without  incurring  liability  to  additional 
tax.     (T.  D.  2543;  Oct.  19,  1917.) 

PLEASURE  CLUBS. 
See  "Social  Clubs.'^ 


PLEDGES — PORTO  RICO.  603 

PLEDGES. 

See  "Collateral  Security." 

POLITICAL    SUBDIVISIONS. 

Definition. 

Terra  "political  subdivision,"  as  used  in  article  83  of  Regulations  No.  33,  relating 
to  exemption  of  incomes  from  interest  upon  obligations,  denotes  every  division  of 
the  State  made  by  proper  authorities  thereof  acting  within  their  constitutional 
powers  for  purpose  of  carrying  out  portions  of  those  functions  of  State  which  by  long 
usage  and  inlierent  necessities  of  government  have  always  been  regarded  as  public; 
the  terra  includes  special  assessment  districts  so  created,  such  as  road,  water,  sewer, 
gas,  light,  reclamation,  drainage,  irrigation,  levee,  school,  harbor,  port  improve- 
ment, and  similar  districts  and  divisions  of  State.     (T.  D.  2715;  May  20,  1918.) 

POOL  TABLES  AND  BALLS. 

Admissions,  tax  on. 

"Wliere  an  admission  charge  in  form  is  made,  but  in  fact  is  merely  payment  for 
privilege  of  using  certain  equipment,  such  as  pool  tables,  admission  is  incidental 
to  privilege  of  using  such  equipmerut,  and  tax  imposed  by  section  700  of  act  of  Octo- 
ber 3,  1917,  does  not  apply.     (T.  D.  2681;  Mar.  26,  1918.) 

Excise  taxes. 

ITie  tax  imposed  by  section  600  (f)  of  the  act  of  October  3, 1917,  is  3  per  cent  of  the 
price  for  which  pool  balls  and  tables  are  sold  by  the  manufacturer.  (T.  D.  2719; 
Art.  XVII.) 

Occupational  taxes. 

Pool  tables  are  exempt  under  act  of  September  8,  1916,  if  tax  would  fall  upon 
State  treasury;  otherwise  tax  is  due  on  account  of  pool  tables  in  State  armories, 
fire  houses,  etc.,  and  also  in  clubs,  fraternity  houses,  lodge  halls,  charitable  institu- 
tions, Y.  M.  C.  A.  buildings,  hotels,  boarding  houses,  etc.  (T.  D.  2462;  Feb.  16, 
1917.) 

Special  taxes — ^Post  exchanges. 

"Where  post  exchanges  are  under  complete  control  of  the  Secretary  of  the  Na%n;r 
as  governmental  agencies  they  are  not  liable  to  special  tax  on  account  of  billiari 
or  pool  tables  or  bowling  alleys  operated  by  them.     (T.  D.  2439;  Jan.  27,  1917.) 

PORTO  RICO. 

Collections  of  internal  revenue — Accounting. 

Instructions  relative  to  accounting  for  collections  from  sales  of  stamps  to  be 
affixed  to  articles  subject  to  internal-revenue  tax  received  from  Porto  Rico,  as  per 
notice  on  internal-revenue  Form  471.     (T.  D.  2482;  Apr.  12,  1917.) 

Denatured  alcohol — Imports. 

AMiere  alcohol  of  not  less  than  180°  proof  is  brought  from  Porto  Rico  for  denatur- 
ation,  same  may  bo  transferred  to  any  central  denaturing  bonded  warehouse  free  of 
tax  upon  filing  stated  bond,  which  is  to  be  given  in  duplicate  by  warehouse  pro- 
prietor, with  sureties  satisfactory  to  collector  and  in  penal  sum  of  not  less  than 
triple  the  amount  of  tax  and  in  no  case  less  than  $5,000,  one  copy  of  bond  to  be 
retained  by  collector  and  one  copy,  with  his  approval  indorsed  thereon,  to  be  for- 
warded to  Commissioner  of  Internal  Revenue;  instructions  as  to  application  for 
transfer  of  alcohol;  alcohol  transferred  will,  upon  arrival,  be  carefully  inspected 
and  reported  on  monthly  statement  (Form  575);  such  alcohol  -ndll  be  denatured 
and  accounted  for  in  same  manner  as  other  alcohol  received  for  Uke  purpose.  (T.  D. 
2575;  Nov.  5,  1917.)  This  decision  applies  to  alcohol  produced  in  Porto  Rico  on 
or  after  October  4,  1917,  only;  decision  further  modified  so  as  to  permit  gi^^ng  of 
bond  in  penal  sum  of  not  less  than  actual  amount  of  tax  at  rate  of  $2.20  per  proof 
gallon,  and  in  no  case  less  than  $5,000,  except  that  in  case  of  alcohol  withdrawn  by 
scientific  or  educational  institution  under  section  3297,  Revised  Statutes,  bond 
shall  be  for  penal  sum  of  not  less  than  double  amount  of  tax  at  rate  of  $2.20  per  gal- 
lon.    (T.  D.  2641;  Jan.  28,  1918.) 


504  PORTO  RICO. 

Estate  tax. 

Section  200  of  the  act  of  September  8,  1916,  definea  the  United  States  as  includ- 
ing continental  United  States,  Alaska,  and  Hawaii;  under  this  definition,  property 
in  the  United  States  of  deceased  residents  of  Porto  Rico  or  the  Philippine  Islands 
is  taxable  as  the  property  of  nonresidents,  though  the  tax  is  not  imposed  in  Porto 
Rico  or  the  Philippine  Islands.     (T.  D.  2378;  Art.  II.) 

Excise  taxes. 

Taxes  imposed  by  sactions  313,  315,  and  600  of  act  of  October  3,  1917,  apply  to 
articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory  or  else- 
where in  the  United  States  than  in  a  State,  and  to  articles  sold  in  commerce  between 
United  States  and  any  of  its  islands  or  other  possessions  except  the  West  Indian 
Islands  acquired  from  Denmark.     (T.  D.  2739;  June  24,  1918.) 

Affidavit  containing  itemized  list  of  articles  sold  in  foreign  commerce  upon  which 
tax  has  been  paid,  giving  names  of  consignees,  destination,  amount  of  tax,  month 
in  which  paid,  and  statement  that  goods  were  actually  delivered  to  consignee 
named  in  a  foreign  country  or  the  Philippine  Islands  or  Porto  Rico,  pursuant  to 
sale  by  claimant  by  one  of  the  methods  recognized  in  T.  D.  2781,  and  that  affiant 
has  received  advice  to  the  effect,  may  be  accepted  as  satisfactory  evidence  in  siip- 
port  of  claim  for  recovery  back  of  excise  taxes  paid  under  Title  VI  of  the  act  of 
October  3,  1917,  in  cases  where  because  of  number  of  shipments  and  small  amount 
of  tax  involved  in  each  it  is  impracticable  to  furnish  copies  of  invoices  covering 
goods  sold,  ship's  receipts,  or  copies  of  through  bills  of  lading.  (T.  D.  2785;  Jan. 
23,  1919.) 

Taxes  imposed  by  sections  313,  315,  and  600  of  the  act  of  October  3,  1917, 
apply  to  articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  territory 
elsewhere  in  the  United  States  than  a  State  and  to  articles  going  from  United  States 
to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone,  except  that 
under  acts  of  Congress  articles  going  from  United  States  into  the  West  Indian 
Islands,  or  into  the  Philippine  Islands  or  Porto  Rico,  are  exempt  to  same  extent  as 
articles  exported  from  a  State  to  a  foreign  country.     (T.  D.  2781;  Dec.  20,  1918.) 

Stamp  taxes. 

Parcel-post  packages  mailed  in  this  country  to  Porto  Rico  and  such  packages 
mailed  in  Porto  Rico  to  other  points  therein  are  not  subject  to  stamp  tax.  (T.  D. 
2599;  Dec.  3,  1917.) 

The  stamp  tax  imposed  by  subdivision  (b)  of  Schedule  A  of  the  act  of  October  3, 
1917,  attaches  to  time  drafts  covering  articles  shipped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone,  and, 
although  time  drafts  covering  shipments  to  the  Virgin  Islands,  the  Philippine 
Islands  and  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles 
shipped  to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or 
Porto  Rico  must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified. 
(T.  D.  2782;  Dec.  24,  1918.) 

General  rule  that  time  drafts  are  subject  to  stamp  tax  imposed  by  act  of  October  3, 
1917,  when  delivered  within  territorial  jurisdiction  of  United  States,  and  not  other- 
wise, is  applicable  to  time  drafts  used  between  the  territorial  jurisdiction  of  the 
United  States  (including  the  States,  the  District  of  Columbia,  the  Territory  of 
Hawaii,  and  the  Territory  of  Alaska)  and  the  Canal  Zone,  Pliilippine  Islands,  the 
Virgin  Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.  (T.  D.  2795: 
Feb.  26,  1919.) 

Transportation  tax. 

Transportation  of  property  by  water  from  port  of  the  United  States  to  Porto  Rico, 
Philippine  Islands,  the  Virgin  Islands,  and  the  Canal  Zone  is  not  subject  to  trans- 
portation tax  imposed  by  section  500  of  act  of  October  3,  1917;  rail  transportation  of 
property  from  iriterior  point  in  United  States  for  transsliipment  to  Philippine 
Islands,  Porto  Rico,  and  Virgin  Islands  is  transportation  of  property  "consigned 
from  one  point  in  the  United  States  to  another, ' '  but  is  exempt  from  internal  revenue 
taxes  by  reason  of  special  acts  of  Congress;  such  transportation  of  property  destined 
to  the  Canal  Zone  is  not  exempt.     (T.  D.  2795;  Feb.  26,  1919.) 

Wines — Exports. 

Domestic  wines  may  be  exported  to  foreign  countries  or  may  be  shipped  to  Porto 
Rico,  the  Philippine  Islands,  and  to  the  Panama  Canal  Zone,  free  of  tax;  like 
exemption,  however,  does  not  apply  to  shipments  to  the  island  of  Guam.  (T.  D. 
2387;  Oct.  30,  1916.)  For  regulations,  see  T.  D.  2416,  Dec.  12,  1916;  T.  D.  2505, 
June  25.  1917. 


PObT  EXCHANGES — POWER   OF  APPOINTMENT.  505 

POST   EXCHANGES. 

Billiard  tables,  etc. — Special  tax. 

Where  post  exchanges  are  under  complete  control  of  the  Secretary  of  the  Navy 
as  governmental  agencies  they  are  not  liable  to  special  tax  on  account  of  })illiard  or 
pool  tables  or  bowling  alleys  operated  by  them.     (T.  D.  2439;  Jan.  27,  1917.) 

Cigars,  tobacco,  etc. — Floor  taxes. 

Stocks  of  cigars,  tobacco,  and  cigarettes  held  for  sale  at  close  of  business  October 
3,  1917,  at  post  exchanges  at  Army  camps  are  not  subject  to  floor-stock  taxes  im- 
posed by  section  403  of  act  of  October  3,  1917.     (T.  D.  2584;  Nov.  20,  1917.) 

POST   OFFICE. 

Estate  tax — Mailing  notice  of  excessive  payment. 

"Time  of  notiiication,"  within  section  207  of  the  estate-tax  law.  Title  II,  act  of 
September  8,  1910,  is  the  date  on  which  notice  of  the  amount  of  such  "excess  part 
of  the  tax"  is  received  by  the  executor,  whether  such  notice  is  given  by  mail  or 
otherwise.     (T.  D.  2770;  Nov.  6,  1918.) 

Income  taxes — Mailing  returns.  • 

If  return  is  made  and  placed  in  the  United  States  mail,  properly  addressed,  and 
postage  paid  in  ample  time,  in  due  course  of  mail,  to  reach  office  of  collector  or 
deputy  collector,  on  or  before  last  due  date,  no  penalty  will  attach  should  return 
not  be  actually  received  by  such  officer  until  subsequent  to  that  date.  (T.  D.  2690; 
art.  52.) 

When  last  due  date  for  filing  return  falls  on  Sunday  or  a  legal  holiday,  the  last 
due  date  will  be  held  to  be  day  follomng  such  Sunday  or  legal  holiday,  and  return 
ehould  be  made  not  later  than  such  following  day,  or,  if  placed  in  the  mails,  it  should 
be  posted  in  ample  time  to  reach  collector's  office  under  ordinary  handling  of  the 
mails,  on  or  before  date  on  which  return  is  required  to  be  filed.  (T.  D.  2690;  art. 
219. j 

"\Miere  return  is  made  and  placed  in  United  States  mails  in  due  course,  properly 
addressed,  and  postage  paid,  m  ample  time  to  reach  office  of  collector  or  deputy  col- 
lector on  or  before  such  due  date,  no  penalty  attaches  should  return  not  be  actually 
received  until  subsequent  to  that  date;  where  question  is  raised  as  to  whether  or 
not  return  was  posted  in  ample  time,  envelope  in  which  return  was  transmitted 
should  be  preserved  by  collector  and  forwarded  to  Commissioner  of  Internal  Reve- 
nue with  the  return.    "(T.  D.  2690;  art.  220.) 

Parcel  post — Stamp  taxes. 

Pa/cel-post  packages  mailed  in  this  country  to  Porto  Rico  and  such  packages 
mailed  in  Porto  Rico  to  other  points  therein  are  not  subject  to  stamp  tax.  (T.  D. 
2599;  Dec.  3,  1917.) 

POULTRY   FARMS. 

Income-tax  returns. 

See  "Farmers." 

POWER  OF  APPOINTMENT. 
Estate  tax. 

Where  decedent  exercises  general  power  of  appointment  as  donee  under  Avill  of 
prior  decedent,  property  so  passing  is  portion  of  gross  estate  of  decedent  appointor; 
when  property  is  transferred  by  special  or  limited  power  of  appointment,  question 
of  taxability  will  depend  upon  terms  of  instrument  by  which  donee  of  power  acts, 
and  facts  in  any  such  case  should  be  reported  fully  to  Commissioner.  (T.  D.  2477; 
Apr.  7,  1917.) 

Property  passing  under  general  power  of  appointment,  where  the  construction 
and  effect  of  the  power  and  the  rights  of  the  parties  thereunder  are  governed  by  the 
laws  of  Pennsylvania,  should  not  be  included  in  the  gross  estate  of  the  decedent 
exercising  the  poMer  in  a  case  arising  under  Title  11  of  the  revenue  act  of  1916. 
(T.  D.  3088;  Oct.  30,  1920.     Ct.  Dec.) 


506        POWER  OF  ATTORNEY — PRESIDENT  OF   UNITED  STATES. 

POWER  OF   ATTORNEY. 

Income  taxes — Returns. 

Fiduciary  relationship  for  purposes  of  income  tax  can  not  be  created  by  power  of 
attorney;  agent  with  authority  to  effect  leases  with  tenants  entirely  on  his  own  re- 
sponsibility, paying  all  charges  in  connection  with  property  out  of  rent  funds,  merely 
turning  over  net  profits  to  principal  by  virtue  of  authority  conferred  by  power  of 
attorney,  is  not  a  fiduciary  within  the  income  tax  law;  in  all  cases  where  no  legal 
trust  has  been  created  in  the  estate  controlled  by  the  agent' and  attorney  liability 
under  the  law  rests  with  the  principal.     (T.  D.  2690;  art.  29.) 

Copies  of  retui'ns  on  file  in  Commissioner's  ofiice  may  not  be  sent  to  any  person, 
except  corjioration  itself  or  to  its  duly  authorized  attorney;  duly  authorized  attorney 
for  this  purpose  is  one  possessing  properly  executed  power  of  attorney  in  writing  by 
corporation,  which  designation  shall  be  signed  by  two  officers  of  corporation  and 
bear  impress  of  the  seal.     (T.  D.  2690;  art.  226.) 

Stamp  tax. 

No  stamp  tax  is  imposed  upon  power  of  attorney  in  transfer  by  assignment,  abso- 
lute or  as  collateral  security,  of  interest  in  contract  of  insurance,  if  power  of  attorney 
grants  authority  to  do  or  perform  only  such  acts  for  or  in  behalf  of  assignor  as  are  other- 
wise vested  in  assignee.     (T.  D.  2599;  Dec.  3,  1917.) 

PRECIOUS    METALS   AND    STONES. 
Excise  taxes. 

Jewelry  includes  ornaments  made  of  gold,  silver,  or  platinum,  or  any  imitation 
thereof,  and  precious  or  semi-precious  stones,  or  imitations  thereof,  used  for  personal 
adornment;  rulings  as  to  vanity  boxes,  cigarette  cases,  lorgnettes,  buckles,  and  other 
articles  as  constituting  jewelry  when  intended  to  be  carried  on  the  person  and  made 
wholly  or  in  part  from  gold,  silver,  or  platinum,  or  having  appearance  thereof. 
(T.  D.  2719;  Arts.  XIII.'^XIV.) 

Watches  not  used  solely  for  utility  purposes  are  taxable  under  section  600  (e)  of 
the  act  of  October  3,  1917;  a  watch,  irrespective  of  how  it  is  to  be  worn,  is  taxable  aa 
jewelry  if  its  case  or  any  attachment  sold  with  it  is  ornamented  with  precious  or 
Bemi-jirecious  stones  or  with  any  ornamentation  other  than  engraving  or  engine 
turning;  a  watch,  whether  or  not  otherwise  taxable,  is  subject  to  tax  if  sold  with  a 
metal  bracelet;  a  wrist  watch  is  not  subject  to  tax  when  sold  with  a  leather  band, 
webbing,  or  silk  ribbon,  if  neither  the  watch  nor  such  attachment  is  ornamented 
with  precious  or  semi-precious  stone  or  otherwise  than  by  engraving  or  engine  turn- 
ing.    (T.  D.  2719;  Art.  XV.) 

Parts  of  jewelry,  including  mountings,  unset  stones,  and  pearls  temporarily  strung, 
are  not  taxed  when  sold  for  further  manufacturine  and  resale,  but  are  when  sold  to  a 
customer  for  personal  use;  where  manufacturer  mounts  diamonds  belonging  to  a 
jeweler,  latter  is  liable  to  tax  on  entire  article  as  producer,  but  where  jeweler  pro- 
vides mounting  for  private  customer's  stone,  he  should  pay  tax  on  price  of  mounting. 
(T.D.  2719;   Art.  XVI.) 

PREMIUMS. 
Insurance. 

See  "Insurance." 

PREPARED    SIRUP. 
Definition. 

A  "prepared  sirup  "  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3, 
1917,  is  a  simple  sirup  with  flavoring  amd  perhaps  other  materials.  (T.  D.  2719;  Art. 
XXIX.) 

PRESCRIPTIONS. 

See  "Physicians." 

PRESIDENT   OF   UNITED    STATES. 
Income  taxes. 

Compensation  of  President  of  United  States  for  term  for  which  he  is  elected,  be- 
ginning  March  4,  1917,  shall  not  be  included  as  income  for  purposes  of  income  tax 
under  act  of  October  3,  1917  (such  compensation  being  subject  to  tax  under  the  act 
of  September  8,  1916).     (T.  D.  2690;  art.  5;  see  T.  D.  3037.) 


PREWAR  PERIOD — PRINCIPAL  AND  AGENT.  507 

PREWAR   PERIOD. 
Definition. 

The  term  "prewar  period,"  as  used  in  war  excess  profits  tax  regulations,  means  the 
calendar  years  1911,  1912,  and  1913,  or  if  a  corporation  or  partnership  was  not  in 
existence  or  an  individual  was  not  en<,'aged  in  the  trade  or  business  during  the  whole 
of  such  three  years,  then  as  many  of  such  years  during  the  whole  of  which  the  cor- 
poration or  partnership  was  in  existence  or  the  individual  was  engaged  in  the  trade 
or  business,  and  unless  otherwise  indicated  by  the  context,  terra  will  be  deemed  to 
be  used  only  with  this  scope  or  meaning.     (T .  D.  2694;  arts.  1,  6.) 

PRINCIPAL   AND    AGENT. 

See  "Brokers";  "Exchanges." 
Admissions  tax — Collection. 

Corporation  cotidacting  dance  hall  is  agent  of  Government  to  collect  tax  on 
*    admissions,  and  when  T.  D.  2590  was  complied  with  it  is  not  liable  for  failure  to 
collect  the  tax  until  such  time  as  it  had  actual  or  constructive  notice  of  the  modifi- 
cation of  T.  D.  2590  by  issuance  of  Regulations  No.  43.     (T.  D.  2782;  Dec.  24,  1918.) 

Capital  stock  tax— Returns.  , 

Retiu-ns  must  be  signed  by  agent  or  attorney  or  other  principal  officer  in  charge 
of  United  States  branch  of  foreign  corporation.  (T.  D.  2750,  Appendix  B;  Aug.  9, 
19?*3.) 

Returns  must  be  signed  and  verified  by  agent  or  attorney  or  other  principal 
officer  in  charge  of  United  States  branch  of  foreign  corporation  and  must  be  sworn 
to  before  an  officer  authorized  to  administer  oaths,  and  seal  of  attesting  officer,  if 
he  is  required  to  have  a  seal,  must  be  impressed  on  return  in  si^ace  provided  for 
that  purpose.     (T.  D.  2750,  Appendix  B;  Aug.  9,  1918.) 

Carriers'  agents. 

All  taxes  imposed  by  section  500  of  the  act  of  October  3,  1917,  shall,  as  and  when 
the  charges  are  collected,  be  paid  to  and  collected  by  the  officers,  agents,  or  other 
employees  of  the  carrier  who  collect  such  charges.     (T.  D.  2676;  Mar.  18,  1918.) 

Whenever  one  carrier  collects  charges  for  freight  transportation  performed  in  part 
by  or  on  behalf  of  another  carrier  or  carriers,  such  carrier  shall  collect  tax  applicable 
to  such  taxable  charge  or  charges  and  return  and  remit  to  proper  collector  of  internal 
revenue  the  total  tax  collected;  whenever  a  charge,  in  connection  with  a  terminal 
or  water  service,  is  paid  by  one  carrier,  acting  for  the  consignor  or  consignee,  to 
another  carrier,  tax  applicable  shall  be  paid  by  former  carrier  to  latter  carrier,  who 
shall  return  and  remit  the  same.     (T.  D.  2676;  Mar.  18,  1918.) 

Officers,  agents,  and  other  employees  of  carriers,  shall  cause  to  be  assembled  for 
each  calendar  month,  at  general  offices  of  carriers,  summaries  showing  aggregate 
taxes  collected  as  well  as  summaries  of  all  tax  adjustments;  such  summaries  shall 
show  aggregate  taxes  of  each  class  collected,  as  called  for  by  Form  727,  and  total 
amount  deducted  for  adjustments  on  account  of  overcharges  as  called  for  by  such 
Form,  and  difference  between  the  two  items  shall  be  amount  to  be  reported  to  col- 
lector.    (T.  D.  2676;   Mar.  18,  1918.) 

Agents  of  carriers  authorized,  in  adjusting  overcharges  and  undercharges,  to  adjust 
taxes  accordingly;  adjustment  of  tax  where,  after  collection  of  charge  and  tax,  it 
is  claimed  that  charge  is  entitled  to  exemption,  not  authorized;  all  adjustments 
must  be  recorded  and  reported  and  must  be  supjDorted  by  such  evidences  as  will 
substantiate  correctness  thereof,  which  evidences  must  be  kept  in  respective  offices 
through  which  adjustments  are  made.      (T.  D.  2676;  Mar.  18,  1918.) 

Estate  tax — Duties  of  corporation  transfer  agents. 

Transfer  agents  of  corporate  stock  or  bonds,  recei^dng  into  possession  for  transfer 
purposes  such  personality  of  nonresident  decedent,  may  not  release  to  foreign  admin- 
istrator or  executor  or  foreign  beneficiary  any  property  wdthin  this  country  at  time 
of  decedent's  death  until  after  tax  due  has  been  paid  or  ancillary  letters  have  been 
taken  out  or  otherwise  provision  has  been  made  by  estate  for  satisfaction  of  tax  lien. 
(T.  D.  2454;  Feb.  28,  1917.) 

Where  transfer  of  stock  or  bonds  or  payment  of  dividends  or  interest  theretofore 
legal  property  of  decedent,  whether  resident  or  nonresident,  is  made  to  or  upon  order 


508  PEINCIPAL  AND   AGENT. 

Estate  tax — Duties  of  corporation  transfer  agents — Continued. 

of  an  executor  or  administrator,  acting  under  letters  granted  in  the  United  States, 
Hawaii,  or  Alaska,  the  corporate  agent  or  officer  will  not  be  required  to  file  the 
30-day  notice,  make  return,  or  pay  tax.     (T.  D.  2490;  May  14,  1917.) 

The  30-day  notice  must  be  filed  when  the  corporation,  its  transfer  agent,  register, 
or  paying  agent  is  called  upon  to  make  transfer  of  stock  or  bonds,  or  to  pay  interest 
or  di\'idend8  to  any  person  succeeding  in  right  thereto  a  stockholder  or  bondholder 
who,  since  September  8, 1916,  has  died  domiciled  outside  the  United  States,  Hawaii, 
Alaska,  unless  such  successor  in  interest  is  an  executor  or  administrator  of  the  de- 
cedent, acting  under  letters  granted  within  the  United  States,  Hawaii,  or  Alaska. 
(T.  D.  2490;   May  14,  1917.) 

The  30-day  notice  will  show  the  name  and  address  at  time  of  the  nonresident  de- 
cedent, and  description  and  valuation  of  the  property  to  be  transferred  or  paid,  and 
the  name,  designation,  and  address  of  the  person  to  whom  transfer  or  payment  is 
made,  and  will  be  signed  bv  the  proper  officer  or  agent  of  the  corporation.  (T.  D. 
2490;   May  14,  1917.) 

The  30-day  notice  must  be  filed  for  dividends  declared  prior  to  the  day  of  death 
and  for  interest  payable  after  death  to  the  extent  of  the  portion  accrued  to  the  day 
of  death,  and  if  notice  be  filed  either  within  30  days  from  death  or  immediately 
upon  receipt  of  order  for  transfer  or  payment,  transfer  or  payment  need  not  be 
postponed;  if  tax  is  not  paid  within  legal  period  proceedings  vnW  be  instituted 
under  section  208  of  the  act  of  September  8,  1916,  for  the  sale  of  the  propertv  and  the 
payment  of  the  tax.     (T.  D.  2490;  May  14,  1917.) 

Transfer  agents  who  have  orders  for  transfer  of  stock,  standing  in  name  of  non- 
resident decedent  may,  instead  of  following  procedure  prescribed  in  T.  D.  2490, 
forward  Form  706  to  its  foreign  office  or  to  its  representative  in  foreign  countries, 
with  instructions  that  foreign  executor,  administrator,  or  beneficiary  of  estate  shall 
execute  complete  return  on  such  Form  706  of  all  property  belonging  to  decedent, 
situate  in  United  States,  including  shares  of  stock  in  domestic  corporation;  such 
return  to  be  subscribed  and  sworn  to;  personal  representative  must  forward  inventory 
filed  in  foreign  country,  and  transfer  agent  will  check  return  ao;ainst  inventory  and 
send  return  to  Commissioner  of  Internal  Revenue  with  certificate  that  property 
disclosed  by  inventory  to  be  situated  in  United  States  has  been  included  in  return; 
two  copies  of  return  will  be  forwarded  to  collector  who  will  make  assessment,  and 
upon  payment  will  send  certified  and  receipted  copy  of  return  to  transfer  agent; 
notice  oii  Form  704  and  Form  714  must  be  filed  with  collector  as  heretofore.  (T.  D. 
2708;  Apr.  25,  1918.) 

Release  of  property  by  local  agent. 

Local  agent,  representative,  etc.,  may  not  release  to  foreign  administrator  or 
executor  or  foreign  beneficiary,  property  within  this  country  at  time  of  decedent's 
death  until  either  tax  due  has  been  paid  or  ancillary  letters  have  been  taken  out  or 
otherwise  provision  has  been  made  for  satisfaction  of  tax  lien;  foreign  administrator 
or  executor  will  not  be  recognized  as  relieving  others  in  charge  of  decedent 's  prop- 
erty from  responsibility  for  satisfying  requirements  of  act  unless  and  until  he  has 
made  return  and  tendered  payment  of  tax  due;  application  of  ruling  to  other  custo- 
dians of  property  in  this  country.     (T.  D.  2454;  Feb.  28,  1917.) 

Excess  profits  tax. 

Agents  and  brokers  requiring  and  using  no  capital  or  merely  a  nominal  capital  in 
their  business  are  taxable  under  article  15  of  Regulations  No.  41,  but  commission 
houses  regularly  employing  substantial  amount  of  capital,  whether  to  lend  to  prin- 
cipals or  to  carry  goods  on  their  own  account,  are  not  deemed  to  be  agents  or  brokers 
and  are  taxable  under  provisions  of  article  16.     (T.  D.  2694;  art.  73.) 

Excise  taxes — Comroissions. 

Commissions  to  agents  and  other  expenses  of  sale  are  not  deductible  from  price 
in  computing  same  for  purpose  of  tax  imposed  by  section  600  of  the  act  of  October 
3,  1917.     (T^  D.  2719;  Art.  III.) 

Manufacturing  agent. 

A  person  who  is  employed  to  make  an  article  and  receives  for  it  the  cost  of  mate- 
rials and  labor  plus  specified  profit  shall  be  considered  a  manufacturing  agent,  and 
the  person  who  procures  the  preparation  of  the  article  will  be  considered  the  manu- 
facturer.   (T.  D.  2719;  Art.  XXI.) 


PBIXCIPAL   AND   AGENT.  509 

Excise  taxes — Continued. 
Sales  by  agents. 

Where  anient  of  manufacturer  makes  a  sale,  it  is  to  be  treated  as  a  sale  of  the  maiui- 
facturer;  if  the  manufacturer  nominally  sells  an  article  to  a  sales  agent  or  sales 
agency,  but  retaias  interest  in  profits  from  resale,  taxable  sale  is  that  made  by 
sale?  agent  or  agency,  rather  than  nominal  sale  l)v  manufacturer  to  agent  or  agency. 
(T.  I).  2909;  Aug.  11,  1919.  .\rt.  V  of  Regulations  44  amended.) 
•  ^^'here  so-called  sales  agent  or  distributor  is  separate  corporation,  and  sale  to  it  U 
absolute,  and  at  prices  such  as  ordinarily  obtain  between  persons  dealing  at  arm's 
length,  with  no  further  payment  or  benefit  accruing  to  manufacturer  upon  resale 
or  otherwise  except  receipt  of  dividends  on  stock  holdings,  taxable  sale  is  that 
made  by  manufacturer  to  such  sales  corporation,  even  though  all  or  substantially  all 
of  the  stock  of  such  sales  corporation  is  held  by  or  for  benefit  of  manufacturer.     (Id . ) 

Where,  however,  there  e.xist  facts  and  circumstances  which  tend  to  e.stablish 
relationship  of  principal  and  agent  between  manufacturer  and  sales  corporation, 
taxable  sale  is  that  made  by  sales  corporation.     (Id.) 

Mere  ownership  of  majority  or  all  of  stock  of  sales  corporation  by  manufacturer, 
without  more,  is  not  suflBcient  to  establish  relationship  of  principal  and  agent;  same 
rule  applies  in  case  of  selling  corporation  which  owns  substantially  all  of  the  stock 
of  the  manufacturing  corporation.     (Id.) 

Fiduciaries  distinguished  from  agent. 

There  may  be  a  fiduciary  relationship  between  an  agent  and  a  principal,  but  the 
word  '  'agent' '  does  not  denote  a  '  'fiduciary' '  within  the  meaning  of  the  income-tax 
law.     (T.  D.  2690;  art.  29.)  , 

Income  taxes — Claims. 

Claims  for  refund  of  asisessed  tax  and  penalties  must  be  made  out  upon  Form  46  and 
all  facts  relied  upon  in  support  of  claim  should  be  clearly  set  forth  under  oath,  claim 
to  be  supported  by  affidavit  of  deputy  collector  of  proper  diAosion  and  by  certificate 
of  collector  showing  certain  specified  matters;  affidavit  may  be  made  by  agent 
of  party  assessed,  but  in  such  case  power  of  attorney  must  accompany  claim.  (T.  D. 
2690;  arts.  265,  260.) 

• Commissions  of  insurance  agents. 

Commissions  on  renewal  premium  for  insurance  received  by  agents  on  account 
of  business  written  is  income  to  be  accounted  for  as  such  and  for  calendar  year  of 
its  receipt.     (T.  D.  2690;  art.  4.) 

• Exemptions. 

Farmers',  fruit  growers',  or  like  association,  organized  and  operated  as  a  sales 
agent  to  market  products  of  its  members,  in  order  to  come  within  the  exemption 
provided  in  paragraph  eleventh  of  section  11  of  the  act  of  September  8,  1916,  as 
amended,  mu.st  e.stablish  to  satisfaction  of  collector  or  Commissioner  of  Internal 
Revenue  fact  that  for  their  own  account  they  have  no  net  income  and  that  entire 
proceeds  of  marketing  products  of  their  members  less  necessary  expenses  are  turned 
back  or  paid  to  members  on  basis  of  quantity  of  produce  furnished  by  them,  quality 
and  grade  being  considered,  as  purchase  price  of  such  produce.     (T.  D.  2690;  art.  75.) 

If  in  course  of  their  business  farmers ',  fruit  growers ',  or  like  association,  organized 
and  operated  as  sales  agent  to  market  products  of  its  members,  purchase  for  cash 
at  a  stipulated  price  articles  of  produce  with  view  to  selling  them  for  gain,  they  will 
be  required  to  make  returns  of  annual  net  income  and  include  therein  for  purpose 
of  tax  all  income  derived  from  such  transaction.     (T.  D.  2690;  art.  75.) 

• Information  at  source. 

Wherever  a  foreign  country  or  foreign  corporation  issuing  bonds  haa  appointed  a 
paying  agent  in  this  country,  charged  with  duty  of  pa\dng  interest  upon  such  bonds, 
such  agent  shall  be  source  of  information;  if  such  country  or  corporation  has  no  such 
agent,  then  last  bank  or  collecting  agent  in  this  coimtrj^  shall  be  source  of  informa- 
tion; in  case  of  dividends  on  stock  of  foreign  corporation,  first  bank  or  collecting 
agent  accepting  such  item  for  collection  shall  be  source  of  information.  (T.  D.  2769: 
Oct.  2,  1918.) 


510  PKINCIPAL  AND  AGENT. 

Income  taxes — Continued. 

Licenses. 

All  persona,  corporations,  etc.,  undertaking,  as  matter  of  business  or  for  profit, 
collection  of  foreign  payments  of  interest  on  dividends  bj^  means  of  coupons,  checks, 
or  bills  of  exchange,  shall  obtain  license  from  Commissioner  of  Internal  Revenue, 
as  prescribed  by  section  9  (b)  of  the  act  of  September  8,  1916,  as  amended;  such 
licensee  shall  write  or  stamp  on  the  face  of  the  item :  ' '  Information  obtained  and 

furnished  by  (name  of  collecting  agent)."     (T.  D.  2690;  art.  48.) 

Banks  or  agents  collecting  foreign  items  required  to  obtain  license  from  Commis- 
sioner of  Internal  Revenue  to  engage  in  such  business  and  are  subject  to  such  regula- 
tions for  f  iu*nishing  of  information  as  the  Commissioner,  with  approval  of  Secretary  of 
the  Treasury,  shall  prescribe,  and  to  penalties  prescribed  by  failure  to  obtain  such 
license.     (T.  D.  2759;  Oct.  2,  1918.) 

Net  income. 

Car-trust  certificates  secured  by  equipment  are  obligations  of  railroad  company, 
similar  to  corporate  bonds,  etc.,  and  trustees  in  whose  names  legal  title  to  equip- 
ment stands  are  not  an  association  within  meaning  of  Title  I  of  the  act  of  September 
8,  1916,  as  amended  by  the  act  of  October  3,  1917,  and  are  therefore  not  taxable, 
but  they  are,  for  purposes  of  such  title,  a  fiscal  agent  paying  off  the  obligations, 
both  principal  and  interest,  of  railroad  companies  with  funds  appropriated  by  such 
companies;  companies  may  mortgage  such  certificates  in  amount  of  bonded  or 
other  indebtedness  reported  under  item  2  of  return,  Form  1031,  and  interest  paid 
thereon  with  interest  on  other  obligations  will  be  deductible;  if  certificates  contain 
pro\'ision  by  which  obligor  agrees  to  pay  portion  of  tax  imposed  upon  obligee,  or 
reimburse  obligee  for  any  portion  of  tax,  ck  pay  interest  without  deduction  for  any 
tax,  trustees,  in  making  interest  payments  will,  in  absence  of  claims  for  exemption, 
where  interest  payments  are  made  to  individuals,  withhold  normal  income  tax  on 
such  payments  regardless  of  amount  thereof.     (T.  D.  2690;  art.  188.) 

Losses  of  insurance  companies  other  than  mutual,  but  including  mutual  life  and 
mutual  marine,  for  agency  balances,  or  other  amounts  charged  off  as  worthless, 
and  losses  by  defalcation,  premium  notes  voided  by  lapse,  pro\'ided  such  notes 
have  at  some  time  been  included  in  gross  income  for  income-tax  purposes,  may 
be  deducted.     (T.  D.  2690;  art.  240.) 

• Premiums  paid  insurance  agents. 

Premiums  paid  to  agents  of  insurance  company  but  not  remitted  to  company 
during  year  are  received  by  the  company  and  should  be  returned  as  part  of  its  gross 
income'for  year  ia  which  paid  to  its  agents.     (T.  D.  3013;  May  3,  1920.     Ct.  Dec.) 

Returns. 

Return  may  be  made  by  an  agent  when,  by  reason  of  illness,  absence,  or  nonresi- 
dence,  person  liable  for  return  is  unable  to  make  same,  agent  assuming  responsi- 
bility of  making  return  and  incurring  penalties  provided  for  intentional  false  or 
fraudulent  return.     (T.  D.  2690;  art.  22.) 

Fiduciary  relationship  for  purposes  of  income  tax  can  not  be  created  by  power 
of  attorney;  agent  with  authority  to  effect  leases  with  tenants  entirely  on  his  own 
responsibility,  paying  all  charges  in  connection  with  property  out  of  rent  funds, 
merely  tuxning  over  net  profits  to  principal  by  -virtue  of  authority  conferred  by 
power  of  attorney,  is  not  a  fiduciary  within  the  income  tax  law;  in  all  cases  where 
no  legal  trust  has  been  created  in  the  estate  controlled  by  the  agent  and  attorney 
liability  under  the  law  rests  with  the  principal.     (T.  D.  2690;  art.  29.) 

Agent  of  nonresident  alien  is  responsible  for  correct  return  of  all  income  accruing 
to  his  principal  within  pur\T-ew  of  the  agency,  and  agent  will  be  responsible  for 
complete  return;  agency  appointment  wSl  determine  how  completely  the  agent 
is  substituted  for  the  principal  for  income-tax  purposes.    (T.  D.  2690;  art.  32.) 

- —  Subsidiary  companies. 

Where  corporation  is  owner  of  all  stock  in  subsidiary  company  and  the  lessee  of 
all  its  property,  regularly  maintaining  possession,  control  and  management  of  all 
the  subsidiary's  money  and  other  property,  so  that  the  subsidiary  is  a  mere  agent 
of  the  other  corporation  and  is  practically  merged  therewith,  dividends  of  the  sub- 
sidiary declared  out  of  a  surplus  which  accrued  prior  to  March  1,  1913,  are  not 
taxable  income  of  the  parent  corporation.     (T.  D.  2730;  Jime  11,  1918.    Ct.  Dec.) 


PRINCIPAL   AND  AGENT.  511 

Income  taxes — Continued. 

Withholding. 

Where  debtor  corporation  or  its  duly  authorized  withholding  agent  has  made  no 
payments  of  interest  to  nonresident  alien  individuals  or  foreign  corporations,  hav- 
ing no  office  or  place  of  business  in  the  United  States,  or  has  withheld  no  tax  from 
citizens  or  residents  of  United  States,  whether  or  not  bonds  upon  which  such 
interest  accrued  contain  tax-free  covenant  clause,  exemption  certificates  filed  in 
connection  Avith  such  interest  payments  shall  be  transmitted  direct  to  Commis- 
sioner of  Internal  Revenue  (Sorting  Division),  Washington,  D.  C,  accompanied  by 
return  on  Form  1096,  which  form  shall  be  filed  monthly,  and  need  not  be  sworn 
to;  if  a  corporation  or  withholding  agent  has  ^vithheld  tax  and  is  therefore  re- 
quired to  render  return  on  Form  1012,  revised,  all  certificates  received  shall  be 
accounted  for  on  such  monthly  return,  as  directed  by  instructions  thereon.  (T.  D. 
2687;  Apr.  1,  1918.) 

Collecting  agents,  responsible  banks  and  bankers  receiving  coupons  for  collec- 
tion with  ownership  certificates  attached  may  present  coupons  with  original 
certificates  to  debtor  corporation  or  withholding  agent  for  collection,  or  original 
certificates  may  be  detached  and  forwarded  direct  to  Commissioner  of  Internal 
Revenue,  providing  such  agent  shall  substitute  for  such  certificate  its  own  certifi- 
cate and  shall  keep  complete  record  of  each  transaction  showing  specified  data; 
identification  of  substitute  certificate;  substitute  certificates  discontinued  with 
respect  to  ownership  certificates  presented  with  coupons  for  collection  by  nonresi- 
dent alien  indi^^dual8,  corporations,  etc.     (T.  D.  2690;  art.  43.) 

Any  income  withheld  from  citizen  or  resident  alien  in  1917  prior  to  October  3, 
1917,  except  in  case  covered  by  section  9  (c)  of  the  act  of  September  8,  1916,  as 
amended,  shall  be  released  by  withholding  agent  and  paid  over  to  individual  from 
whom  it  was  withheld  or  his  proper  legal  representative;  income  upon  which 
such  tax  was  so  deducted  and  released  required  to  be  included  in  return,  if  any, 
of  such  indiAddual  for  the  purpose  of  assessment  and  collection  of  income  tax. 
(T.  D.  2690;  art.  47.) 

When  stock  in  domestic  or  resident  alien  corporation  whose  net  income  is  subject 
to  normal  income  tax  is  issued  in  name  of  another  than  nonresident  alien  corpora- 
tion, di\'idends  on  such  stock  will  not  be  subject  to  withholding  of  normal  tax  under 
section  13  (f)  of  the  act  of  September  8,  1916,  as  amended,  except  when  debtor 
corporation  or  its  withholding  agent  has  knowledge  that  actual  owner  of  stock  ia 
nonresident  alien  corporation  subject  to  withholding.     (T.  D.  2690;  art.  201.) 

WTiere  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  citizens  or  residents  of  United  States,  individual  or  fiduciary,  or  by  domes- 
tic or  resident  corporations,  joint-stock  companies,  associations,  insiuance  com- 
panies, or  partnerships,  ownership  certificate  lOOlA  shall  be  executed  by  actual 
owner,  or  by  his  duly  authorized  agent,  when  presenting  item  for  collection,  whether 
item  is  di\ddend  or  interest  payment,  except  in  case  of  foreign  country  or  foreign 
corporation  having  paying  agent  in  this  country  and  issuing  bonds  containing  '  'tax- 
free"  covenant  clause;  in  such  cases  paying  agent  will  withhold  normal  tax  upon 
interest  on  such  bonds,  and  ownership  certificate  Form  1000,  properly  modified  to 
show  that  debtor  has  paying  agent  in  this  country,  should  be  used,  unless  owner 
desires  to  claim  exemption,  when  Form  lOOlA  should  be  used.  (T.  D.  2759;  Oct.  2, 
1918.) 

Foreign  items  shall  not  be  accepted  for  collection  by  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed,  .or  accompanied  by  proper  ownership  certificate, 

f;iving  all  information  called  for  by  such  certificate;  where  first  licensed  bank  or  col- 
lecting agent  is  source  of  information.  Licensee  shall  attach  ownership  certificate  and 
indoi-se  on  item  the  words  "Certificate  attached  and  information  furnished, "  adding 
his  name  and  address;  when  foreign  items  have  been  properly  indorsed,  certificates 
shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue  (Sorting 
Division),  Washington,  D.  C,  on  or  b^ore  20th  day  of  mouth  following  that  during 
which  items  were  accepted,  accompanied  by  letter  of  transmittal  showing  number 
of  certificates  and  aggregate  amount  of  foreign  items  disclosed  thereon.  (T.  D. 
2759;  Oct.  2,  1918.) 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall 
accompany  coupon  to  paying  agent  in  this  coimtry,  or  if  there  is  no  such  agent,  then 
to  last  bank  or  collecting  agent  handling  item  in  this  country;  when  more  than  one 
coupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from  same 
issue  of  bonds,  single  certificate  may  be  used;  when  foreign  items  have  been  prop- 
erly indorsed,  certificates  shall  be  attached  and  forwarded  to  Commissioner  of  In- 
ternftl  Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of 


512  PRINCIPAL   AND   SURETY PRIVATE  RAILROADS. 

Income  taxes — Continued. 

Withholding— Continued. 

month  foUomng  that  during  which  items  were  accepted,  accompanied  by  letter  of 
transmittal  showing  number  of  certificates  and  aggregate  amount  of  foreign  items 
disclosed  thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of 
information,  ownership  certificate  shall  accompany  coupon  to  such  agent  or  source 
of  information,  who  shall  forward  ownership  certificate  to  Commissioner  of  Internal 
Revenue,  in  manner  provided  where  duty  is  placed  upon  licensee,  provided  that  in 
case  ownership  certificate  Form  1000  is  used  paying  agent  shall  make  return  on 
Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

Revenue  agents — Leave  of  absence. 

Applications  for  leave  of  absence  required  to  be  in  writing,  or  by  telegraph  or  tele- 
phone if  emergency  requires,  and  to  be  reported  by  revenue  agent  under  whom 
agent  or  inspector  is  assigned  to  duty;  leave  of  absence  is  subject  to  approval  of 
Commissioner  of  Internal  Revenue;  telegraph  or  telephone  charges  incident  to 
procuring  leave  are  at  expense  of  officer  desiring  such  leave;  manner  of  reckoning 
leave  of  absence  and  extent  thereof.     (T.  D.  2369;  Sept.  12,  1916.) 

Reports. 

Use  by  revenue  agents  of  Form  629  discontinued;  Form  132  should  contain  state- 
ment of  duties  performed.     (T.  D.  2398;  Nov.  18,  1916.) 

Special  disbursing  agents  will  discontinue  reporting  on  Form  7300  the  expenses 
incurred  in  each  State  for  miscellaneous  items  and  services  of  special  emploj^ees, 
guides,  posse  men,  and  informers.     (T.  D.  2398;  Nov.  18,  1916.) 

Shippers^Claim  for  refund  of  transportation  tax. 

Where  shipper,  claiming  refund  of  transportation  tax  collected  on  property  in 
process  of  exportation,  is  member  of  association  of  similar  shippers,  such  associa- 
tion may,  as  agent  for  first  shippers,  make  blanket  claim  on  Form  46  in  behalf  of 
indi\'idual  members;  formal  demand  of  each  shipper  must  be  attached  to  and 
forwarded  with  Form  46  for  refund  of  amount  to  shipper,  such  demand  showing 
total  amount  of  charges  and  total  amount  of  tax  paid  by  each  shipper,  and  such 
demands  must  be  aggregated  by  association  and  securely  attached  to  claim  before 
same  is  filed  with  commissioner.     (T.  D.  2727;  June  5,  1918.) 

PRINCIPAL  AND  SURETY. 

Indemnity  or  surety  bonds. 
See  "Bonds." 

PRIVATE  HOME. 
Definition. 

The  words  '  'private  home,' '  as  used  in  act  of  September  8,  1916,  were  intended  to 
be  taken  in  their  common  and  ordinary  meaning  as  describing  individual  or  family 
residences;  it  has  accordingly  been  held  that  occupation  tax  is  applicable  to  pool 
or  billiard  tables  and  bowling  alleys  in  clubs,  fraternity  houses,  lodge  halls,  char- 
itable institutions,  Y.  M.  0.  A.  buildings,  hotels,  boarding  houses,  etc.  (T.  D. 
2462;  Feb.  16,  1917.) 

PRIVATE  RAILROADS. 

Excess  profits  tax — Consolidated  returns. 

Where  a  railroad  is  owned  by  an  industrial  corporation,  and  is  operated  as  a  plant 
facility,  or  as  an  integral  part  of  a  group  organization  of  affilated  corporations,  and 
such  affiliated  corporations  are  required  to  file  consolidated  return,  the  return  of  such 
railroad  shall  be  included  therein.     (T.  D.  2662;  Mar.  6,  1918.) 

Transporting  for  hire. 

\Miere  a  person,  corporation,  partnership,  or  association  is  engaged  in  loggino^, 
manufacturing,  mining,  or  any  other  business,  and,  for  account  of  himself  or  itself 
furnishes  any  of  the  services  or  facilities  described  or  referred  to  in  subdivisions 
(a),  (b),  (c),  or  (d)  of  section  500  of  the  act  of  October  3,  1917,  and,  at  times,  for  hire, 
furnishes  any  of  such  facilities  for  the  account  of  any  other  person,  coi-poration, 
partnership,  or  association,  the  one  furnishing  such  facility  is  a  carrier,  and  tax 
applies  as  respects  all  commodities  so  transported,  whether  for  hie  or  its  account  or 
for  the  account  of  others.    (T.  D.  2676;  Mar.  18,  1918.) 


PROBABLE   CAUSE — PRODUCE   EXCHANGES.  513 

PROBABLE  CAUSE. 

Income  taxes — Claims. 

In  view  of  provii^ions  of  Bootion  fJ89,  Revised  Statiitep,  protecting  collector  from 
person  liability  in  case  court  certifies  that  there  was.  probable  cause  for  a.ct  done 
by  him,  it  is  for  interest  of  collector  to  see  that  in  all  cases  wherein  judgment  is  ren- 
dered againstiiim,  court  shall  be  asked  to  give  certificate  of  probable  cause;  if  judg- 
ment debtor  shall  have  already  paid  amount  recovered  against  him,  claim  should 
be  made  in  his  name  and  affidavit  should  state  exact  amount  paid  by  him;  there 
should  also  be  certificate  of  clerk  of  court  in  which  judgment  was  recovered  (or 
other  satisfactory  evidence)  showing  that  judgment  has  been  satisfied  and  specify- 
ing exact  sum  paid  in  as  satisfaction,  with  detail  of  all  items  of  coat  paid,  or  for 
which  judgment  debtor  is  liable.     (T.  D.  2()90;  art.  275.) 

PBOCEEDS. 

Definition. 

The  word  "proceeds,"  as  used  in  section  700  of  act  of  October  3,  1917,  means  gross 
receipts  less  payments  of  proper  expenses,  or,  in  other  words,  net  proceeds.  (T.  D. 
2547;  Oct.  22,  1917.) 

The  term  "all  the  proceeds,"  as  \wec\  in  section  700  of  the  act  of  October  3,  1917, 
means  the  net  proceeds  after  payment  of  actual  reasonable  expenses.  (T.  D.  2681; 
Mar.  26,  1918.) 

PB.ODTJCE  EXCHANGES. 

Definition. 

The  word  "exchange"  within  Regulations  No.  ^0,  Part  2,  relating  to  stamp  taxes 
upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  includes 
t-ach  and  every  agent  or  agency,  auction  place,  or  other  meeting  place,  at  which 
produce  or  other  merchandise  for  future  deliverv  is  publicly  bought,  sold,  bid  for, 
f;ffered  or  exchanged,  or  contracts  for  such  future  delivery  are  made,  and  includes  all 
a.'^sociations  or  individuals,  partnerships,  antl  corporations  engaged  in  business 
of  publicly  selling,  buying,  or  exchanging  products  of  merchandise  for  future  de- 
livery.    (T.  D.  2608;  Nov.  30,  1917.) 

Documentary  stamps. 

Instructions  as  to  use  of  regular  documentary  stamps  ])ending  preparation  and 
distribution  of  special  supply  of  overprinted  stamps,  provided  to  temporarily 
take  place  of  distinctive  colored  stamps;  rec}ui.sition;  issuance  and  exchange.  (T.  D. 
2594;  Nov.  28,  1917.) 

Sales  for  future  delivery — Affixing  and  canceling  stamps. 

Stamps  in  value  equal  to  amount  of  tax  on  sales  must  be  affixed  to  memorandum  or 
other  evidence  of  sale  or  agreement  to  sell;  clearing  house,  acting  as  agent,  required 
to  make  returns  showing  stamps  affixed  and  canceled;  manner  of  canceling  stamps 
stated.     (T.  D.  2608;  Nov.  30,  1917.) 

■ Cotton. 

Contract  of  sale  of  cotton  for  future  delivery  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  busiiKss,  is  taxed  at  the  rate  of  $0.02  for  each 
pound  of  cotton  involved  (to  be  paid  by  stamp):  tax  not  to  he  levied  on  contracts 
complying  witli  conditions  pr.-scribed.     (T.  D.  2558;  Oct.  26,  1917.) 

Exempt  transactions. 

No  tax  is  im])osed  on  cash  sales  of  produce  or  merchandise  for  immediate  or  prompt 
delivery,  which,  in  good  faith,  are  actually  intended  to  be  delivered;  sellers  of 
produce,  etc.,  may  transfer  contracts  to  clearing-house  association  and  such  transfer 
shall  not  be  deemed  to  be  a  sale  or  agreement  of  sale,  provided  it  does  not  vest 
beneficial  interest  in  such  association  and  is  made  only  to  enable  such  association 
to  adjust  accounts  of  its  members;  no  by-law  or  custi^m  of  any  exchange  or  similar 
institutitin,  inconsistent  with  the  act  of  October  3,  1917,  or  any  regulations  there- 
under, nor  any  collateral  agreement  inconsistent  with  such  act  or  regulations  there- 
under shall  exempt  any  person  from  payment  of  tax.     (T.  1).  2608;  Nov.  30,  1917.) 

70420"- -21 33 


514  PEODUQER— PEOFESSIONS. 

Sales  for  future  delivery— Continued. 

Memoranda  of  sales. 

Every  sale  or  agreement  not  evndenced  by  memorandum  or  contract  expressly 
requiring  immediate  or  prompt  delivery  shall  be  deemed  to  be  for  future  delivery; 
every  x^erson  making  sale  of  any  product,  etc.,  at,  on  or  in  any  exchange  for  future 
delivery  shall  deliver  to  the  buyer  a  bill,  memorandum,  or  other  evidence  of  such 
sale,  showing  certain  specified  data  and  items  of  information;  no  single  sale  or  con- 
tract made  upon  an.  exchange  by  one  member  for  another  need  I5e  e\'idenGed  by 
more  tlian  one  memorandum;  written  return,  or  sheet  to  cleaxing  house,  acting  an 
agent,  considered  to  be  memorandum.;  return  by  clearing  house.  (T.  D.  2608; 
Nov..  30,  T917.) 

ilecords. 

Ail  persons  who  make  sales  or  contracts  of  sales,  including  ' '  transferred  or  scratch  ed 
sales,"  "pass  outs,"  "pair-offs,"  or  "matched  trades,"  and  all  other  forms  of  sale 
of  any  product  or  merchandise  on  exchanges  for  future  delivery  required  to  keep 
record  showing  specified  items  of  information;  form  of  record  required;  clearing 
houses  to  keep  recoixl  showing  certain  data.     (T.  D.  2608;  Nov.  30,  1917.) 

Registration. 

Regulation  No.  40,  Part  2,  requires  a  statement  of  registration  by  persons  makinq 
contract  of  sale  of  2)rf)duce  or  merchandise  on  exchanges  for  future  delivery;  record 
of  registi'ation  to  be  kept  by  collector,  and  certificate  of  registration  to  be  issued  an^i 
posted;  forms;  statement  of  registration  by  exchanges  and  clearing  houses.  (T.  D. 
2608;  Nov.  30,  1917.) 

Returns. 

Cleai'lng  houses  and  persons  making  contracts  (>f  sale  at,  on,  or  in  any  exchange, 
etc.,  for  future  delivery,  required  to  make  return  showing  specified  data  and  infor- 
mation; substitute  returns;  clearing  houses,  acting  as  agents,  required  to  return 
statement  of  amoimt.s  of  stamps  affixed  to  memoranda  of  sales.  (T.  D.  2608;.  Nov. 
30,  1917.) 

Stamp  sales. 

Stamps  required  to  be  affixed  to  contracts  of  sale  of  any  pnxluct  or  merchandise 
before  a  delivery  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treas 
urer,  or  other  designated  United  States  depositarv;  requisitions  for  stamps;  records, 
kind  and  color  of  stamps.     (T.  D.  2608;  Nov.  30,'  1917.) 

PBODTJCER. 

Definition. 

The  term  "producer,"  as  used  in  Regulations  No.  44,  relating  to  war  excise  taxes, 
is  a  broader  term  tlian  "manufactiu-er,"  which  is  defined  as  a  person- who  prepares 
an  article  in  final  marketable  form  and  sells  or  markets  it;  a  retailer  mav  be  also  a 
producer.     (T.  D.  2719;  Art.  II.) 

Within  the  meaning  of  section  600  (h)  of  the  act  of  October  3,  1917,  afiianufacturer 
or  producer  is  a  person  who  prepares  an  article  or  has  it  prepared  and  sells  it,  and 
who  identifies  the  article  by  a  commercial  name,  trade-mark,  or  trade  name,  or  by 
other  means,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine  or  "a 
medicinal  proprietarv  article  or  preparation  or  as  a  remedy  or  si^ecific.  (T.  I>. 
2719;  Art.  XXI.) 

PROFESSIONS. 

Excess  profits  tax. 

Section  209  of  the  act  of  October  3,  1917,  applies  primarily  to  occupations,  pru- 
fe.?sions,  trades,  and  businesses  engaged  principally  in  rendering  personal  service 
in  which  employment  of  capital  is  not  necessary,  and  earnings  of  which  are  t^  1:0 
aseiibed  primarily  to  activities  of  owners;  in  determining  whether  trade  or  business 
is  taxable  under  article  lo  of  Regulations  No.  41  no  weight  will  be  given  to  fact 
that  it  is  carried  on  by  means  of  personaJ  service  unless  principal  owners  arc  regn- 
larly  engaged  in  active  conduct  of  the  traae  or  business.     (T.  D.  2694;  art.  71.) 

Business  concerns  which  render  professional  personal  service  and  are  of  the  class 
normally  taxable  under  article  1-5  of  Regulations  No.  41,  shall  not  be  taken  out  of 
that  class  merely  because  of  size  of  capital  if  employment  of  such  capital  is  necessi- 
tated by  delay  and  irregularity  in  receipt  of  fees,  ctt:.,  or  if  such  capital  is  wholly  or 


PEOMISSORY   NOTES — PROPAGANDA.  515 

Excess  profits  tax — Continued. 

mainly  used  as  fund  from  which  to  advance  salaries,  wages,  etc.,  or  to  pro\-ide  o/Fico 
fin-niture,  accommodations,  and  equipment,  nor  beacuse  of  form  of  organization, 
whether  corporation  or  partnership,  nor  in  case  of  partnership,  because  of  numljer  of 
partners.     (T.  D.  2694;  art.  72.) 

Incorae  taxes. 

In  case  of  professional  man  who  rents  property  for  residential  purposes  but  receives 
there  clients,  patients,  or  callers  in  connection  with  his  professional  work  (place 
of  business  being  elsewhere),  no  part  of  rent  is  deductible  as  bu-siness  expense.  (T. 
L).  2600;  art.  8.) 

PROMISSORY   ISTOTES. 

Excess  profits  tax— "Tangiljle  property." 

Stocks,  bonds,  bills  and  accounts  receivable,  notes  and  other  evidences  of  indebt- 
edness, and  leaseholds,  when  paid  in  for  stock  or  sliares  in  corporation  or  partnership, 
will  be  regarded  as  tangible  property  so  paid  in,  but  when  corporation  pays  for  in- 
tangible property  by  the  issuance  of  its  own  stock  or  bonds,  thLs  will  not  be  regarded 
as  being  a  pavment  bona  fide  made  in  cash  or  taugilbe  pro^K^rty  within  meaning  of 
section  207.    '(T.  D.  2694;  ai-t.  47.) 

Income  taxes.  • 

Grossincoine  from  sources  withiii  United  States,  as  appUed  to  foreign  corporations, 
includes  interest  received  on  bonds,  notes,  or  other  interest-bearing  obligations  of 
residents,  corporate  or  otherwise.     (T.  D.  2690;  art.  89.) 

Losses  of  insurance  companies  other  than  mutuals,  but  including  mutual  life  and 
mutual  marine,  for  agency  balances  or  other  amounts  charged  off  as  worthless,  and 
losses  by  defalcation,  premium  notes  voided  by  lapse,  provided  such  notes  haA-e  at 
some  time  been  included  in  gross  income  for  income-tax  purposes,  raav  be  deducted. 
(T.  D.  2690;  art.  240.) 

Stamp  taxes. 

Promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
pledge  of  any  bonds  or  obligations  of  United  States,  issued  after  April  24,  1917,  anil 
all  promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
pledge  of  promissory  note  which  itself  is  secured  by  pledge  of  United  States  bonds 
or  obligations  issued  after  April  24,  1917.  are  exempt  from  stamp  tax  imposed  by 
section  301  of  the  act  of  April  5,  1918;  bonds  herein  mentioned  incUuh^  Liberty 
bonds;  exemption  applies  only  where  par  value  of  bonds  or  obligations  pledged 
shall  equal  amount  of  promissory  note.     (T.  D.  2701;  Apr.  16,  1918.) 

Short-term  instrument,  although  issued  by  corporation  under  trust  indenture, 
may  be  regarded  as  a  note  if  every  instrument  of  such  issue  both  (a)  is  payable  to 
bearer  and  incapable  of  registration,  and  (6)  lacks  interest  coupons  and  so  requires 
Ijresentation  upon  each  payment  of  interest.     (T.  D.  ^"13;  May  14,  1918.) 

Instrument  not  under  seal  containing  simple  promise  to  pay  sum  of  money  at 
specified  time,  such  as  is  common  in  everv-dav  commercial  use,  is  promissory  note 
within  meaning  of  Schedule  A  of  Title  VlII  of  the  act  of  October  3,  1917.  (T.  D. 
2718;  May  14,  1918.) 

Failure  to  stamp  promissory  notes,  which  are  subject  to  stamp  tax  under  sub- 
division 6  of  Schedule  A,  Title  VIII,  act  of  October  3,  1917,  renders  maker  and 
acceptor  of  such  notes  separatelv  liable  under  section  802  (a)  of  the  act.  (T.  D. 
2795;  Feb.  26,  1919.) 

Policy  loan  and  premium  extension  agreements. 

Policy  loan  and  premium  extension  agreements  are  not  promissory  notes  as  con- 
templated by  law  so  as  to  be  liable  for  stamp  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

PROPAGANDA. 

Incorae  taxes — Deduction  of  expenses. 

Sums  of  money  expended  for  lobbying  purposes,  promotion  or  defeat  of  legislation, 
and  exploitation  of  propaganda,  are  not  an  ordinary  and  necessary  expense  in  opera- 
tion and  maintenance  of  business,  and  are  therefore  not  deductible.  (T.  D.  2690; 
art.  143.) 


516  PROPRIETABY   MEDICINES. 

PROPHIETARY   MEDICINES. 

See  "Medicinal  Preparations." 
Alcohol — Floor  tax. 

Alcohol  held  on  October  3.  1917,  by  ma^mfacturers  of  proprietary  medicines  for 
Tine  in  manufacture  of  medicines  is  subject  to  floor  tax,  unless  on  day  act  of  October 
li,  1917,  took  effect  it  was  in  process  of  manufacture  and  had  been  rendered  unfit  for 
beverage  purposes.  (T.  D.  2547;  Oct.  22,  1917.  Overruled,  T.  D.  264.3;  Jan.  28, 
1918.) 

Distilled  spirits. 

Cauff man's  j,'inger  brandy  held  to  be  alcoholic  compound  beverage  for  which 
special  tax  is  required  for  manufacturing  and  selling;  not  taxed  as  a  proprietary 
medicine  though  label  shows  medicinal  claims.     (T.  I).  25.30;   Oct.  13,  1917.) 

Application  for  permit  to  use  distilled  spirits  in  the  manufacture  of  proprietary 
medicines  must  be  accornpxnied  by  copy  of  manufacturer's  formula  and  a  sample  of 
his  product,  which  must  be  forwarded  to  office  of  Commissioner  of  Internal  Revenue 
for  approval,  unless  formula  and  sample  have  been  passed  upon  favorably  by  the 
('ommis.sioner.     (T.  D.  2559;   Oct.  26,  1917.) 

Use  of  distilled  spirits  for  nonbeverage  purposes  includes  prrp  -ietary  medicines  for 
which  special  tax  is  jiot  required  as  rectifier  from  the  producer,  or  special  tax  as 
wholesale  or  retail  liquor  dealer  from  the  vendor;  manufacturers  of  so-called  pro- 
prietary medicines  listed  in  T.  D.  2222,  or  subsequent  decisions  of  similar  import 
(see  T.  I).  2554),  will  not  be  entitled  to  use  nonbeverage  alcohol.  (T.  D.  2559;  Oct. 
26,  1917.     T.  D.  2788,  Feb.  6,  1919.) 

Excise  taxes — Articles  included. 

The  word  "medicinal"'  is  applicable  to  any  substance  adapted  to  cure  or  alleviate 
disease  or  pain;  accordingly,  a  medicinal  p-eparation  is  a  preparation  of  any  sub- 
stance whatever  intended  to  be  applied  for  the  cure  or  mitigation  of  pain  or  disease; 
many  articles  or  substances  which  are  not  usually  con.widered  as  belonging  to  materia 
mcdica  may  become  taxable  medicinal  preparations  by  being  held  out  or  adver- 
tised as  remedies  for  diseases  affecting  the  human  or  animal  body.  (T.  I).  2719; 
Art.  XXI l.j 

Boric  acid. 

Bori«  afid  when  sold  under  a  trade-mark  as  a  medicinal  preparation  is  taxable 
under  section  600  (h)  of  act  of  October  3,  1917.     (T.  D.  2719;   Art.  XXII.) 

Food  preparations. 

Food  preparations  as  distinguished  from  medicinal  preparations  are  not  taxable 
under  section  600  (h)  of  the  act  of  October  3,  1917.     (T.  D.  2719;   Art.  XXII.) 

"Held  out  or  recommended." 

"  Held  out  or  recoramencjed,"  as  used  in  sections  600  (h)  of  the  act  of  October  3, 
1917,  includes  representation  by  any  means,  personal  canvass  and  statements  on  the 
labels,  in  pamphlets,  or  advertisements,  or  otherwise;  a  holding  out  or  recommenda- 
tion for  physicians  only  is  a  holding  out  to  the  public.     (T.  D.  2719;   Art.  XXI.) 

Licorice. 

Licorice  i)ul  up  in  sticks,  lozenges,  or  in  other  forms  siiitable  for  medicinal  pur- 
poses and  sold  under  a  trade-mark  is  subject  to  the  tax  imposed  by  section  600  (hj  of 
the  act  of  October  3,  1917.     (T.  D.  2719;   Art.  XXII.) 

Manner  in  ■which  prepared. 

*  Tax  applies  to  medicinal  p /eparalion  held  out  by  producer  to  the  public  as  a  pro- 
p.i('tary  medicine  or  as  a  remedy  for  disease,  although  it  is  prepared  by  a  process 
which  merely  refines  a  natural  suVjstance.     (T.  D.  2719;   Art.  XXII.) 

Taxability  of  medicinal  p-eparation  under  section  600  fh)  of  the  act  of  October  3, 
1917,  is  determined  by  the  manner  in  which  it  is  p-epared  or  the  way  in  which  it  is 
put  upon  the  market;  if  article  is  advertised  under  name  or  trade-mark  of  niaim- 
facturer,  or  any  name  in  possessive  case  is  used  on  label  or  on  literature  describing 
medicinal  preparation,  or  name  of  manufacturer  is  made  part  of  name  or  title,  or  any 
intimation  is  otherwise  given  that  article  is  of  distinctive  origin,  tax  is  imposed; 
where  medicinal  preparations  are  sold  under  what  appearsto  be  or  what  is  intended 
to  be  a  trade-mark  appropriated  to  the  article,  the  tax  attaches.  (T.  D.  2719;  Art. 
XXII.) 


PROPRIETARY   MEDICINES.  517 

Excise  taxes — Continued. 
Manufacturer. 

If  artiile  or  its  container  ha?  on  it  both  a  trade-mark  or  trade  name  of  one  manu- 
facturer an<l  the  individual  or  buRinese  name  of  another,  the  owner  of  the  trade- 
mark or  trade  name  will  be  deemed  the  manufacturer;  if  the  article  or  its  container 
has  on  it  both  the  c(»mmercial  name  of  the  article  and  an  individual  or  business 
name,  the  latter  will  be  deemed  to  designate  the  manufacturer.  (T.  D.  2719;  Art. 
XXI.) 

A  person  who  is  employed  to  make  an  arti(de  and  receives  for  it  the  cost  of  mate- 
rials and  labor  plus  specified  profit  shall  be  considered  a  manufacturing  agent,  and 
the  persfin  who  procures  the  preparation  of  the  article  will  be  considered  the 
manufacturer.     (T.  D.  2719;  Art.  XXI.) 

Within  the  meaning  of  section  fiOO  (h)  of  the  act  of  October  ;i,  1917,  a  manufacturer 
fir  producer  is  a  pennon  who  prepares  an  article  or  has  it  prepared  and  sells  it,  and 
who  identifies  the  article  by  a  commercial  name,  trade-mark,  or  trade  name,  or  by 
other  means,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine  or  a 
medicinal  proprietary  article  or  preparation  or  as  a  remedy  or  spcrific.  (T.  D. 
.    2719;  Art.  XXI.) 

A  person  who  Ijottles  or  r»ther\\ase  prepares  an  article,  and  merely  for  advertising 
purprjses  places  on  such  article  the  name  of  any  dealer  who  may  handle  it,  shall  be 
deemed  manufacturer  if  names  of  both  persons  appear,  but  if  only  the  dealer's 
name  appears  he  shall  be  deemed  the  manufacturer.     (T.  1).  2719;  Art.  XXI.) 

Wliere  the  oM'ner  of  a  formula  contracts  with  a  manufacturer  to  prepare  an  article 
according  to  such  formula  and  to  deliver  it  to  him  in  complete,  salable  form,  the 
labels  bearing  the  formula  owner's  name,  he  is  considered  the  manufacturer. 
(T.  D.  2719;  Art.  XXI.) 

Printing  on  labels,  etc. 

Printing  on  labels  the  directions  and  imlications  for  use,  dosage,  and  other  similar 
matter  will  not  alone  render  preparations  made  under  a  standard  formula  taxable, 
provided  ]jreparati(;n  is  not  held  out  or  re<:ommended  as  a  proprietary  preparation 
or  as  a  remedy  or  specific;  where  medicinal  pre])arations  are  sold  under  labels 
which  do  not  indicate  that  the  f(,rmula  is  published,  they  will  be  considered  to  l>e 
])rc])ared  under  private  formulas,  unless  prof)f  is  submitted  that  the  formula  is  not 
secret.     (T.  D.  2719;  Art.  XXIl.) 

Xame,  initials,  or  monogram  of  manufacturer  printed  on  laliel  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  amounts 
to  a  holding  out  of  that  preparation  as  proprietary.     iT.  D.  2785;  Jan.  23,  1919.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  other  manufacturers,  amounts  to  a  holding  out  of  that 
preparation  as  proprietary.     (T.  1).  278-5;  Jan.  23,  1919.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  acroes 
niiddl*!  of  label  does  not  amount  to  a  holding  out  of  that  preparation  as  proprietary. 
(T.  D.  2785;  Jan.  23,  1919.) 

Rate  of  tax. 

Tax  imposed  by  section  600  (h)  of  the  act  of  October  3,  1917,  is  2  ])er  cent  of  price 
for  which  all  medicinal  preparations,  compounds,  or  compositions  whatsoever  are 
sold  by  the  manufacturer;  provided  that  (!)  the  manufiU'turer  claims  to  have  any 
private  formula,  secret  or  occult  art  for  making  or  preparing  them ;  or  (2)  the  manufac- 
turer has  or  claims  to  have  any  exclusive  right  or  title  to  making  or  preparing  them 
or  (3)  they  are  ])repared,  utt<'red,  vended,  or  exposed  for  sale  under  any  letters 
patent  or  trade-mark;  or  (4)  they  are  held  out  or  recommended  to  the  public  by 
the  makers,  venders,  or  proprietors  thereof,  either  (a)  as  proprietary  medicines 
or  medicinal  proprietary  articles  or  preparations,  or  (6)  as  remedies  or  specifics  for 
any  disease  or  affection  whatever  affecting  the  human  or  animal  body.  (T.  D. 
27i9;  Art.  XIX.) 

Scope  of  tax. 

Every  medicinal  ])reparation,  compound,  or  composition  embraced  within  one 
or  more  of  the  subdivisions  in  Article  XIX  of  Regulations  No.  44  is  subject  to  tax; 
if  article  is  made  or  prepared  by  manufacturer  claiming  to  have  private  formula, 
secret  or  occult  art  for  it,  it  is  taxable  even  though  it  is  not  pre})ared,  uttered, 
vended,  or  exposed  for  sale  under  any  letters  patent  or  trade-mark,  and  it  is  not  held 
out  or  recommended  to  public  as  proprietaiy  medicine  or  mcvlicinal  proprietary 


518  PROTECTIVE   ASSOCIATIONS PUBLIC    OFFICERS, 

Excise  tax — Conlinued. 

Scope  of  tax — Continued. 

article  or  preparal/iou  or  as  a  remedy  or  specific  for  any  disease  or  affection  of  the 
human  or  animal  body.     (T.  D.  2719;  Art.  XX.) 

Preparations  made  in  accordance  vath  formulas  contained  in  United  Stat^os  Phar- 
macopoeia and  National  Formulary  by  pharmaceutical  manufacturers,  when  not 
held  out  or  recommended  as  proprietary  medicines  or  medicinal  proprietarj'  article.-i 
or  preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  but  if  so  held  out 
or  recommended  they  are  taxable  although  not  identified  by  any  name,  trade- 
mark;  or  otherwise.     (T.  D.  2719;  Art.  XX.) 

Medicinal  preparation  held  out  or  recommended  as  proprietary  or  as  a  remedy 
or  specific  for  disease  is  taxable,  (a)  eA'en  if  sold,  in  first  instance,  only  to  physicians 
and  druggists,  (b)  even  if  a  "bacterin,"  and  (c)  even  if  an  uncompounded  natural 
sul)stance  merely  dried  or  refined.     (T.  D.  2785:  Jan.  23,  1919.) 

Trade-mark  or  narae. 

Taxability  of  medicinal  preparation  under  section  600  (h)  of  the  act  of  October 
3,  1917,  is  determined  by  the  manner  in  which  it  is  prepared  or  the  way  in  which  it 
is  put  ni^on  the  market;  if  article  is  advertised  under  name  or  trade-mark  of  manu- 
facturer, or  any  name  in  possessive  case  is  used  on  label  or  on  literature  describing 
medicinal  preparation,  or  name  of  manufacturer  is  made  part  of  name  or  title,  or  any 
intimation  is  otherwise  given  that  article  is  of  distinctive  origin,  tax  is  imposed; 
where  medicinal  preparations  are  sold  under  what  appears  to  be  or  what  is  intended 
to  be  a  trade-mark  apprcjpriated  to  the  article,  the  tax  attaches.  (T.  D.  2719;  Art. 
XXII.) 

Name,  initials,  or  monogram  of  manufacturer  printed  on  label  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  is  not  of 
itself  a  trade-mark  under  section  600  (h)  of  the  act  of  October  3,  1917.  (T.  D. 
2785;  Jan.  23,  1919.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  other  manufacturers,  is  a  "trade-mark"  under  section 
600  (h)  of  the  act  of  October  3,  1917.     (T.  D.  2785;  Jan.  23,  1919.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  across  middle 
of  Isbel  is  not  a  "trade-mark"  under  section  GOO  (h)  of  the  act  of  October  3,  1917. 
(T.  D.  2785;  Jan.  23,  1919.) 

Waters. 

Artificial  mineral  waters,  not  carbonated,  sold  by  manufacturer,  producer,  or 
importer,  in  bottles  or  other  closed  containers,  carbonated  waters  manufactured  and 
sold  by  the  manufacturer,  producer,  or  importer  of  the  carbonic-acid  gas  used  in 
carbonating  the  same,  and  natural  mineral  waters  and  table  waters  sold  by  the 
producer,  bottler,  or  importer,  in  bottles  or  other  closed  containers,  at  over  10 
cents  per  gallon,  all  of  which  are  taxed  under  section  313  of  the  act  of  October  3, 
1917,  are  not  subject  to  tax  under  section  600  (h)  if  intended  for  use  solely  as  bev- 
erages.    (T.  D.  2719;  Art.  XXIIT.) 

PROTECTIVE  ASSOCIATIONS. 
Capital  stock  tax. 

Mutual  protective  association  organized  under  a  statute,  whoso  only  sourco  of 
revenue  is  the  assessments  paid  by  its  members  and  whose  net  income  for  each  y?ar 
is  paid  into  a  reserve  fund,  constituting  sole  resource  of  company,  aside  from  cur- 
rent assessments,  for  pavment  of  losses,  is  an  insurance  company  within  meaning  of 
act  September  8,  191<i.  "  (T.  D.  2750,  art.  3;  Aug.  9,  1918.) 

PUBLIC   OFFICERS. 

Admissions  tax. 

xMuuicipal  officers  on  official  business  when  admitted  free  are  not  taxable  under 
section  700  of  the  act  of  October  3,  1917;  municipal  officers  include  policemen  and 
firemen  when  in  attendance  in  the  course  of  their  duty.  (T.  D.  2681;  Mar.  26, 
1918.) 

Bonds — War  tax. 

Bonds  given  by  officials  of  a  State,  township,  county,  or  village  for  faithful  per- 
formance of  duties,  are  free  from  Federal  taxation  on  broad  ground  that  sovereign 
States  and  subdivisions  thereof  are  constitutionally  free  from  taxation  by  Federal 
Government.     (T.  D.  2624;  Dec.  14,  1917.) 


PUBLIC    UTILITIES.  510 

Transportation  charges— Exemptions. 

Exemptiou  nuiy  be  claimed  only  where  person  transported  is  incurring  charge 
in  performance  of  official  duties  as  officer  or  employee  of  United  States;  tiius, 
charges  paid  by  soldiers  traveling  on  furloughs  at  their  own  expense  are  not  ex- 
empt; fact  that  amount  of  mileage  or  other  allowance  paid  or  made  for  transporta- 
tion in  performance  of  official  duties  may  be  more  than  sufficient  to  reimburse  offi- 
cers or  employee  for  transportation  payment  does  not  prevent  application  of  exemp- 
tion provision  of  section  502  of  act  of  October  3,  1917,  to  such  payment;  exemption 
applies  to  amounts  paid  as  fares  and  to  amounts  paid  for  accommodations  in  parlor 
or  sleeping  cars  or  on  vessels.     (T.  D.  2676;  Mar.  18,  1918.) 

PTJBLIC  UTILITIES. 

Excress  profits  tax — Consolidated  returns  of  aflSliated  corporation's. 

Railroads,  gas,  electric,  water,  or  other  public-service  corporations  when  operuicd 
independently  and  not  physically  connected  or  merged — particularly  when  situ- 
ated in  different  jurisdictions  Pfnd  subject  to  regulation  by  public-service  commis- 
sions— will  not  be  required  or  permitted,  without  special  permission,  obtained  in 
advance,  to  make  a  consnlidated  return;  when  public  utility  is  owned  by  industrial 
corporation,  and  is  operated  as  a  plant  facility  or  as  an  integral  part  of  a  groui>  or- 
ganization of  affiliated  C(^rporations  and  such  corporations  are  required  to  file  con- 
solidated return,  return  of  such  pul^ric  utility  shall  bo  inchided  therein.  (T.  D. 
2662;  Mar.  6,  1918.) 

Excise  taxes. 

Money  received  for  service  connections  and  pipe  extensions  arc  not  permitted  to 
be  deducted  from  gross  amount  of  income,  as  they  do  not  come  within  any  of  the  per- 
mitted classes  of  deductions  mentionefl  in  the  act  of  August  5,  19G9;  moneys  so 
expended  are  iuA^ested  in  permanent  improvements  which  tend  to  enhance  the 
rental  and  the  market  value  of  the  watei-  svetem.  (T.  D.  2475;  Apr.  4, 1917.  Ct. 
Dec.) 

Fact  that  corporation  was  a  public  utilities  corporation  which,  under  the  laws  of 
the  State  of  California,  was  not  owner  of  property  but  merely  intrusted  with  use 
thereof,  which  it  must  devote  to  the  public,  does  not  entitle  it  to  more  favorable 
treatment  than  other  corporations,  it  being  a  coiporation  organized  for  profit,  having 
a  capital  stock  represented  by  shares,  and  the  act  of  Augu.st  -5.,  1909,  making  no 
exceptions  in  favor  of  public  utilities.     (T.  D.  2475;  Ai>r.  4,  1917.     Ct.  Dec.)  " 

Income  taxes. 

Public  utilities  whose  income  inures  to  benefit  of  any  State,  Tei-ritory.  or  political 
subdivision  thereof  are  exempt  from  tax  \\ithout  condition;  collector,  being  .satisfied 
that  organization  comes  within  exempted  class,  is  authorized  to  eliminate  it.  from 
his  list  and  relieve  it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

Where  public  utility  constructed,  operated,  or  maintained  by  corporation  under 
contract  with  any  city,  State,  Territory,  or  the  District  of  Columbia,  agreesthat 
portion  of  net  eariiings  shall  be  paid  to  «uch  city.  State,  Territory,  or  the  District  of 
Columbia,  amount  so  paid  may  be  deducted  by  the  public  utility  company  as 
necessary  expense  of  transacting  business.     (T.  D.  2690;  art.  142.) 

Telegraph,  etc.,  messages — Official  business. 

Under  section  502  of  act  of  Octo})er  3,  1917,  radio  messages,  telegraph  messages, 
and  telephone  messages  relating  to  Government  business,  which  originate  in  United 
States,  and  which  are  a  charge  against  the  Treasury  of  the  United  States,  the  Dis- 
trict of  Columbia,  a  State,  Territory,  or  any  political  subdivision  of  a  State  or  Terri- 
tory, and  are  paid  from  funds  thereof,  are  exempt  from  tax  imposed  by  section  500 
(e)'of  such  act;  messages  not  paid  from  such  funds  are  not  exempt  from  lax  even 
though  they  relate  to  Government  business.     (T.  D.  2619;  l>ec.  19,  1917.) 

All  telegraph,  telephone,  or  radio  messages  of  officers  and  employees  of  United 
States  on  official  btisiness  are  exempt  from  tax  imposed  by  section  500  of  act  of 
October  3,  1917,  and  .should  not  be  reported  in  monthly  return  of  telegraph,  tele- 
phone, or  radio  company;  otlLcer  or  employee  sending  telegraph  or  radio  message 
should  certify  thereon  that  it  is  on  account  of  official  business  and  not  for  private 
purposes;  form  of  certificate  indicated.     (T.  D.  2551;  Oct.  22,  1917.) 

Exemption  from  tax  imposed  by  s?ction  500,  subdivision  (e),  act  October  3,  1917, 
on  telephone,  telegraph,  and  radio  messages,  may  be  claimed  when  amounts  p.iid 


520  RADIO   MESSAGES KAILKGADS. 

Telegraph,  etc.,  messages — Official  business — Continued, 
for  such  messages  are  finally  to  be  paid  by  the  Government  under  cost-plus  con- 
tract; this  does  not  apply  where  contractor  is  doing  work   for  Government  under 
lump-sura  contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

Transportation  of  persons  and  property. 
See  "Transportation  Tax." 

HADIO  MESSAGES. 
Official  business — War  tax. 

Messages  of  officers  and  employees  of  United  States,  etc.,  on  official  business  are 
exempt  from  tax  imposed  by  section  500  of  act  of  October  3,  1917.  and  should  not 
be  reported  in  monthly  return  of  radio  companies;  officer  or  employee  sending 
message  should  certify  thereon  (hat  it  is  on  account  of  official  business  and  not  for 
private  purposes;  form  of  certificate  indicated.     (T.  D.  2551;  Oct.  22,  1917.) 

Under  section  502  of  act  of  October  3,  1917,  radio  messages  relating  to  Govern- 
ment business,  which  originate  in  United  States  and  which  are  a  charge  against  the 
Treasury  of  the  United  States,  the  District  of  Columbia,  a  State,  Territory,  or  any 
political  subdivision  of  a  State  or  Territory  and  are  paid  from  funds  thereof  are 
exempt  from  tax  imposed  by  section  500  (e)  of  such  act;  messages  not  paid  from 
such  funds  are  not  exempt  from  tax  even  though  they  relate  to  Government  busi- 
ness.    (T.  D.  2619;  Dec  19,  1917.) 

Exemption  from  tax  imposed  by  section  500,  subdivision  (e),  act  October  3,  1917, 
on  telephone,  telegraph,  and  radio  messages,  may  be  claimed  when  amounts  paid 
for  such  messages  are  finally  to  be  paid  by  the  Government  under  cost-plus  contract; 
this  does  not  apply  where  contractor  is  doing  work  for  Government  under  lump- 
sum contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

HAILROADS. 

Capital  stock  tax. 

Railroad  corporation  which  has  leased  its  property  for  a  term  of  years  and  parted 
with  its  control  and  management,  but  which  maintains  its  corporate  organization 
and  collects  rentals  from  lessee  company  and  distributes  same  among  its  stock- 
holders is  not  engaged  in  business  so  as  to  be  liable  for  tax,  notwithstanding  lease 
provides  for  recovery  of  property  in  case  of  default;  this  does  not  apply  where  cor- 
poration is  organized  for  ostensible  purpose  of  building  and  operating  a  railroad  and 
leases  the  road  before  it  is  built.     (T.  D.  2418;  Dec.  15,  1916.) 

Corporation  tax — "Organized  for  profit." 

WTiere  profit  was  one  of  the  substantial  objects  of  the  organization  of  a  corpora- 
tion, incorporated  to  provide  and  operate  a  terminal  for  certain  railroads.,  it  is 
organized  for  profit  within  the  meaning  of  the  act  of  August  5,  1909.  (T.  D.  2671; 
Mar.  11,  1918.     Gt.  Dec.) 

Income  taxes — Gross  income. 

Stock  trust  certificates  or  leased  line  certificates,  as  case  may  be,  issued  by  lessee 
for  purpose  of  securing  or  holding  control  of  stock  of  lessor  are  held  to  be  issued  in 
lieu  of  certificates  of  capital  stock  and  they  will  be  treated  as  capital  stock  and 
amounts  received  by  holders  are  dividends  to  them,  to  be  treated  as  rentals  by  both 
lessee  and  lessor  and  constitute  allowable  deduction  in  one  case  and  item  of  income 
in  other  accordingly  as  they  are  paid  and  received.     (T.  D.  2690;  art.  104.) 

If  leased  or  purchased  line  keeps  separate  books  of  account  or  income  is  or  can  be 
segregated,  or  if  lessee  or  operating  company  pays  it  a  certain  rental,  or  in  Ueu  of 
rental  pays  certain  per  cent  of  dividends  on  its  stock,  interest  on  its  bonds,  taxes, 
etc.,  lessor  will  return  same  as  its  income,  and  lessee  or  operating  company  will  make 
its  return  as  though  it  were  in  no  way  related  to  leased  line.     (T.  D.  2690;  art.  125.) 

Railroad  company  operating  leased  or  purchased  lines  as  integral  part  of  its 
line  or  system  and  keeping  uo  separate  books  of  account  as  to  such  leased  or  pur- 
chased line,  income  from  operation  of  which  can  not  be  segregated,  shall  include  iu 
its  income  all  receipts  derived  therefrom.     (T.  D.  2690;  art.  125.) 

— —  Met  income. 

Where  bonded  or  other  indebtedness  of  leased  or  purchased  line  has  been  assumed 
by  operating  company,  it  may  deduct  from  its  gross  income  interest  paid  on  such 
indebtedness,  provided  such  interest  plus  interest  paid  on  its  own  indebtedness  is 


RAIN    CHECKS — KEAL   ESTATE   AGENTS.  521 

Income  taxes — Coiitimicd. 

Net  income— C'ontinuod. 

not  in  excess  of  limit  fixed  by  law;  in  this  event  the  leat^ed  or  purchased  line  so  long 
as  it  has  a  corporate  existence  \vi\\  make  return  of  annual  net  income  setting  out  that 
on  its  own  account  it  has  neither  income  nor  expenses  and  that  both  are  taken  up 
in  return  of  operating  company,  naming  it.     (T.  D.  2690;  art.  125.) 

('ar-tni8t  certificates  secured  by  e(|uipment  are  obligations  of  railroad  company 
similar  to  corporate  bonds,  etc.,  and  trustees  in  whose  names  legal  title  to  equip- 
ment stands  are  not  an  association  within  meaning  of  Title  1  of  the  act  of  September 
8,  191(),  as  amended  by  the  act  of  Octolier  3,  19 J  7,  and  are  therefore  not  taxable, 
but  they  are  for  purposes  of  such  title  a  fiscal  agent  paying  off  the  obligations,  both 
principal  and  interest,  of  railroad  companies  with  funds  appropriated  by  such 
companies;  companies  may  mortgage  such  certificates  in  amount  of  bonded  or  other 
indebtedness  reported  under  item  2  of  return,  Form  1031,  and  interest  paid  thereon 
with  interest  on  other  obligations  will  be  deductible;  if  certificates  contain  provi- 
sion by  which  obligor  agrees  to  pay  portion  of  tax  imposed  upon  obligee  or  reim- 
burse obligee  for  any  portion  of  tax,  or  pay  interest  without  deduction  for  any  tax, 
trustees,  in  making  interest  payments  will  in  absence  of  claims  for  exemption, 
where  interest  payments  are  made  to  individuals,  withhold  normal  income  tax  on 
euch  payments  regardless  of  amount  thereof.     (T.  D.  2090;  art.  188.) 

System — Definition,  ' 

The  term  '  'railroad  system,"  as  used  in  subdivision  (b)  of  section  501  of  the  act  of 
October  3,  1917.  means  two  or  more  railroads  and  such  other  carriers  as  may  be 
operated  in  conjunction  therewith,  all  such  railroads  and  other  carriers  being  under 
one  general  operating  management,  and  even  though  each  such  railroad  or  other 
carrier  maintains  its  corporate  identity.     (T.  D.  2676;  Mar.  18,  1918). 

Transportation  of  persons  and  property. 

See  " Transportation ";   "Transportation  Tax. " 

RAIN  CHECKS. 
Admissions. 

Where  rain  checks  attached  to  tickets  sold  for  canceled  baseball  game  are  redeem- 
able in  cash  witli  refund  of  the  tax,  or  by  issue  of  ticket  for  another  game,  the  box- 
office  statement  for  the  canceled  game  may  be  marked  "Canceled, "  but  in  its  next 
return  the  tax  must  be  accounted  for  by  the  club  on  any  tickets  not  redeemed  as 
shown  by  comparison  of  box -office  statement  for  canceled  game  with  statements 
for  subsequent  games.     (T.  D.  2G81;  Mar.  26,  1918.) 

RANCHES. 
Income  taxes — Gross  income. 

Corporations  engaged  in  operating  plantations,  ranches,  stock  farms,  poultry 
farms,  and  lands  used  for  raising  fruit,  truck,  etc.,  including  orchards  of  all  kinds, 
shall  make  their  returns  on  the  basis  of  the  products  actually  marketed  and  sold 
during  the  year,  whether  such  products  were  produced  or  purchased  and  resold, 
(T.  D.  2690;  art.  123.) 


Net  income. 

Anioun?s  expended  in  development  of  ranches  prior  to  time  when  productive 
stage  is  reached,  constitute  investments  of  capital.     (T.  D.  2690;  art.  4.), 

Returns. 

See  "Farmers." 

Wine — Family  use. 

The  exemption  given  by  section  402  (b)  of  aict  September  8,  1916,  authorizing 
producer  of  wines  to  manufacture  200  gallons  thereof  for  use  of  his  own  family  with- 
out payment  of  tax,  does  not  apply  to  wines  furnished  ranch  hands  or  boarders. 
(T.  D.  2765;  Oct.  21,  1918.) 

REAL  ESTATE  AGENTS. 

Income  tax — Information  at  source. 

Payments  of  rent  made  to  real  estate  agents  do  not  require  reports  of  information 
(but  agent  must  report  payments  to  landlord  if  the  same  amounts  to  $800  or  more 
during  1917).    (T.  D.  2670;  Mar.  11,  1918.) 


522  REAL   ESTATE    COEPOEATIONS EECEIVEKS. 

REAL  ESTATE  CORPORATIONS. 

Capital  stock  tax. 

Corporations  whose  business  is  principally  the  holding  and  management  of  real 
estate  are  actually  "engaged  in  business"  so  as  to  be  subject  to  the  tax  impo?,ed 
by  section  407  of  the  act  of  September  8,  1&16.     (T.  D.  2418;  Dec.  15,  191&.) 

REAL  ESTATE   STJEDIVISIOMS. 

Income  taxes — Gross  income. 

In  case  of  real  estate  corporations,  purchasing  tract  of  laud  with  view  to  dividing 
it  into  lots  or  parcels  to  be  sold  as  such,  entire  value  as  of  March  1,  1913,  or  cost,  if 
acquired  subsequent  to  that  date,  shall  he  equitably  apportioned  to  the  several  lots 
or  parcels  so  that  any  gain  derived  may  be  returned  as  income  for  year  in  which 
sale  was  made;  rule  contemplates  that  there  will  be  gain  or  loss  in  every  sale  ami 
does  not  contemplate  that  capital  invested  in  entire  tract  shall  be  extinguished 
before  any  taxable  income  shall  be  returned;  sale  of  each  lot  or  parcel  will  bo 
treated  as  separate  transaction  and  gain  will  be  accounted  for  accordinglv.  (T.  D. 
2690;  art.  117.) 

• Net  income. 

Where  real  estate  corporation  purchases  tract  of  land  with  view  to  dividing  it 
into  lots  or  parcels  to  be  sold  as  such,  and  loss  results  from  sale,  amount  of  loss  to"  Iwi 
deducted  will  be  ascertained  in  like  manner  as  if  gain  had  been  realized,  and  will 
be  amount  by  which  selling  price  is  less  than  the  value,  as  of  March  1,  1913,  or  less 
than  the  cost,  if  acquired  subsequent  to  that  date,  as  the  case  mav  be.  (T.  D.  2690; 
art.  117.) 

RSASONABLE  CATJSE. 
Definition. 

The  words  "reasonable  cause,"  as  used  in  section  3176,  Revised  Statutes,  as 
am.ended  by  the  act  of  September  8,  1916,  providing  that  if  after  delinquency  has 
ensued  and  before  receiving  notice  from  collector  of  such  delinquency  and  request 
for  return,  delinquent  shall  have  filed  his  return,  accompanied  with  showing  that 
failure  to  file  in  time  v/as  due  to  reasonable  cause,  no  such  addition  shall  be  made 
to  the  tax,  is  held  to  Ix?  such  a  condition  of  fact  as  had  the  taxpayer  in  default  exer- 
cised ordinary  business  care  and  prudence  it  would  have  been  impracticable  or 
impossible  for  him  to  have  filed  return  on  prescribed  time.     (.T.  D.  2690;  art.  54.) 

RECEIPT. 
Definition. 

Actual  receipt  is  reduction  to  j>o83ession;  constructive  receipt  is  where  income 
is  credited  to  or  made  available  to  recipients,  and  is  to  be  reported  as  income. 
(T.  D.  2690;  art.  4.^. 

Excise  tax  on  boats. 

Taxpaver  must  keep  tax  receipt  about  boat  when  in  use  available  for  examination 
by  Government  officers.     (T.  D.  27S3;  Aug.  23,  1918.) 

RECEIVERS. 

Corporations — Capital  stock  tax. 

Corporations  in  hands  of  receivers  not  recjuired  to  make  return  on  Form  707 
unless  receivership  terminates  before  close  of  taxable  period,  nor  will  corporations 
operating  under  their  corporate  management  but  which  were  in  hands  of  receivers 
during  preceding  taxable  (fiscal)  year  be  required  to  file  return.  (T.  D.  2424;  Dec. 
30,  1916.) 

Excise  taxes — Liability. 

A  receiver  continuing  a  business  imder  court  order  is  liable  to  tax  oa  articles 
produced  and  sold  by  him.     (T.  D.  2719;  Art.  VI.) 

Income  taxes — Retui-ns. 

Receivers  who,  as  officers  of  court,  stand  in  the  stead  of  some  principal,  must 
account  for  income  tax  as  principal  would  have  been  required  to  account.  (T,  D. 
2690;  art.  26.) 


RECORDS — RECTIFIED   SPIRITS.  523 

Income  taxes — Returns — Conlinuod . 

Under  section  13,  i)ara.2;raph  (c),  recoiver^,  tru.steos  in  bankruptcy,  or  assignees 
in  charge  of  and  operating  property  and  busines.-*  of  corporatioius,  must  make  returns 
of  annual  net  income  and  pay  tax  regardless  of  what  dLsposition,  subject  to  orders 
of  court,  may  be  made  of  such  income;  such  receiver,  etc.,  stands  in  place  of  cor- 
porate officers  and  must  perform  all  duties  and  assume  all  liabilities  which  would 
devolve  upon  such  officers  were  they  in  control;  income  which  he  receives  is  income 
of  corporation  and  is  subject  to  tax  imposed  in  so  far  as  it  exceeds  deductions  or 
allowances  authorized  by  law,  and  such  receiver,  etc.,  must  make  true  return  of 
annual  net  income  covering  each  year  or  part  of  each  year,  during  which  he  is  m 
custody  and  control  of  business  or  properties,  and  will  be  liable  to  all  penalties  for 
failure  to  meet  any  of  its  requirements.     (T.  D.  2690;  art.  209.) 

Copy  of  income  return  may  l^e  furnished  b\  the  Commissioner  to  person  who 
made  the  return  or  t-^  his  duly  constiUited  attorney,  or  if  person  is  decea.sed,  to  his 
executor  or  administrator,  or,  if  entity  is  in  hands  of  I'eceivf  r,  trustee  in  bankru])tcy, 
guardian,  or  similar  legal  custodian,  to  thf.  receiver  or  other  custodian  upon  written 
application  for  same,  accompanied  bv  satislactorv  evidence  that  apj^licaut  cornea 
Mithin  this  provision.     {T.  D.  29BL'-.  .fan.  7,  1920.) 

RECORDS. 

See  specific  heads. 

RECREATION  CLUSS. 

See  "Social  Clubs." 

RECTIFIED  SPIRITS. 

See  "Distilled  Spirits." 

Alaska. 

Extracts  from  act  of  February  14,  1917,  prohibiting  manufacture  and  sale  of 
alcoholic  liquors  in  Alaska,  published  for  information  of  iuternal  revenue  officers 
and  others  concerned.     (T.  D.  24G6;  Mar.  27,  1917.) 

Beverages. 

Prepared  sirups  and  extracts  used  by  rectifiers  of  spirits  are  not  taxable  under 
sertion  313  (a)  of  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXX.) 

Bottling  tanks. 

Where  rectifier  desires  to  continue  use  of  bottling  tanks  heretofore  placed  under 
wholesale  liquor  dealer's  stamps  for  that  purpose,  he  may  withdraw  spirits  from 
the  27  B  packages  directly  to  such  tanks,  on  which  must  be  i)laced  stamps  sufficient 
to  pay  tax  on  contents  at  15-cent  rate;  stamps  must  be  completely  effaced  when 
contentsof  tank  have  been  withdrawn  into  bottles.     (T.  1).  2566;  Oct.  27,  1917.) 

Coraputation  of  tax. 

Tax  is  to  be  computed  on  proof  gallons,  but  second  decimal  place  is  to  be  disre- 
garded following  practice  authorized  in  taxpaying  spirits  at  distilleries,  and  proof 
gallons  A\dll  be  written  in  the  bodv  of  the  stamp  by  officer  issuing  same.  (T.  D. 
2548,  2560;  Oct.  4,  1917.) 

Inventory  and  retui-n. 

Spirits  subject  to  15-cent  tax,  as  pro\-ided  for  in  Mim.  1619  of  September  19,  1917, 
must  be  inventoried  and  returned  separately,  and  tax  is  immediately  payable;  ■ 
tax  is  applicable  to  rectified  spirits  still  in  possession  on  Octo))er  4,  1917,  of  rectifier 
thereof,  whether  in  bottles,  cased  bottles,  or  packages  bearing  marks,  brands,  and 
stamns,  or  retail  packages  not  bearing  marks,  brands  and  stamps.  (T.  D.  2566; 
Oct.  27,  1917.) 

Liqueuis,  cordials,  and  similar  compounds. 

Any  domestic  wines  may  be  used  in  manufacture  of  liqueurs,  cordials,  and  similar 
compounds,  provided  no  distilled  spirits  are  added;  prohibition  against  mixing  of 
distilled  spirits  with  wines  does  not  apply  to  limited  use  of  alcohol  in  making  of 
fluid  extracts  from  herbs  which  may  be  used  in  manufacture  of  cordials;  quantity  or 
percentage  of  alcohol  permitted  in  preparation  of  such  extracts  for  manufacture  of 
cordials  must  in  all  cases  conform  to  United  States  Pharmacopoeia.  (T.  D.  2387; 
Oct.  30,  1916.) 


524  EECTIFIED  SPIRITS. 

Liqueurs,  cordials,  and  siinilar  corapounds — Continued. 

Cordials,  including  cocktails,  are  subject  to  tax  only  when  containing  wine 
fortified  under  the  act  of  September  8,  1916;  vermuth,  while  taxed  under  the  act 
of  October  22,  1914,  as  a  cordial  is  now  subject  to  tax  as  a  v/ine.  (T.  D.  2387;  Oct. 
30,  1916.) 

Artificial  or  imitation  wines  can  not  be  fortified  under  the  provision  of  paragraph 
(c)  of  section  402  of  the  act  of  September  8,  1916,  and  if  containing  distilled  spirits 
can  not  be  used  in  the  manufacture  of  cordials.     (T.  D.  2387;  Oct.  30,  1916.) 

Unfermented  prune  juice,  unless  fortified  with  wine  or  spirits  and  sold  as  wine,  or 
unless  mixed  with  fortified  wine  and  sold  as  a  cordial,  is  not  subject  to  tax  as  wine. 
(T.  D.  2387;  Oct.  30,  1916.) 

Honey  ^A'ine,  unless  so  sweetened  as  to  be  a  cordial,  is  subject  to  tax  as  wine. 
(T.  D.  2387;  Oct.  30,  1916.) 

Wines  »;sed  in  manufacture  of  vermuth  must  be  first  tax  paid,  and  vermuth,  as 
such,  is  subject  also  to  tax  imposed  by  act  of  September  8,  1916.  (T.  D.  2387;  Oct. 
30,  1916.) 

Vermuth  in  hands  of  retail  dealers  September  8.  1916,  is  subject  to  tax  under  act  of 
October  22,  1914,  as  a  cordial.     (T.  D.  2387;  Oct.  30,  1916.) 

Unfortified  wines,  if  not  mixed  with  distilled  spirits,  may  be  used  in  manufacture 
of  vermuth,  but  such  wines,  as  also  the  vermuths  so  manufactured,  are  each  subject 
to  tax;  still  wines  fortified  under  the  act  of  October  22,  1914,  may  be  used  in  the 
manufacture  of  vermuth  subject  to  the  conditions  above  named.  (T.  D.  2387:  Oct. 
30,  1916.) 

Wine  stamps  issued  under  emergency  revenue  act  of  October  22,  1914,  may  be 
used  for  Avines,  cordials,  etc.,  taxable  under  the  act  of  September  8,  1916;  such 
stamps  may  be  affixed  to  the  casks  or  outer  cases  containing  the  taxable  wines; 
bottles  of  \Yine  removed  from  stamped  cases  should,  however,  be  labeled  by  the 
dealer  as  containing  wine  removed  from  stamped  packages  or  cases;  ))ottles  removed 
from  unstamped  cases  should  be  stamped.     (T.  D.  2387;  Oct.  30,  1916.) 

Wines  and  cordials  in  hands  of  wholesale  dealers  September  8,  1916,  not  having 
been  removed  for  sale  directly  to  consumers,  are  not  subject  to  tax  under  act  of 
October  22,  1914.     (T.  D.  2387;  Oct.  30,  1916.) 

Wines  and  cordials  in  hands  of  retail  dealers  September  8,  1916,  having  been 
removed  for  consumption  prior  to  that  date  are  subject  to  tax  under  the  act  of  Octo- 
ber 22,  1914.     (T.  D.  2387;  Oct.  30,  1918.) 

Cocktails  prepared  on  premises  where  they  are  consumed  and  not  exposed  for  sale 
need  not  be  labeled  or  stamped.     (T.  D.  2387;  Oct.  30,  1916.) 

Winesfortifiedunder  the  act  of  September  8,  1916,  if  containing  added  sugar  and 
aromatic  substances,  under  whatever  name  sold,  ■will  be  subject  to  tax  as  cordials. 
(T.  D.  2387;  Oct.  30,  1916.) 

Tax-paid  wine  fortified  under  the  act  of  September  8,  1916,  if  so  treated  as  to  bring 
it  within  class  of  cordials,  is  subject  to  tax  as  a  cordial.     (T.  D.  2387;  Oct.  30,  1916.) 

Cordials,  etc.,  held  by  wholesale  dealers  when  act  of  September  8,  1916,  took 
effect,  and  those  subseciuentlv  received  (unless  containing  sweet  \nne  fortified 
under  that  act)  are  not  subject" to  tax.     (T.  D.  2387;  Oct.  30,  1916.) 

Vermuth  made  from  tax -paid  spirits  without  addition  of  wine  is  taxable  as  wine; 
use  of  both  wine  and  spirits  is  prohibited  by  paragraph  (f)  of  section  402  of  act  of 
September  8,  1916,  unless  wine  has  been  fortified  under  the  act,  in  which  case  the 
product  is  taxable  as  a  cordial.     (T.  D.  2387;  Oct.  30,  1916.) 

Cordials  are  taxable  under  the  act  of  September  8,  1916,  only  when  containing 
wine  fortified  under  that  act;  mixing  of  wine  not  so  fortified  with  distilled  spirits 
in  the  manufacture  of  cordials  is  within  prohibition  of  paragraph  (f)  of  section  402 
of  such  a<;t.     (T.  D.  2387,  Oct.  30,   1916.) 

Vermouth  is  subject  to  tax  as  wine;  where  made  from  tax -paid  spirits,  without 
addition  of  wine,  it  is  taxable  as  wine;  use  of  both  wine  and  spirits  is  prohibited 
by  paragraph  (f )  of  section  402  of  the  act  of  September  8,  1916,  unless  the  wine  has 
been  fortified  under  the  act,  in  which  case  the  product  is  taxable  as  a  cordial. 
(T.  D.  2387;  Oct.  30,  1916.) 

Tax-paid  still  wines,  domestic  and  foreign,  and  tax-paid  distilled  spirits  may  be 
used  by  rectifiers  in  the  manufacture  of  vermuths,  liqueurs,  cordials,  and  similar 
compounds  and  fluid  extracts,  under  stated  conditions;  bond  given  by  rectifier; 
marking  of  containers;  notice  and  records;  gauging  of  products  after  rectification; 
marking,  branding,  and  stamping  compounds.     (T.  D.  2403;  Nov.  29,  1916.) 

Manufacturers  manufacturing  vermuth  or  taxable  liqueurs,  etc.,  required,  under 
paragraph  (h)  of  section  402  of  the  act  of  September  8,  1916,  to  execute  a  tax  bond  in 


KEDEMPTION,  525 

Liqueurs,  cordials,  and  similar  ccmpounds — rontinued. 
stated  form,  and  to  keep  all  such  taxable  arficles  separate  and  apart  from  nontaxable 
articles;  bond  to  be  executed  in  duplicate  with  sureties  satisfactory  to  collector 
in  a  jicnal  sum  at  least  etjual  to  tax  on  estimated  quantity  of  articles  named  remain- 
in<r  on  hand  at  any  one  time,  but  in  no  case  less  than  $5,000;  in  case  of  insufficiency 
new  or  additional  bond  will  be  required  by  collector.  (T.  D.  2404;  Nov.  27,  1910.) 
Any  person  manufacturing  compound  liquor  in  such  manner  as  to  make  him  a 
rectifier  as  deiined  in  section  3244,  Revised  Statutes,  shall  be  liable  to  special  tax 
as  such,  except  that  persons  manufacturing  licjuor  for  personal  consumption  and 
retail  liquor  dealers  compounding  solely  to  fill  orders  for  drinks  received  at  the  bar, 
after  such  orders  have  been  received."  shall  not  be  cliarged  with  liability.  (T.  D. 
2546;  Oct.  23,  1917.) 

Marks  and  brands. 

All  products  of  rectification  from  molasses,  s])irits,  or  spirits  other  than  grain  at 
rectifying  houses,  must  be  marked  and  braiuled  in  the  same  manner  as  spirits 
derived  from  grain.     (T.  D.  2548.  25G0;  Oct.  4,  1917.) 

Occupational  tax. 

Straining  of  distilled  spirits  through  cotton,  cotton  cloth,  or  other  material  for 
purpose  of  removing  particles  of  charcoal  or  other  extraneous  matter  on  premises 
of  wholesale  or  retail  liquor  dealer,  without  paA-ment  bv  such  dealer  of  special  tax 
as  rectifier  of  distilled  spirits  will  not  be  permitted,     (t.  D.  2953;  Nov.  29,  1919.) 

The  use  of  what  is  commonly  known  as  a  "hat  filter"  by  wholesale  or  retail 
liquor  dealer  without  pavment  of  special  tax  as  rectifier  of  distilled  spirits  is 
prohibited.     (T.  I).  2953;  Nov.  29,  1919.) 

Retail  liquor  dealers. 

Pro\asion  of  section  304  of  the  act  of  October  3,  1917,  prohibiting  reduction  in 
proof  or  increase  in  volume  in  any  quantity  by  addition  of  water  or  other  substance, 
rectified  spirits  on  which  the  15-cent  tax  has  been  paid,  does  not  apply  to  reduc- 
tion of  proof  by  retailers  made  at  time  of  sale,  but  such  reduction  may  not  be  made 
in  quantity  in  advance  of  sale  of  drinks.     (T.  D.  2560;  Oct.  27,  1917.) 

Stamps. 

Instructions  with  reference  to  furnishing  wholesale  liquor  dealers'  stamps  in  lieu 
of  or  in  exchange  for  stamps  for  rectified  spirits;  bottling  directly  from  package  cov- 
ered by  stamps  for  rectified  spirits;  size  of  packages.  (T.  D.'2548,  2560;  Oct.  4, 
1917.) 

Transfers  to  different  containers. 

Transfer  of  distilled  spirits  from  one  container  to  another,  whether  rectified  or 
not,  without  placing  label  upon  new  container  bearing  stated  legend,  forbidden, 
unless  spirits  shall  have  been  denatured  under  supervision  of  internal-revenue 
officers;  regulations  as  to  books  and  transcripts.     (T.  D.  2559;  Oct.  26,  1917.) 

Wine. 

Rectifiers  are  not  entitled,  under  the  act  of  September  8,  1916,  to  receive  on  their 
premises  untax-paid  wine  or  spirits.     (T.  D.  2387;  Oct.  30,  1916.) 

Use  of  filtering  apparatus  will  be  permitted  for  filtering  wines,  hut  if  otherwise 
used  on  premises  of  dealers  such  dealers  will  thereby  incur  special  tax  as  rectifiers 
(T.  D.  2387;  Oct.  30,  1916.) 

Where,  in  cellar  treatment  of  wine  to  which  has  been  added  a  sugar  solution  for 
purpose' of  correcting  natural  deficiencies,  additional  sugar  is  nen-ded  to  i)erfect 
such  wine  according  to  commercial  standards,  same  may  be  added  (if  before  remov-al 
from  winery  or  other  bonded  premises)  without  rendering  wine  makers  or  bonded 
dealers  liable  to  special  tax  as  rectifiers;  wine  makers  and  proprietors  of  bonded 
premises  in  blending  or  otherwise  treating  wines  to  perfect  them  according  to  com- 
mercial standards  will  not  thereby  incur  liability  as  rectifiers,  such  blending  being 
regarded  as  cellar  treatment,  authorized  by  the  act  of  September  8,  1916.  (T.  D. 
2470;  Mar.  27,  1917.) 

REDEMPTION. 

Admission  tickets. 

Where  rain  checks  attached  to  tickets  sold  for  canceled  baoeball  game  are  redeem- 
able in  cash  with  refund  of  the  tax,  or  by  issue  of  ticket  for  another  game,  the  box- 
office  statement  for  the  canceled  game  may  be  marked  '  'Canceled,' '  but  in  its  next 


526  EEFUND   OF   TAX EEGISTEATION. 

Admission  tickets — Continued, 
return  the  tax  must  be  accounted  for  by  the  club  ou  any  tickets  not  redeemed  as 
shown  by  comparison  of  box-office  statemnet  for  canceled  game  with  statemeiitrf 
for  subsequent  games.     (T.  D.  2681;  Mar.  26,  1918.) 

Vv'here  a  ticket  is  redeemed  before  a  performance,  the  tax  imposed  by  section  700 
of  the  act  of  October  3,  1917,  as  well  as  the  price  of  the  ticket,  should  be  refunded . 
(T.  D.  2681;  Mar.  26,  1918.) 

SEFUND  OF  TAX. 
Sec  "(laims. " 

REGISTRATION. 

Produce  or  merchandise  sales. 

Regulation  No.  40,  Part  2,  requires  a  statement  of  registration  by  persons  makiiig 
contract  of  sale  of  produce  or  merchandise  on  exchanges  for  future  delivery;  recor.l 
of  registration  to  be  kept  by  collector  and  certificate  of  registration  to  be  issued  ant  I 
posted;  forms;  statement  of  registration  bv  exchanges  and  clearing  houses.  (T.  D. 
2608;  Nov.  30,  1917.) 

Proprietor  of  place  of  entertainment. 

Every  person,  corporation,  etc.,  required  to  collect  tax  on  admissions  shall  on 
the  1st  clay  of  April,  1918  (and  if  not  on  that  date  engaged  in  business  then  within 
10  days  after  engaging  in  business),  and  annually  thereafter  on  the  1st  day  of  July 
file  in  the  office  of  the  collector  of  internal  revenue  of  the  district  in  which  his  place 
of  business  is  located,  an  application  for  registry,  setting  forth  certain  stated  informa- 
tion; traveling  or  itinerant  shows;  collector,  if  satisfied  that  all  statements  given 
in  application  are  correct,  will  issue  certificate  of  registration  on  certain  form, 
which  proprietor  shall  keep  conspicuously  posted  in  his  place  of  business  or  carry 
on  his  person  if  he  has  no  fixed  place  of  business.     (T.  D.  2681;  Mar.  26,  1918.) 

Where  a  theater,  hall,  park,  or  place  is  leased  and  the  procedure  authorized  by 
Article  XXVII  of  Regulations  43  is  not  adopted,  the  lessee,  precisely  like  theproprie- 
tor,  must  complv  in  every  respect  with  the  regulations  regarding  registration. 
(T.  D.  26Sl;Mar."26,  1918.)" 

Stills. 

Under  section  3244,  Revised  Statutes,  all  stills  which  are  manufactured  can  be 
removed  only  under  permit  from  the  collector,  which  permit  must  be  in  pursuance 
of  the  notice  by  the  manufacturer  and  must  be  registered  on  Form  26  when  set  up. 
(T.  D.  2993:  Mar.  22,  1920.) 

Registry  of  still  or  distilling  apparatus,  set  up,  required  by  section  3258,  Revised 
Statutes,  must  be  made  on  permit  No.  26,  in  triplicate,  ancl  delivered  to  collector, 
who  will  send  one  copy  to  the  Federal  director  of  prohibition  for  the  State  and  one 
to  the  Commissioner  of  Internal  Revenue;  this  registry  must  be  made  immediately 
after  the  still  or  distilling  apparatus  comes  into  possession,  custody,  or  under  control 
of  such  person,  whether  it  be  a  new  still  or  distilling  apparatus,  or  whether  one  part>' 
succeeds  another  in  the  possession,  custodv.  control,  or  use  thereof.  (T.  I).  2993; 
Mar.  22,  1920.) 

The  requirement  of  law  that  all  stills  set  up  must  be  registered,  whether  intended 
for  use  or  not.  applies  to  all  stills,  of  wkatevcr  size  and  for  whatever  purpose  in- 
tended, whether  for  distillation  of  spirits  or  for  pharmaceutical  or  other  purposes; 
and  any  still  or  distilling  apparatus  not  so  registered  is  subject  to  forfeiture  to  the 
United  States,  together  with  all  personal  property  in  the  possession  or  custody  or 
xmder  the  control  of  the  person  having  possession  or  control  of  such  still  oi"  distillirg 
app-iratus  and  foimd  in  the  building  or  in  any  yard  or  inclosuro  connected  with 
th-  building  in  which  same  may  be  set  up.     (t.  D.  2993;  IIsly.  22.  1920.) 

It  will  be  assumed  t!iat  any  still  is  intended  for  the  production  of  distilled  spirit.s, 
■with  exception  of  retorts  for  the  production  of  wood  alcohol,  unless  the  manufac- 
turer shall  furnish  to  the  collector  of  the  district  evidence  under  oath  to  show  that 
the  still  is  to  be  used  for  other  purposes  than  distilling  spirits,  and  this  evidence 
must  show  aftirmatively  the  exact  purj^ose  for  which  still  is  to  be  used  and  where 
it  is  to  be  set  up  and  used;  upon  filing  of  e\'ide!ice  in  question  along  with  notice  to 
collector  of  intention  to  remove  the  still  from  the  place  of  manufacture,  the  still 
may  be  removed  without  payment  of  tax  thereon  and  without  permit  called  for 
in  section  3265,  Revised  Statutes,  but  the  same  must  be  registered  when  set  up; 
this  ruling  does  not  applv  to  glass  laboratorv  stills  of  trifling  capacity  used  only 
,  for  chemical  purposes.     (T.  D.'"2993;  Mar.  22,"  1920.) 


EELIGIOUS  SOCIETIES.  527 

Stock  sales. 

Ke^2;ulatior.  No.  40,  Part  1,  requires  a  statement  of  registration  by  persons,  cor- 
porations, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  otstrx^k 
and  other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector 
v.']^o  must  is.suc  certificate  of  registration  to  be  posted  in  place  of  business.  (T.  D. 
2608;  Nov.  :30,  1917.) 

RELIGIOUS    SOCIETIES. 

Admis^ons  to  entertainments  for. 

^\'here  proceeds  of  admissions  inure  exclusively  to  benefit  of  religious  in.stitutions, 
societies,  or  organizations,  admissions  are  not  taxable;  character  of  organization  for 
which  benefit  is  given,  and  not  purpose  of  particular  i)cnetit,  is  controlling;  admis- 
sions to  any  entertainment  given  for  charity  are  taxat^le  if  funds  are  administered 
by  any  persons  or  organizations  other  than  religious,  educational,  or  charitable  in.sli- 
tutions,  societies,  or  organizations.     (T.  D.  2681;  Mar.  26,  1918.) 

Every  institution,  society,  or  organization  claiming  exemption  from  collecting 
tax  on  admissions  by  reason  of  being  religious,  reciuircd  to  tile  v.ith  collector  of 
district  affidavit  upon  stated  form,  prior  to  conducting  any  entertainment  or  amu.se- 
ment  or  permitting  either  to  be  conducted  for  its  bonefit;  unless  affidavit  shall  be 
filed  sufiiciently  before  date  of  entertainment  toi^ermitof  full  advance  investigation 
of  circumstances  and  a  decision  thereon,  managers  of  entertainment  shall  keep 
and  exhibit  to  internal-revenue  officers  complete  record  of  admissions  to  eafh  per- 
formance and  will  be  held  responsible  for  collection  of  tax  in  case  claim  for  exemp- 
tion is  not  allowed.     (T.  D.  2681;  Mar.  26,  1918.) 

Capital  stock  tax — Exemption. 

Corporation  or  association  organized  and  operated  exclusively  for  religious  pur- 
poses, no  part  of  net  income  of  which  inures  to  benefit  of  any  private  stockholder  or 
indi\ddual,  is  exempt  from  tax  imposed  bv  section  407  of  the  act  of  Scpteuiber  8, 

1916.  (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug.  9,  1918.) 

Excess  profits  tax — Gifts. 

Contributions  or  gifts  for  religious,  charitable,  etc.,  purposes  allowed  as  deduction 
for  purposes  of  income  tax  uuder  paragraph  '"'ninth "'  of  8ubdi\'ision  (a,)  of  section  5 
of  the  act  of  September  8,  1916,  as  amended,  may,  subject  to  limitations  therein 
contained,  be  deducted  in  computing  net  income  of  trade  or  business  only  when 
shown  to  satisfaction  of  Commi.?sioner  of  Internal  Revenue  that  such  contributions 
or  gifts  are  made  from  trade  or  business  and  not  bv  individual  in  his  personal 
capacity.     (T.  D.  2694;  art.  37.) 

Excise  taxes. 

There  is  no  exemption  from  tax  imposed  by  section  000  of  the  act  of  October  3, 

1917,  in  the  case  of  films  used  exrlusivelv  for  educational,  charitable,  or  religious 
purposes.     (T.  D.  2719;  Art.  Xll.j 

Boat  used  by  Y.  M.  C.  A.  in  transporting  its  religious  workers  and  others  is  not 
used  for  trade,  but  for  other  serious  purpose,  and  is  subject  to  tax  imposed  bv  sec- 
tion 603  of  act  October  3,  1917.     (T.  D.  2753;  Aug.  23,  1918.) 

Incoinie  taxes — Exemption. 

Corporations  or  associations  organized  and  operated  exclusively  for  religious  pur- 
poses are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on  filing  with  col- 
lector affidavit  setting  out  character  and  purpose  of  organization  and  showing  that 
no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual  au<l 
that  such  income  is  used  exclusively  to  promote  purposes  for  which  organized,  as 
indicated  in  particular  paragraph  under  which  exemption  is  claimed.  (T.  D. 
2090;  art.  67.) 

Exemption  from  filing  returns  and  paying  income  tax  of  corporations  or  associa- 
tions organized  and  operatiug  exclusively  for  religious  purposes  is  conditional  u|ion 
such  an  organization  filing  an  affidavit  shoM'ing  character  and  purpose  of  organiza- 
tion, source  of  income  and  disposition  of  same,  whether  or  not  any  of  its  income  is 
credited  to  surplus  or  inures  to  benefit  of  any  private  stockholder  or  individual,  to 
which  affidavit  should  be  attached  copy  of  charter  or  articles  of  incorporation  and 
by-laws;  where  collector  is  in  doubt  as  to  taxable  status  or  organization,  upon  receipt 
of  affidavit,  etc.,  he  will  refer  affidavit  and  accompanying  papers  to  Commissioner 


528  REMEDIES    FOR   DISEASE REPAIRS. 

Income  taxes — Exemption — Continued, 
of  Internal  Revenue  for  decision;  if  it  is  held  that  corporation  itself  is  exempt  from 
income  and  excess-profits  taxes  it  is  not,  however,  exempt  from  the  withholding 
requirements  nor  from  furnishing  information  in  accordance  with  provisions  of  act 
of  October  3,  1917.     (T.  D.  2693;  Apr.  8,  1918.) 

Sacramental  wine. 

Trocedure  outlined  in  T.  D.  2765  should  he  followed  where  wines  are  produced 
for  sacramental  purposes  by  churches  or  religious  orders,  and  production  and  dis- 
tribution are  entirely  under  clerical  supervision;  such  wines  may  be  removed  from 
premises  where  produced,  in  accordance  witJi  T.  D.  2788;  labels  required  by  that 
decision  may  be  omitted;  wine  used  for  sacramental  purposes  is  subject  to  tax. 
(T.  D.  2881;*July  3,  1919.) 

REMEDIES   FOR   DISEASE. 

See  "Medicinal  Preparations." 

RENT. 
Sec  "Landlord  and  Tenant." 

REPAIRS. 

Excise  taxes — Deductions. 

A  steamship  company  is  entitled  to  deduct  from  gross  income  in  annual  tax 
returns  required  by  section  38  of  the  act  of  August  5,  1909,  amounts  paid  out  for 
ordinary  and  necessary  repairs  in  the  maintenance  and  operation  of  its  business 
and  property,  and  in  addition  a  reasonable  allowance  for  depreciation  of  property, 
if  any.     (T."D.  2773;  Nov.  8,  1918.     Ct.  Dec.) 

Income  taxes — Deductions. 

Amounts  expended  by  tenants  for  taxes  and  necessary  repairs  under  agreement 
in  addition  to  stipulated  cash  rental,  are  items  of  taxable  income  and  as  such  should 
be  reported  in  return  of  landlord;  corresponding  amount  may  be  deducted  by  the 
landlord.     (T.  D.  2690;  art.  4.) 

Cost  of  incidental  repairs  which  neither  add  to  value  of  property  nor  appreciably 
prolong  its  life,  but  keep  it  in  an  ordinarily  efficient  operating  condition,  may  be 
deducted  as  expense,  provided  that  plant  or  property  account  is  not  increased  by 
amount  of  such  expenditures;  such  repairs  to  extent  that  they  arrest  deterioration 
should  have  effect  to  reduce  depreciation  charge  otherwise  deductible.  (T.  D. 
2690;  art.  131.) 

Cost  of  incidental  repairs  necessary  to  keep  buildings  erected  by  lessee  corporation 
in  efficient  condition  for  purposes  of  their  use  may  be  deducted  by  such  corporation 
as  an  expense  of  operation  and  maintenance.     (T.  D.  2690;  art.  140.) 

Lessee  corporation  may  not  deduct  any  depreciation  with  respect  to  buildings 
erected  by  it  on  leased  ground,  but  cost  of  incidental  repairs  necessary  to  keep 
buildings  in  efficient  condition  for  purpose  of  their  use  may  be  deducted  as  ex- 
pense of  operation  and  maintenance;  if  life  of  improvement  is  less  than  life  of  lease, 
depreciation  mav  be  taken  by  lessee,  based  upon  cost  and  life  of  improvement. 
(T.  D.  2690;  art."  140.) 

Expenditures  for  incidental  repairs  which  do  not  add  to  value  nor  appreciably 
prolong  life  of  property  are  deductible  as  expenses  by  insurance  companies  other 
than  mutuals,  but  including  mutual  life  and  mutual  marine,  but  expenditures  for 
new  buildings,  permanent  improvements,  or  betterments,  which  increase  value  of 
property,  or  for  restoring  or  replacing  property,  are  not  deductible;  such  expendi- 
tures are  properly  chargeable  to  capital  account,  to  be  extinguished  through  annual 
depreciation  allowance.     (T.  D.  2690;  art.  240.) 

Insurance  companies,  other  than  mutuals,  but  including  mutual  life  and  mutual 
marine,  may  add  to  expenses  in  lieu  of  depreciation  of  furniture  and  fixtures,  actual 
cost  of  repairs,  replacements,  and  renewals  of  such  furniture  as  is  reported  to  State 
insurance  department,  provided  that  in  case  of  an  original  investment  cost  thereof 
shall  be  charged  to  capital  account.     (T.  D.  2690;  art'.  240.) 

Jewelry — Excise  taxes. 

Merely  repairing  for  a  customer  jewelry  owned  by  him  is  not  taxable  under  section 
600  (e)  of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XVI.) 


REPLACEMENT   FUND REPORTERS.  529 

Moving-picture  iilms — Excise  taxes. 

Tax  imposed  by  section  GOO  of  the  act  of  October  3,  1917,  does  not  apply  to  repairs 
of  positive  films,  but  does  to  the  negative  iilms  used  in  making  such  repairs.  (T.  D. 
2719;    Art.  XII.) 

REPLACEMENT   FUND 
Income  and  excess  profits  taxes. 

When  corporation  as  result  of  suit  or  otherwise  secures  payment  for  damages 
v\hich  it  may  have  sustained,  and  amount  of  such  payment  is  in  excess  of  amount 
necessary  to  make  good  the  damage  or  damaged  property,  the  amount  of  such 
excess  shall  be  considered  and  returned  as  income  for  year  in  which  received;  if 
entire  or  an  estimated  amount  of  damage  shall  have  been  previously  charged  off 
and  deducted  from  gross  income,  amount  recovered  shall  be  returned  as  income, 
but  if  amount  recovered  is  less  than  damage  sustained  or  le.«s  than  an  amount  neces- 
sary to  make  good  the  damage,  difference  between  actual  amount  of  damage  sus- 
tained and  amount  recovered  v.ill  be  deductiV)le  as  loss.  (T.  D.  2706;  Apr.  25, 
1918.0 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  uses,  or  property 
which  has  been  lost  or  destroyed  in  whole  or  in  part  through  war  hazards,  excess 
of  amount  received  by  owner  as  compeflisation  for  property  over  value  thereof  on 
March  1,  1913,  or  over  its  cost  if  it  was  acquired  after  thai  date,  except  so  far  as 
actuallv  used  for  replacement  of  property  in  kind,  is  subject  to  income  and  excess- 
protits  taxes.     (T.  I).  2706;  Apr.  25.  1918.) 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  uses 
or  lost  or  destroyed  through  war  ha'.ards,  may  be  to  use  entire  amount  received  as 
compensation  for  replacement  in  kind  of  such  propertj-,  such  replacement  may  not 
be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case  tax- 
payer may  establish  "replacement  fund"  in  which  entire  amount  of  compensation 
shall  be  held,  and  pending  disposition  thereof,  accounting  for  gain  or  loss  may  be 
deferred  for  reasonable  time,  to  be  determined  by  Commissioner  of  Internal  Revenue 
(T.  D.  2706;   Apr.  25,  1918.) 

Wliere  property  requisitioned,  lost,  or  damaged,  constitutes  all  or  part  of  security 
imder  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund  may,  subject 
to  apprcrval  of  Commissioner,  be  amount  of  compensation  received,  less  amount,  if 
any,  which  becomes  payable  out  of  such  compensation  under  terms  of  such  instru- 
ment or  obligations  thereby  secured;  in  such  case  taxpayer  should  apply  to  Com- 
missioner for  permission  to  establish  such  fund,  reciting  in  his  application  all  facts 
relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  possible  to 
replace  or  restore  property;  taxpayer  required  to  furnish  bond  witli  security,  or  make 
deposit;  when  replacement  or  restoration  is  made,  new  or  restored  property  shall  not 
be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  that  at  which  the  re(juisi- 
tioned,  damaged,  or  destroyed  property  was  carried,  except  and  to  extent  that  such 
new  or  restored  property  has  an  increased  productive  capacity.     (T.  D.  2706;  Apr. 

25,  1918.) 

Forms  of  application  for  permission  to  establish  replacement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733;  June  17,  191S.) 

Only  active  depositaries  of  public  moneys  and  surety  companies  holding  certifi- 
cates of  authority  from  Secretary  of  Treasury  as  acceptable  sureties  on  Federal 
bonds  will  be  approved  as  sureties  or  depositaries  under  Schdeules  B  and  C  of 
Form  1114.  prescribed  by  T.  D.  2733.  on  application  for  establishment  of  replace- 
ment fund  in  case  of  property  requisitioned  for  war  \ises  or  lost  or  destroyed  in 
whole  or  in  part  through  war  hazards,  as  permitted  1)y  T.  D.  2706.  (T.  D.  2755; 
Aug.  2C,  1918.) 

REPORTEKS. 
Newspaper  reporters — Admissions. 

Newspaper  reporters  and  critics,  occupving  space  in  audience,  must  pay  tax  im- 
posed by  section  700  of  the  act  of  October  3,  1917.     (T.  D.  26S1;   Mar.  26,  191S.) 

Admissions  of  baseball  reporters  and  telegraphers,  occu]">ying  special  space  at  base- 
ball parks,  and  admitted  by  passes  issued  by  baseball  writers'  association,  are 
exempt  from  tax  under  .section  700  of  the  act  of  October  3,  1917.     i,T.  D.  2631;  Mar. 

26,  1918.) 

70420°— 21 34 


630  FvEQUEyTS    FOR    TRANSPOETATION RESALE. 

BEQUESTS   FOB,   TBANSPORTATION. 

Governmental  exemption. 
See  '"Transportation  Tax." 

REQUISITION   OF   PBOPSBTY. 

Com.pensation — Income  and  excess  profits  taxes. 

In  case  of  property  title  to  which  has  been  requisitioned  for  ^rar  uses,  or  property 
which  has  been  lost  or  destroyed  in  whole  or  in  part  througli  war  hazards,  exces.g 
of  amount  recei^-ed  by  owner  as  compensation  for  property  over  value  thereof  on 
Marcii  1,  1913,  or  over  its  cost  if  it  was  acquired  after  that  date,  except  so  far  as  actu- 
ally used  for  replacement  of  property  in  kind,  is  subject  to  income  and  excess  profits 
taxes.     (T.  D.  270G;   Apr.  25,  1918.) 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  uses,  or 
lost  or  destroyed  through  war  hazards,  amy  be  to  use  entire  amount  received  as  com- 
pensation for  replacement  iu  kind  of  such  property,  such  replacement  may  not  bo 
practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case  taxpayer 
may  establish  "replacement  fund  "  in  which  entire  amount  of  compensation  shalf  l)o 
held,  and  pending  disposition  thereof,  accounting  for  gain  or  loss  may  be  deferred  lor 
reasonable  time,  to  be  determined  h\  Commissioner  of  Internal  Revenue.  (T.  D. 
270G;  Apr.  25,  1918.) 

Where  property  requisitioned,  lost,  or  damaged,  constitutes  all  or  part  of  security 
under  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund,  subject  to 
approval  of  Commissioner,  bo  amount  of  compensation  received,  less  amount,  if  any, 
which  becomes  payable  out  of  such  compensation  under  terms  of  such  instrument  or 
obligations  thereby  secured;  in  such  case  taxpayer  should  apply  to  Commissioner 
for  permission  to  establish  such  fund,  reciting  in  his  application  all  facts  relating  to 
transaction  and  undertaking  to  proceed  as  expeditiously  as  possible  to  replace  or 
restore  property;  taxpayer  required  to  furnish  bond  v/ith  security,  or  make  deposit; 
v.'hen  replacement  or  restoration  is  made,  nev*-  or  restored  property  shall  not  be  "v'alued 
in  accounts  of  taxpayer  at  amount  in  excess  of  tliat  at  which  the  requisitioned, 
damaged,  or  destroyed  property  was  carried,  except  and  to  extent  that  such  new  or 
restored  propertv  has  an  increased  productive  capacitv.  (T.  D.  2706;  Apr.  25, 
1918.) 

Forms  of  application  for  permission  to  establish  replacement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733;  June  17,  1918.) 

Only  active  depositaries  of  public  moneys  and  surety  companies  holding  certifi- 
cates of  authority  from  Secretary  of  Treasury  as  acceptable  sureties  on  Federal 
bonds  will  be  approved  as  sureties  or  depositaries  under  Schedules  B  and  C  of  Form 
1114,  prescribed  byT.  D.  2733,  on  application  for  establishment  of  replacement  fuuvl 
in  case  of  property  requisitioned  for  war  uses  or  lost  or  destroyed  in  whole  or  in 
part  through  war  hazards,  as  permitted  by  T.  D.  270G.     (T.  D.  2755;  Aug.  20,  1918.) 

BE  SALE. 
Admission  tickets. 

Where  all  the  admissions  to  an  entertainment  are  sold  en  bloc  to  a  purchaser  for  a 
specific  sum  and  no  charge  is  made  for  individual  tickets,  the  tax  is  on  the  price  paid 
for  the  entertainment,  and  the  purchaser  must  account  for  the  tax  on  any  excess  over 
the  purchase  price  for  v/hich  he  may  resell  the  tickets;  where  broker  purchases 
tickets  for  resale,  with  right  to  return  tliose  not  sold,  proprietor  of  entertainment  held 
responsible  for  collecting  tax  on  full  price  i)aid  for  actual  use  of  tickets;  independent 
brokers  and  dealers  must  collect  and  account  for  tax  on  their  sales,  less  amount  of 
tax  on  each  ticket  collected  and  accounted  for  by  amusement  enterprise;  if  ticket  is 
sold  for  use  and  not  for  resale,  at  less  than  face  value,  tax  is  on  price  paid,  but  seller 
must  collect  tax  on  face  value  unless  he  can  furnish  satisfactory  evidence  thai  pre- 
sumptive purchaser  was  not  agent  of,  or  acting  in  collusion  with,  the  seller.  (T.  D. 
2681;   Mar.  26,  1918.) 

Floor  tax — Wholesalers. 

Dealers  in  automobiles  who  sell  both  to  users  and  subagents  for  resale  are  whole- 
salers within  the  meaning  of  section  602  of  the  act  of  October  3,  1917,  and  are  liable 
to  floor  tax  imposed  by  said  section.     (T.  D.  2577;   Nov.  13,  1917.) 


RESERVE   rUNDS — RETAILERS   OF   GOODS.  531 

Income  tax — Deducting  price  of  stock  purchased  for  resale. 

Amount  expended  in  purchasing  stock  for  resale  is  an  investment  of  capital  and  is 
not  to  be  taken  as  an  item  of  expense  for  year  in  which  stock  was  purchased  or  for  any- 
subsequent  year,  but  when  stock  so  purchased  is  sold  its  cost  is  to  1)0  deducted  from 
sales  price  in  ascertaining  amount  of  gain  or  profit  returnable  for  tax  purposes;  return 
where  cost  of  stock  or  farm  products  purchased  in  1 91G  or  any  previous  year  for  resale 
has  been  claimed  as  a  deduction.     (T.  D.  2GG5;  Mar.  8,  1913.) 

Where  farmer  has  adopted  inventory  method  of  keeping  accounts,  he  shoul'i,  in 
order  to  ascertain  gross  income,  add  to  anioiuit  received  from  sales  daring  year  iIa! 
in/entory  of  the  live  stock  and  products  on  hand  at  the  close  of  the  year,  and  then 
deduct  amount  expended  in  ])urchasing  live  stock  and  products  jilu.s  iuA-eniory  of 
live  stock  and  products  at  begiiuiing  of  year;  no  deduction  can  be  made  for  stock  or 
pi'oducts  lost  during  year;  stock  purchased  for  any  purpose  other  than  resale  may  be 
included  in  inventory  for  each  year  at  a  figure  which  will  reflect  reduction  in  value 
estimated  to  Iiave  occurred  through  increase,  or  age,  or  other  causes;  cost  price  of 
articles  sold  must  not  be  taken  as  additional  deduction.     (T.  D.  2665;  Mar.  8,  1918.) 

RESERVE   FUNDS 
Definition. 

The  words  "reserve  funds,"  as  used  in  act  of  August  5,  1909,  have  reference  to  the 
funds  ordinarilv  held  as  against  the  fcontingent  liability  on  outstanding  policies. 
(T.  D.  2501;  June  18,  1917.     Ct.  Dec.) 

Insurance  companies. 

Where  there  has  been  net  decrease  in  re-erve  funds  required  to  be  maintained 
by  insurance  company,  so  much  of  decrease  as  is  released  to  general  uses  of  the 
company  and  increases  its  free  assets  is  income  to  the  companv.  (T.  D.  3013;  Mav3, 
1920.     Ot.  Dec.) 

Reserve  funds  required  by  rules  and  regulations  of  State  insurance  departments, 
promulgated  in  the  exercises  of  proprietary  power  conferred  by  statute,  are  reserve 
funds  •  •  reciuired  by  law  "  within  meaning  of  taxing  acts.  (T.  D.  3013;  Mav3, 1920. 
Ct.  Dec.) 

The  reserve  funds,  the  net  addition  to  which  is  to  be  deducted  from  the  gro.s3 
income  of  a  life  insurance  company  in  computing  its  net  income,  are  those  funds 
which  are  built  up  to  mature  the  policy,  and  do  not  include  funds  reserved  because 
of  lial)ilities  on  supplementary  contracts  not  involving  life  contingencies  and  can- 
celed policies  upon  which  a  cash-surrender  value  may  be  demanded.  (T.  D.  3057; 
Aug.  16,  1920.     Ct.  Dec.) 

RESIDENT    ALIEN   CORPORATIONS. 
Definition. 

The  term' •resident  alien  corporations,"  as  used  in  T.  D.  2382,  covers  such  foreign 
organizations  as  have  an  office  or  place  of  business  in  the  United  States.  (T.  I). 
23S2;   Oct.  19,  1916.) 

Mere  maintenance  of  an  office,  or  fiscal  agency,  in  the  United  States  for  the  pay- 
ment of  dividends  on  stock  or  interset  on  bonds,  does  not  constitute  a  foreign  cor- 
poration a  "resident"  of  the  United  States  within  the  meaning  of  Article  35  of  Regu- 
lations No.  33,  Revised.     (T.  D.  2716;  May  28,  1918.) 


RESTAURANTS. 


Cabarets. 

See  "Admissions.'' 

Alcohol. 

"  See  Alcohol." 
Cigars — Determination  of  price. 

See  "Cigars." 
Distilled  spirits. 

See  -'Distilled  Spirits.'' 


RETAILERS  OF  GOODS. 


532  EETtT»NS    OF   INFOBMATIOH— ROYALTIES. 

Excise  taxes. 

See  "Excise  Taxes.'* 
Floor  tax. 

See  "Floor  Taxes." 
Oleomargarine. 

See  "Oleomargprine." 
Stamp  taxes — Playing  cards. 

See  "Stamp  Taxes. "- 
Wines. 

See  '"V.'ines.'' 

KETUKNS  OF  INFORMATION. 

Income-tax  purposes. 

See  ''Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 

J 

BETTJRNS  OF  TAXPAYEKS. 

See  specific  heads. 

Inspection. 

Scv  "Inspection."- 

REVENUE  AGENTS  AND  OFFICERS. 

Leave  of  absence. 

Applications  for  leave  of  absence  required  to  be  in  writing,  or  by  telegraph  or 
telephone  if  emergency  requires,  and  to  be  reported  by  revenue  agent  under  whom 
agent  or  inspector  is  assigned  to  duty;  leave  of  absence  is  subject  to  approval  of 
Commissioner  of  Internal  Revenue;  telegraph  or  telephone  charges  incident  to 
procuring  leave  are  at  expense  of  officer  desiring  such  leave;  manner  of  reckoning 
leave  of  absence  and  extent  thereof.     (T.  D.  2309;  Sept.  12,  1916.) 

Reports. 

Special  disbursing  agents  will  discontinue  reporting  on  Form  7300  the  expenses 
incurred  in  each  State  for  miscellaneous  items  and  services  of  special  employees, 
guides,  posse  men,  and  informers.     (T.  D.  2398;  Nov.  18,  1916.) 

Use  by  revenue  agents  of  Form  629  discontinued;  Form  132  should  contain  state- 
ment of  duties  performed.     (T.  D.  2398;  Nov.  18,  1916.) 

ROCK,  RYE,  AND  GLYCERIN. 

Beverages. 

See  "Beverages." 

ROOT  BEER. 
Beverages. 

See  "  Beverages." 

ROYALTIES. 
Excise  taxes — Net  income. 

Ijcssee  of  mining  property  may  not  deduct  proportionate  value  of  ore  in  place  on 
January  1,  1909,  with  respect  to  each  ton  of  ore  mined,  as  so  much  depletion  of 
capital  assets,  but  may  deduct  proportionate  part  of  royalty  paid  in  advance. 
(T.  D.  2721;  June  4,  1918.     Ct.  Dec.) 

Income  taxes — Gross  income. 

Royalty  paid  to  proprietor  by  those  who  are  allowed  to  develop  or  use  property, 
or  operate  under  some  right  belonging  to  him,  is  to  be  accounted  for  as  income. 
(T.  D.  2690;  art.  4.) 


SACCHARINE    LIQUID SALES.  533 

Income  taxes — Gross  income — ("ontimiod. 

Gross  income  from  sources  within  Unitotl  Statr-s,  as  applied  to  forftign  corpora- 
tions, includes  income  from  royalties  from  business  transacted  or  capital  ijivested 
in  the  United  States.     (T.  I).  2t;yO:  art.  89.) 

Royalties  received  in  accordance  with  contract  by  which  corporation  has  assigned 
patent  rights  to  manufacture  machines,  etc.,  are  income  and  should  be  so  accounted 
for.     (T.  D.  2690;  art.  113.) 

• Net  IncorQe. 

Owner  of  patent  may  deduct  from  gross  income  oach  year  until  capital  invested 
therein  is  extinguished  sum  ascertained  by  dividing  cost  of  patent  by  number  of 
years  constituting  its  life  or  by  number  representing  years  of  its  life  remaining  after 
date  of  acquirement.     (T.  D.  2690;  art.  113.) 

SACCHARINE  LIQUID. 
Distilled  spirits. 

Dilute  saccharine  liquid,  derived  from  sawdust,  wood  waste,  pulp,  and  liko 
l>a8es,  is  material  from  which  the  production  of  distilled  spirits  for  beverage  pur- 
poses is  prohibited  by  section  15  of  the  food-control  act  of  August  10,  1917.  (T.  D. 
2526;  Sept.  25,  1917.) 

Dilute  saccharine  liquid  derived  from  sawdust,  wood  waste,  pulp,  and  like  bases 
may  not  be  used  in  producing  beverage  spirits.     (T.  D.  2559;  Oct.  26,  1917.) 

SACHAMENTAL  WINES. 
See  "Wines." 

SAFE-DEPOSIT  COMPANIES. 

Estate  taxes — Noni'esident  decedents. 

Safe-deposit  companies  having  property  in  this  country  of  nonresident  decedent 
may  not  release  to  foreign  administrator  or  executor  or  foreign  beneficiary  any 
property  within  this  country  at  time  of  decedent's  death  tuitil  after  tax  due  has 
been  paid  or  ancillary  letters  have  been  taken  out  or  otherwise  provision  has  becu 
made  by  estate  for  satisfaction  of  tax  lien.     (T.  D.  2454;  Feb.  28,  1917.) 


Sec  "Army  and  Navy.' 
See  "Compensation." 


SAILORS. 
SALARY. 

SALES. 


Admission  tickets. 

See  "Admissions." 
Capital  stock — Stamp  taxes. 

Tax  imposed  by  act  ()etoV)er  3.  1917.  on  i.ssue  of  capital  stock  attaches  to  issue 
of  preferred  and  common  stock,  whether  or  not  exchanged  for  old  stock,  upon 
reorganization  of  corporation  under  section  24  of  the  New  York  stock  corporation 
law  for  purpose  of  issuing  stock  without  par  value,  but  tax  on  transfers  of  stock  is 
inapplicable  to  surrender  of  old  stock  in  exchange  for  new  stock  pursuant  to  such 
reorganization.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917.  on  transfer  of  capital  stock  is  measured, 
not  by  amount  pai'd  in,  on,  or  for  the  stock,  but  by  the  face  or  par  value,  in  the  case 
of  shares  having  a  face  or  par  value  and  by  the  actual  value  determined  by  tke 
market  price  or  otherwise  in  case  of  shares  having  no  face  or  par  value  but  an 
actual  value  in  excess  of  $100  a  share.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  applies  to  transfer 
of  stock  to  or  from  voting  trustees  or  other  trustees,  to  transfer  of  voting-trust  cer- 
tificates, to  transfer  of  shares  in  s^-called  Massachusetts  trusts,  and  other  unin- 
corporated associations,  to  transfer  of  right  to  receive  a  stock  dividend  already 
declared,  and  to  transfer  of  interest  of  a  subscriber  for  stock,  however  such  interest 
may  be  evidenced  or  conditioned  upon  further  payments.  (T.  D.  2752;  Aug.  14, 
1918.) 


534  SALES. 

Capital  stock — Stamp  taxes — Continued. 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  attaches  to  sales 
or  transfers  of  stock,  whether  or  not  represented  by  certificates.  (T.  D  2752- 
Aug.  11,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfers  of  capital  stock  does  not  apply 
to  surrender  of  certificates  in  exchange  for  other  certificates  representing  same  or 
new  stock,  provided  they  are  issued  to  the  same  holder,  nor  does  it  apply  to  sur- 
render of  stock  certificates  for  retirement  and  redemption  for  cash:  ii,  hov.'ever, 
corporation  buys  some  of  its  own  stock  and  transfers  it  to  itself,  whether  or  not  it 
intends  eventually  to  cancel  it,  transfer  is  subject  to  tax.  (T.  D.  2752;  Aug.  14, 
1918.) 

Tax  imposed  by  act  October  3.  1917.  on  transfer  of  capital  stock  does  not  apply 
to  transfer  of  "rights"  to  subscribe  for  stock,  prior  to  exercise  of  the  right,  ajid 
actual  subscription.     (T.  D.  2752;  Aug.  14,  1918.) 

Where,  as  under  section  15  of  the  New  York  stock  corporation  law,  providing 
for  merger  of  ordinary  corporations,  acquisition  of  stock  of  corporation  to  be  merged 
is  condition  precedent  to  merger,  transfer  of  such  stock  to  merging  corporation 
prior  to  actual  merger  is  taxable  under  act  October  3.  1917.  (T.  D.  2752;  Aug.  14, 
1918.> 

Tax  imposed  l)j^  act  October  3,  1917.  on  transfers  of  stock  does  not  attach  to 
exchange  of  stock  certificates  of  merged  corporation  for  stock  certificate  of  merging 
corporation  at  the  time  and  as  part  of  the  merger  of  trust  companies  under  sections 
487-49fi  of  the  New  York  banking  law.  nor  to  substitution  of  new  certificates  for 
old  certificates  renresenting  old  stock  of  the  merging  corporation.  (T.  D.  2752; 
Aug.  14,  1918.) 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the  con- 
solidated corporation,  is  not  a  taxable  transfer  under  act  October  3,  1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Cigars — Retail  price. 

The  ordinary  retail  price  of  a  single  cigar  is  the  actual  retail  price  in  all  cases  at 
which  cigars  are  sold  singly;  manner  of  determining  the  ordinary  retail  price  of  a 
single  cigar  in  case  of  cigars  which  are  manufactured  or  imported  to  retail  at  the  rate 
of  3  for  10  cents  or  10  for  35  cents  and  which  are  practically  never  sold  in  any  other 
manner,  stated.  (T.  D.  2645;  Jan.  17,  1918.)  Determination  of  price  where  the 
box  in  which  the  cigars  come  is  the  unit  of  sale.     (T.  D.  2569;  Oct.  17,  1917.) 

Consignments  of  property  by  carriers. 

Net  amount  realized  from  .sale  of  consignment,  refused  or  unclaimed,  or  of  carload 
of  property  or  a  perishable  consignment  sold  under  cjuergency  conditions,  for  bene- 
fit of  whom  it  may  concern,  shall  be  considered  transportation  charge,  and  3  per 
cent  tax  shall  apply  to  such  amount  and  be  paid  by  purchaser;  provided,  how- 
ever, that  if  such  amount  be  in  excels  of  actual  transportation  charges  accruing  on 
such  consignment,  tax  ;;liall  not  apply  to  such  excess.     (T.  D.  2G7G;  Mar.  18,  1918.) 

• Narcotics. 

When  sale  of  express  or  freight  package  containing  narcotic  drugs  is  to  be  made, 
collector  of  district  shoidd  be  notified  sufficient  length  of  time  in  advance  to  per- 
mit detail  by  him  of  officer  to  inspect  packages  and  identify  such  as  contain  nar- 
cotic drugs;  revenue  officer  must  be  present  at  sale  to  see  that  packages  are  sold  ty 
those  persons  only  who  are  registered  under  Federal  law  or  to  officers  of  Federal, 
State,  or  municipal  Governments  exempt  from  its  provisions;  purchaser  must  at 
time  of  purchase  make  supplemental  inventory,  in  duplicate,  of  drugs  coming  into 
his  possession,  he  to  retain  original  for  file  v/ith  his  order  forms  and  forward  duplicate 
to  collector,  Vv'ho  is  requii'cd  to  notify  Internal  Revenue  Bureau  when  such  transac- 
tions take  place  and  furnish  name  and  address  of  purchaser.  (T.  D.  2712;  May 
13,  1918.) 

Defimtion. 

The  word  "sales'"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes  on 
sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  all  sales,  agreements 
to  sell,  memoranda  of  sales,  and  all  deliveries  or  transfers  of  legal  title,  except  as 
otherwise  specifically  provided  in  such  regulations.     (T.  D.  2603;  Nov.  30,  1917.) 

The  word  '"sale"  within  Regulations  No.  40,  Part  2,  relating  to  stamp  taxes  upon 
sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  includes  all 
sales  or  agreements  of  sale,  or  asreements  to  sell,  including  so-called  transfers  or 
"scratched  sales."     CT.  D.  2608;"Nov.  30,  1917.) 


SALES.  535 

Excise  tax  on  sales  of  comtnodities. 
See  "Excise  Taxes." 

Floor  tax — Sales  through  agent. 

Wlierc  automobiles  are  sold  at  l>oth  wholesale  and  retail  by  a  person  who  acts  as 
agent  for  the  manufacturer,  no  floor  tax  applies,  but  the  manufacturer  is  liable  for 
the  tax  upon  all  sales.     (T.  D.  2601;  Dec.  3,  1917.) 

Title  to  goods. 

Goods  shipped  and  invoiced  prior  to  Octoljor  4,  1917,  are  property  of  consignee, 
and  if  shipped  to  wholesaler  are  subject  to  floor  tax;  if,  howcA'cr,  title  is  reserved  in 
n^.anufacturer,  wholesaler  is  relieved  from  tax.  Where  manufacturer  consigns  en- 
tire jn-oduct  to  retailer,  retaining  ownershij)  until  goods  are  disposed  of  manufacturer 
must  make  return,  under  oath,  of  all  goods  sold  to  retailer  from  and  after  October 
4,  1917.     (T.  L).  2547;  Oct.  22,  1917.) 

Futui-e  delivery — AfiB.xing  and  canceling  stamps. 

Stamps  in  value  equal  to  amount  of  tax  on  sales  must  be  affixed  to  memorandum 
or  other  e\idence  of  sale  or  agreement  to  sell;  clearing  house,  acting  as  agent, 
required  to  make  returns  showing  stamps  aflixed  and  canceled;  manner  of  canceling 
stamps  stated.     (T.  D.  260S;  Nov.  30,  1917.) 

Cotton. 

Contracts  of  sale  of  cotton  for  future  delivery  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  liusiness,  is  taxed  at  the  rate  of  $0.02  for  each 
pound  of  cotton  involved  (to  ])e  paid  by  stamp);  tax  not  to  be  levied  on  contracts 
complying  with  conditions  prescribed.     (T.  D.  2.55S;  Oct.  26,  1917.) 

Exempt  transactions. 

No  tax  is  imposed  on  cash  sales  of  produce  or  merchandise  for  immediate  or  prompt 
delivery,  which  in  good  faith  are  actually  intended  to  be  delivered;  sellers  of  pro- 
duce, etCk,  may  transfer  contracts  to  clearing-house  association,  and  such  transfer 
shall  not  be  deemed  to  be  a  sale  or  agreement  of  sale,  provided  it  does  not  vest  ])enc- 
licial  interest  in  such  association  and  is  made  only  to  enable  such  association  to  ad- 
just accomits  of  its  members;  no  by-law  or  custom  of  any  exchange  or  similar  insti- 
tution, inconsistent  with  the  act  of  October  3,  1917,  or  any  regulations  thereunder, 
nor  any  collateral  agreement  inconsistent  with  such  act  or  regulations  thereunder 
shall  exempt  any  person  from  payment  of  tax.     (T.  D.  2608;  Nov.  30,  1917.) 

Sales  of  produce  or  merchandise  for  future  delivery  must  be  made  at  an  exchange 
or  board  of  trade  or  other  similar  place  in  order  for  lax  imposed  by  section  807. 
Schedule  A,  subdivision  5,  act  of  October  3,  1917,  to  apply:  sale  by  member  of 
exchange  made  by  mail  or  wire  not  at  an  exchange  is  not  subject  to  the  tax.  (T.  D. 
2795;  Feb.  26,  1919.) 

Memoranda  of  sales. 

Every  sale  or  agreement,  not  evidenced  by  memorandum  or  contract  expressly 
requiring  immediate  or  prompt  delivery,  shall  be  deemd  to  be  for  future  delivery; 
every  person  making  sale  of  any  product,  etc.,  at,  on,  or  in  any  exchange  for  future 
deliAery,  shall  deliver  to  the  buyer  a  bill,  memorandum,  or  other  evidence  of  such 
sale,  showing  certain  specified  data  and  items  of  information;  no  single  sale  or 
contract  made  upon  an  exchange  by  one  member  for  another  need  be  e^■idenced  l)y 
more  than  one  memorandum;  written  return  or  sheet  to  clearing  house,  acting  as 
agent,  considered  to  be  memorandum;  return  bv  clearing  house.  (T.  D.  2608; 
Nov.  30,  1917.) 

Records. 

All  persons  who  jnake  sales  or  contracts  of  sales,  including ' '  transferred  or  scratched 
sales,"  "pass  outs,"  "pair-oFfs,"  or  "matched  trades,"  and  all  other  forms  of  sale 
of  any  product  or  merchandise  on  exchanges  for  future  delivery  required  to  keep 
record  shovdng  specified  items  of  information;  form  of  record ' required ;  clearing 
houses  to  keep  record  showing  certain  data.     (T.  D.  2608;  Nov.  30,  1917.) 

- — —  Hegistration. 

Regulation  No.  40,  Part  2,  requires  a  statement  of  registration  by  persons  making 
contract  of  sale  of  produce  or  merchandise  on  exchanges  for  future  delivery;  record 
of  registration  to  be  kept  by  collector,  and  certificate  of  registration  to  be  issued 
and  posted;  forms;  statement  of  registration  by  exchanges  and  clearing  houses. 
(T.  1).  2608;  Nov.  30,  1917.) 


536  ^ALES. 

Future  delivery— Continued. 

Returns. 

Clearing  house?  and  persons  making  contracts  of  sale  at,  on,  or  in  any  exchange, 
etc.,  for  future  delivery,  required  to  make  return  showing  specified  data  and  infor- 
mation; substitute  returns;  clearing  houses,  acting  as  agents,  required  to  return 
statement  of  amounts  of  stamps  affixed  to  memoranda  of  sales.  (T.  D.  2608;  Nov. 
30,  1917.) 

Stamp  sales. 

Stamps  required  to  be  affixed  to  contracts  of  sale  of  any  product  or  merchandise 
before  a  delivery  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treas- 
urer, or  other  designated  United  States  depositary;  authority  and  bond  of  agent  of 
State;  requisitions  for  stamps;  records;  accounting;  kind  and  color  of  stamps. 
(T.  D.  2741;  June  25,  1918.) 

Income  taxes — Claims. 

Where  land  is  sold  to  satisfy  assessments,  amount  realized  after  deducting  ex- 
penses of  sale,  should  be  credited  to  the  lists,  and  the  remainder,  if  uncollectible, 
claimed  on  Form  53;  if  land  is  bought  in  by  collector  for  United  States,  amount  for 
which  same  is  purchased,  after  deducting  expanses  of  sale,  should  be  credited  to 
ai-sessments  under  limitations  prescribed  in  Regulations  No.  2,  revised,  and  re- 
mainder, if  uncollectible,  claimed  on  Form  53.     (T  D.  2690;  art.  256.) 

Exemptions. 

I'^armers',  fruit  growers',  (-r  like  association,  organized  and  (operated  as  a  sales 
agent  to  market  jiroducts  of  its  members,  in  order  to  come  within  the  exemption 
proviiled  in  paragraph  eleventh  of  section  11  of  the  act  of  September  8,  1916.  as 
amendecl,  must  establish  to  satisfaction  of  collector  or  Commissioner  of  luternal 
Revenue  fact  that,  for  their  own  account,  they  have  no  net  income,  and  that  entire 
proceeds  of  marketing  products  of  their  members,  less  necessary  selling  ex])enses, 
are  turned  back  or  paid  to  members  on  basis  of  quantity  or  produce  furnished  by 
tliem — qualitv  and  grade  being  considered — as  purchase  price  of  such  produce. 
(T.  D.  2690;  art.  75.)" 

If,  in  course  of  their  business,  farmers',  fruit  growers',  or  like  association,  organ- 
ized and  operated  as  sales  a^ent  to  market  products  of  its  members,  purchase  for 
cash  at  a  stipulated  price  articles  of  pro'duce  with  view  to  selling  them  for  gain,  they 
will  be  required  to  make  returns  of  annual  net  income  and  include  herein,  for  pur- 
pose of  tax,  all  income  derived  from  such  transaction.     (T.  D.  2690;  ait.  75.) 

Gross  income. 

Commissious  paid  salesmen  are  income  to  the  salesmen  as  well  as  expense  to  the 
payer.     (T.  D.-2690;  art.  4.) 

Where  corporation  sells  ])roperty  on  installment  plans,  title  passing  at  time  of 
eale,  gain  to  be  returned  as  income  for  year  in  which  sale  was  made.  Avill  be  excels 
of  contract  price  over  fair  market  price  or  value  as  of  March  1,  1913,  if  property  was 
acquired  prior  to  that  date,  or  of  contract  price  oA^er  cost  if  acquired  subsequent  to 
that  date.     (T.  D.  2690;  art.  116.) 

lit  case  of  real  estate  corporations,  purchasing  tract  of  land  with  view  to  dividing 
it  into  lots  or  parcels  to  be  sold  as  such,  entire  Aalue  as  of  March  1,  1913,  or  cost,  if 
acquired  subsequent  to  that  date,  shall  be  equitably  apportioned  to  the  several 
lots  or  parcels  so  that  any  gain  derived  may  be  returned  as  income  for  year  in  which 
sale  was  made;  rule  contemplates  that  there  will  be  gain  or  loss  in  e\'ery  sale  and 
does  not  contemplate  that  capital  invested  in  entire  tract  shall  be  extinguished 
before  any  taxable  income  .shall  be  returned;  sale  of  each  lot  or  parcel  will  be 
treated  as  separate  transaction  and  gain  will  be  accounted  for  accordingly.  (T.  D. 
2690;  art.  117.) 

In  all  cases  where  inAcntories  are  taken  for  ptirpose  of  ascertaining  gain  or  loss 
resulting  from  business  of  the  year,  inventories  must  be  taken  in  accordance  with 
instructions  to  be  included  in  special  regulations  ftirnislied  upon  application  to 
collector  of  internal  revenue.     (T.  D.  2690;  art.  120.) 

Corporation  selling  merchandise  on  installment  basis,  title  passing  to  vendee  at 
time  of  sale,  will  treat  such  contracts  as  accounts  receivable  and  as  sales  during  the 
year  at  their  face  value,  accounting  for  as  income  the  difference  between  the  cost 
and  sales  price.     (T.  D.  2690;  art.  120.; 


SALES.  ^  637 

Income  taxes — Continued. 

Gi'osa  income — Continued. 

In  Hale  or  contract  for  sale  of  pereonal  property  f.n  installment  plan,  whether  <.r 
not  1  itle  remiuns  in  vendor  until  property  is  fully  ))aitl  for,  income  to  be  returned  by 
vendor  will  be  that  proportion  of  each  installment  which  grops  profit  to  be  realized 
when  property  is  paid  for  bears  to  gross  contract  price;  if,  for  any  reason,  vendee 
defaults  and  Vendor  repossesses  property,  entire  amount  received  on  installment 
payments,  less  profit  originally  returned, 'will  be  income  to  vendor  to  be  so  returned 
for  year  in  which  property  was  repossessed.     (T.  D.  2707;  Apr.  25,  1918.) 

Net  income. 

Coq)orati(m  disposing  of  patents  by  sale  should  determine  profit  or  loss  arising 
therefrom  by  computing  difference  between  selling  price  and  the  cost  or  value  as 
of  March  I,  1913,  if  accpiired  before  that  date;  apparent  profit  or  loss  should  be 
increased  or  decreased,  as  case  may  be,  by  amounts  deducted  since  March  1,  1913, 
as  return  of  capital  invested  in  such  patents.     (T.  J).  2690;  art.  109.) 

Where  buyer  of  property  of  corporation  sold  on  installment  plan,  title  passing 
at  time  of  saie,  forfeits  his  contract  and  fails  to  meet  any  of  the  payments  contracted 
to  be  made,  selling  corporation  may  deduct  from  its  gross  income  as  a  loss,  such 
proportion  of  defau'lted  pavments  as  was  previously  returned  as  gross  income.  (T. 
D.  2090;  art.  116.) 

Where  real  estate  corporaticm  purchases  tract  of  land  with  view  to  dividing  it  into 
lots  or  parcels  to  be  sold  as  such,  and  loss  results  from  sale,  amount  of  loss  to  be 
deducted  will  be  ascertained  in  like  manner  as  if  gain  had  been  realized,  and  will 
be  amount  by  which  selling  price  is  less  than  the  value,  as  of  March  1,  1913,  or  less 
than  the  cost",  if  acquired  subsequent  to  that  date,  as  the  case  may  be.  (T.  D.  2G90; 
art.  117.) 

While  corporations  engaged  in  farming  may  claim  reasonable  allowance  for  depre- 
ciation on  stock  purchaseci  for  breeding  purposes  no  claim  for  depreciation  on  stock- 
purchased  for  resale  will  be  allowed.     (T.  D.  26S0;  art.  123.) 

Cost  of  live  stock  purchased  for  resale  by  corporation  engaged  in  operating  planta- 
ti;np,  stock  farms,  etc.,  is  an  allowable  deduction  under  item  of  expense.  (T.  D, 
2(590;  art.  123.     But  see  T.  D.  2665.) 

Corp(n-ation  which  issues  trading  stam]is,  coupons,  etc.,  for  purpose  of  increasing 
business,  which  stamps  or  coupons  are  redeemable  in  merchandise,  may  deduct,  as 
business  expense,  amount  which  such  cfirporations  actually  expend  for  such  stamps 
or  coupons,  and  also  actual  cost  of  merchandise  given  in  redeeming  same.  (T.  t). 
2690;  art.  141.)  In  case  of  sale  of  assets,  real,  personal,  or  mixed,  loss  will  be 
difference  between  cost  thereof  or  value  as  of  March  1,  1913,  if  acquired  before  that 
date,  and  price  at  which  disposed  of.     (T.  D.  2690;  art.  147.) 

No  claim  for  depreciation  on  account  of  good  will  can  be  allowed;  any  loss  result- 
ing from  or  on  account  of  investment  in  good  will  can  be  determined  only  when 
property  or  business  to  which  good  will  attaches  is  sold  or  disposed  of,  in  which 
case  pntfit  or  loss  will  be  determined  upon  basis  of  value  of  assets  including  good 
wall  if  acquired  subsequent  to  that  date.     (T.  D.  2690;  art.  167.) 

If  good  will  shall  have  been  purchased  at  a  determined  price  and  shall  be  later 
sold  at  a  price  less  than  such  cost,  or  less  than  determined  fair  market  value  as  of 
March  1,  1913,  if  acquired  prior  to  tliat  date,  amount  by  which  selling  price  is  less 
than  cost  or  value,  as  case  may  be,  will  be  loss  deductible  from  gross  income  of  year 
in  which  such  asset  was  sold.     (T.  D.  2090;  art.  168.) 

No  deduction  will  be  allowed  f(jr  depreciation  of  trade-marks  and  trade  brands; 
if  such  assets  shall  have  been  purchased  at  a  determined  price  and  shall  be  later 
sold  at  a  price  loss  than  cost  (*r  less  than  their  determined  fair  masket  value  as  of 
March  1,  1913,  if  acquired  prior  to  that  date,  amount  by  which  selling  price  is  less 
than  cost  or  value,  as  case  may  be,  will  be  loss  deductible  from  gross  income  of  year 
in  which  such  assets  were  sold.     (T.  D.  2690;  art.  168.) 

Narcotics. 

>'(i<i  "Narcotics.'' 
Olenir.tirgarine. 

Manufacturert)  permitted  to  use  as  original  containers  for  packing  oleomargarine, 
paper  or  fiber  boxes,  provided  boxes  are  durable  and  of  substantial  character;  pro- 
visions of  existing  regulations  governing  marking  and  l>randing  and  affixing  and 
canceling  of  tax-])uid  stamps  declared  aji})licable  to  original  packages  of  paper  or 
liber,  except  that  such  stamps  may  be  affixed  by  paste  or  glue,  without  addition  of 


538  SALES. 

Oleomargarine — Coatlnued. 
tacki:,  staplea,  or  brads,  and  without  usin<?  shoilao  or  other  waterprooring  material 
to  cover  the  stamps;  such  original  containers  to  be  of  such  texture  as  will  meet 
requirements  for  transportation  of  common  carriers  under  existing  classifications; 
manufacturers  and  wholesalers  permitted  to  sell  only  in  original  packages,  and 
retailers  must  sell  only  from  original  stamped  package  in  quantities  not  exceeding 
]0  pounds,  and  shall  pack  oleomargarine  sold  by  them  in  suitable  wood  or  paper 
retail  packages  properly  marked  and  branded;  par.  1.  page  44.  Regulations  No.  9. 
amended.     (T.  D.  2764;  Oct.  21,  1918.     T.  D.  2774;  No\Cl9,  1918.) 

All  transactions  involving  v,-ithdrawal  or  sale  of  oleomargarine  must  he  entered 
by  manufacturer  or  wholesaler  on  Government  record  books  60  or  61.  as  case  may 
be  (or  Forms  216  or  217,  if  substituted  for  record  69  or  61),  in  the  order  and  at  the 
time  they  occur,  sales  to  wholesalers  to  ])e  segregated  and  reported  on  separate 
pages  in  last  part  of  monthly  return,  effective  on  and  after  July  1.  1017.  (T.  D. 
2502;  June  22,  1917.) 

Shares  of  stock  and  like  securities — Affixing  and  canceling  st?.jn.ps. 

Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer 
is  effected  by  delivery  of  certiticate  of  stock  assigned  in  blank;  in  case  change  of 
ownership  is  by  transfer  of  certificate  of  stock,  stamp  shall  be  affixed  to  the  certifi- 
cate ;  in  case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall 
be  placed  upon  the  books;  in  all  other  cases  payment  f^isall  be  e\ddenced  by  affixing 
stamp  upon  memorandum  or  agreement  of  sale  to  be  d'elivered  by  the  seller  to  the 
buyer;  manner  of  canceling  stamp.?  stated.     (T.  D.  2808;  No"'.  30,  1917.) 

• Brokers. 

A  bank  which  does  not  hold  itself  out  to  the  public  as  engaged  in  negotiating 
purchases  or  sales  of  stocks,  bonds,  etc.,  but  merely  negotiates  the  purchase  and 
sale  thereof  for  depositors  and  other  patrons,  without  remuneration  and  for  their 
accommodation  onlv.  does  not  thereby  incur  liability  to  special  tax  as  a  broker. 
(T.  D.  2782:  Dec.  24,  1918.;) 

Exempt  transactions. 

No  tax  is  imposed  upon  agreement  evidencing  deposit  of  stock  certificates  as  col- 
lateral security  nor  upon  deliveries  or  transfers  to  broker  for  sale,  nor  upon  deliv- 
eries or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfers  shall 
be  accompanied  by  certifica.te  setting  forth  the  facts,  nor  upon  transfers  or  deliveries 
to  clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  between  mem- 
bers; no  by-law  or  custom  of  any  exchange  or  similar  institution  nor  any  collateral 
or  additional  agreement  or  understanding  inconsistent  or  in  conflict  with  any 
requirement  of  the  act  of  October  3,  1917,  or  of  Regulation  Ko.  40,  Part  1,  shall 
exempt  any  person  from  the  payment  of  the  tax.     (T.  D.  260S;  Nov.  30,  1917.) 

• Ivlemorandum  of  sales. 

Persons  selling  or  agreeing  to  sell  stocks  required  to  deliver  to  buyer  a  numbered 
memorandum  of  sale,  or  agreement  to  sell,  signed  by  principal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  num.ber  and 
price  of  shares.     (T.  D.  2608;  Nov.  30,  1917.) 

■ Sate  of  taxation. 

In  the  case  of  shares  or  certificates  of  stock  liaA'ing  a  face  or  jiar  value,  amount  of 
tax  shall  be  based  upon  total  face  -s'alue  of  shares  involved  and  .'ihall  be  at  a  rate  of 
2  cents  for  each  $100  of  such  total  face  value  or  fraction  thereof,  whether  such  aggre- 
gate face  value  is  greater  or  less  than  $100.     (T.  D.  260S;  Nov.  30,  1917.) 

Records. 

Persons  engaged  in  business  of  buying,  selling,  or  transferring  shares  of  stock, 
required  to  keep  record  showing  specified  items  of  information;  form  of  record 
required.     (T.  D.  2608;  Nov.  30,  1917.) 

•  Registration. 

Regulation  No.  40,  Part  1,  requires  a  statement  of  registration  by  persons,  cor- 
porations, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock 
and  other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector, 
who  must  issue  certificate  of  registration  to  be  posted  in  place  of  business.  (T,  D. 
2608;  Nov.  30,  1917.) 


SAMPLES.  539 

Shares  of  stock  and  like  securities— Continued. 

RetuiTis. 

(.'leaiing  houses  and  persons  engaged  wholly  or  partly  in  buying,  selling,  f)r  trans- 
ferring shares  of  stock,  required  to  make  returns  shoiving  specified  data  and  infor- 
mation; substitute  returns.     (T.  D.  2G08;  Nov.  30,  1917.) 

Stamp  sales. 

Stamps  shall  bo  .^uld  only  by  collectors,  their  deputies,  an  assistant  treasurer,  or 
other  designated  Unitetl  States  depositary;  State  agent.-;;  requisitions  for  stamps; 
records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  23,  1918. ) 

Stamp  taxes. 

Contract  for  sale  of  real  estate,  pro\iding  for  future  delivery  b^'  deed,  is  not  sub- 
ject to  stamp  tax.     (T.  D.  2-509;  Dec.  3,  1917.) 

The  term  "contract  of  sale"  within  Regulations  No.  40,  Part  2,  relating  to  starnp 
taxes  upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  in- 
cludes all  sales  or  agreements  of  sale,  or  agreements  to  sell,  including  so-called  trans- 
fers or  '^scratched  sales."     (T.  D.  2608;  Nov.  30,  1917.) 

Transfer  of  shares  or  certificates  of  stock  in  any  associatittn,  company,  or  corpora- 
tion, made  by  the  person  loaning  stock  to  auotlier  borrowing  such  st"ck  to  effect  a 


in  so-called  short-sale  transaction,  there  are  four  taxable  sales  or  transfers:  (1)  sale 
of  stock  by  person  making  short  sale,  (2)  transfer  from  lender  of  stock  to  person 
making  short  sale,  (3)  purc'liase  by  borrow^er  of  stock  to  return  to  lender,  (4)  transfer 
by  borrower  to  lender  of  shares  to  replace  those  borrowed.  (T.  D.  2885;  Mar.  30, 
1918.) 

"Warehouse  receipts. 

Persons  selling  warehouse  receipts  representing  distilled  spirits  in  storage  are 
liable  to  special  tax  as  they  would  be  on  account  of  ihe  sale  of  the  spirits  themselves, 
but  in  vie  v.-  of  section  3244,  Revised  Statutes,  as  amended,  such  liabilitv  will  not 
attach  to  persons  selling  such  certificates  received  as  security  for  or  in  payment  of 
a  debt,  provided  such  certificates  or  the  spirits  represented  thereby  arc  sold  in  one 
lot,  or  the  spirits  are  sold  at  public  auction  in  lots  of  not  less  than  20  gallons  each; 
T.  D.  1278  revoked.     (T.  D.  2784;  Jan.  23,  1919. ) 

SAMPLES. 
Distilled  spirits. 

Practice  of  distillers  who  draw  samples  from  packages  of  distilled  spirits  after 
the  packages  have  been  regauged  and  while  lying  on  the  gaugijig  porch  awaiting 
arrival  of  tax-paid  stamps,  is  unauthorized,     (t.  D.  2397;  Nov.  20,  191G.) 

Extracts. 

When  it  is  desired  to  use  nonbeverage  alcohol  in  inaking  flavoring  extract  for 
which  no  specific  standard  or  process  has  been  prescribed  by  Secretary  of  Agricul- 
ture, manufacturer  must  furnish,  in  duplicate,  data  required  by  T.  D.  2576  mth 
respect  to  alcoholic  medicinal  compounds  not  conforming  to  IT.  S.  P.  or  N.  F.; 
samples  of  product  will  be  required  when  doubt  exists  as  to  nonbeverage  character 
of  same,  which  samples  will  be  forwarded  by  express,  charges  prepaid,  to  Division 
of  chemistry.  Office  of  the  Commissioner  of  Internal  Revenue.  (T.  D.  2760;  Oct. 
9,  1918.     T.  D.  2788;  Feb.  6,  1919.) 

Narcotics. 

Manufacturers  of  narcotics  may  lawfully  furnish  to  any  duly  accredited  s})ec-ial 
agent  or  customs  agent  of  the  Treasury  Department,  samples 'required  in  order  to 
make  analyses  to  establish  allowance  of  drawback  on  manufactured  drugs  ex- 
ported froni  this  country,  taking  receipt  of  such  officer  therefor,  which  will  be  filed 
with  official  narcotic  order  forms  and  records.     (T.  D.  2487;  Apr.  2S,  1917.) 

Wines. 

Wines  furnished  as  samples  by  dealers  are  nevertheless  subject  to  tax  umler  the 
act  of  September  8,  1916.     (T.  D.  2387;  Oct.  30,  1916.) 

Articles  27  and  28  of  Regulations  No.  28,  Supplement  No.  2,  require  gaugers  aiid 
visiting  deputies  to  make  occasional  tests  of  wine  as  to  alcohcdic  content,  but  re- 


540  SANITARIUMS SCHEDULES. 

Wines — rontiniiod. 
eponsibility  for  proper  stamping  of  wines  is  placed  upon  wine  maker  or  bonded 
dealer;  samples  are  not  to  be  submitted  unless  appeal  is  taken  from  findings  of 
internal  revenue  officers  or  in  eases  where  it  is  suspected  that  the  wines  are  under- 
stamped.     (T.  D.  2400;  Nov.  24,  1916.) 

SANITARIUMS. 
Alcohol  for  use  in. 

Alcohol  may  be  withdrawn  free  of  tax  under  act  of  May  3,  1878.  as  amended  by 
act  of  July  8,  1916,  for  use  in  surgical  operations  and  treatment  of  patients,  and  alco- 
hol so  withdrav%'n  by  hospitals  and  sanitariums  may  be  used,  even  though  they  main- 
tain no  educational  facilities;  pro\-ided.  however,  that  alcohol  so  withdrawn  shall 
not  be  used  as  a  beverage  nor  in  any  way  for  tlie  manufacture  or  compounding  of 
a  beverage  for  use  in  any  such  institution  (>r  els?\v]iere;  privilege  of  withdrawal 
•will  not  be  extended  to  any  in.stitution  r-r.nducted  directly  or  indirectly  for  profit 
or  from  operations  of  which  any  profit,  other  than  lair  and  reasonable  compensation 
lor  services  performed,  is  derived  by  any  stsickhiilder,  officer,  or  other  person; 
withdrawals  must  be  according  to  method  and  subject  to  restrictions  imposed  by 
T.  D.  2496.     (T.  D.  2745;  July  5,  1918.) 

SAFvSAPAKILLA. 
Beverages. 

f^ee  "Beverages." 

SCALPSH-S  TICKETS. 
Admissions  tax. 

Ticket  brokers  required  to  collect  tax  on  admissiuns,  shall,  on  the  Ist  day  of 
April,  1918,  (and  if  not  on  that  date  engaged  in  business,  then  within  10  days  after 
engaging  in  business),  and  annually  thereafter  on  the  Jst  day  of  July,  file  in  the 
office  of  the  collector  of  internal  revenue  of  the  district  in  which  his  place  of  busi- 
ness is  located,  an  application  for  registry,  setting  forth  certain  stated  information; 
traveling  or  itinerant  shows;  collector,  if  satisfied  that  all  statements  given  in  appli- 
cati(!n  are  correct,  will  issue  certificate  of  registration  on  certain  form,  which  proi)rie- 
tor  shall  keep  conspicuouslv  posted  in  his  place  of  business,  or  carry  on  his  person 
if  he  has  no  fixed  place  of  business.     (T.  D.  2681;  Mar.  26,  1918.) 

Ticket  brokers  required  to  keep  daily  records  shoAving  tickets  sold  for  each  enter- 
tainment; proceeds;  cost  of  tickets  and  tax  leturnable;  monthly  return,  which  shaU 
be  recapitulation  of  daily  records,  required  to  be  made  in  duplicate  on  Form  729, 
and  to  be  transmitted  to  office  of  collector,  with  amount  <it  tax,  on  or  before  last  day 
of  month  following  that  for  which  return  is  made;  daily  record  of  brokers,  with 
copies  of  their  monthly  returns,  required  to  be  kept  on  file  for  two  years,  in  such 
manner  as  to  be  readily  accessible  to  internal  revenue  officers.  (T.  D.  2681;  Mar. 
26,  1918.) 

A\Tiere  a  broker  purchases  tickets  for  resale,  with  right  to  return  those  not  sold, 
proprietor  of  entertainment  held  responsible  for  colle<'ting  tax  on  full  price  paid 
for  a<»tual  use  of  tickets;  independent  brokers  and  dealers  must  collect  and  account 
for  tax  on  their  sales,  less  amount  of  tax  oq  eaoli  ticket  collected  and  accounted  for 
by  amusement  enterjjrise;  if  ticket  is  srild  for  use  and  not  for  resale,  at  less  than  face 
value,  tax  is  on  price  paid,  but  seller  must  collect  tax  on  face  value  unless  he  can 
furnish  satisfactory  evidence  that  presumptive  purchaser  was  not  agent  of,  or  acting 
in  collusion  with, "the  seller.     (T.  D.  2681;  Mar.  26,  1918.) 

SCHEDULES. 
Income  taxes. 

Schedule  showing  graduated  additional  tax  rates  and  amount  of  income  subject 
thereto.     (T.  D.  2690,  an.  20.) 

Interest  on  certificates  of  indebtedness. 

Schedule  showing  exact  amount  of  accrued  interest  pavable  per  certificate  of  each 
issue  on  any  date  from  January  2,  ]  918,  to  June  25,  1918.  "  (T.  D.  2639;  Jan.  28, 1918.) 

Schedule  .showing  exact  amount  of  accrued  interest  payable  on  United  States 
certificates  of  indebtedness,  receivable  in  payment  of  income  and  excess  profits 
taxes,  on  any  day  from  February  15,  1918,  to  June  25,  1918.  (T.  D.  2656;  Feb.  15, 
1918.) 

Schedule  showing  exact  amount  of  accrued  interest  pavable  on  United  States 
certificates  of  indebtedness  on  any  day  from  March  15  to  June  25, 1918.  (,T.  D.  2680; 
Mar.  23,  1918.) 


SCHOOL  DISTRICTS— SCIENCES.  541 

Interest  on  certificates  of  indebtedness — Confiniipd. 

Schedule  phowing  exivt  amount  of  accrued  interest  payable  on  any  day  from 
April  15  to  June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

Schedule  showing  exact  amount  of  accrued  interest  payable  on  any  day  from 
May  15  to  June  25,^1918.     (T.  D.  2718;  May  28,  1918.) 

I  cinerary  of  traveling  shows,  etc. 

Prfiprietor,  manager,  or  duly  authorized  ofiicer  of  traveling  or  itinerant  showp, 
exhibitions,  or  amusement  ent"^erprisep,  whifh  have  fixed  or  established  headquar- 
terp,  required  to  register  Avith  collector  (.f  district  in  which  headquarters  are  located, 
and'to  file  with  him  at  the  time,  or  as  soon  thereafter  as  possible,  schedule  of  itinerary 
covering  the  year,  season,  or  other  period  during  which  the  circus,  show,  exhibition, 
or  amusement  is  to  operate,  or  if  ilinorary  is  prepared  only  weekly  or  monthly  in 
advance,  then  to  file  schedule  of  such  itinerary  immediately  upon  its  preparation 
from  time  to  time.     (T.  D.  2681 ;  Mar.  2G,  1918.) 

Taxable  articles  and  occupations. 

Articles  and  occupations  suliiect  to  tax,  and  other  sources  of  revenue.  (T.  D. 
2558;  Oct.  20,  1917.) 

SCHOOL  DISTRICTS. 

Income  taxes — Net  income. 

Taxes  imiiosed  against  a  corporation  by  authority  of  a,nv  school  district  (not 
including  those  assessed  against  local  benefits)  and  paid  within,  year  for  which  re- 
turn is  made  are  cleductible  from  gross  income  of  domesiic  corporation;  similar 
taxes  with  like  exceptions  assessed  against  and  paid  by  foreign  corporation  receiv- 
ing income  from  any  source  within  United  States  are  deductible  from  gross  income 
received  from  such  source,  except  that  taxes  imposed  by  foreign  Government  and 
paid  by  foreign  corporations  are  not  deductible  from  gross  income  received  from 
sources'  within  United  States.     (T.  D.  2(J90;  art.  191.) 

SCIENCES. 

Alcohol  withdrawn  for  scientific  purposes. 

The  term  "chemical  laboratory,"  as  used  in  section  3297.  Revised  Stalutes.  in- 
cludes any  allied  laboratory,  such  as  physical  or  electrical  laboratory,  belonging  to 
such  institution  or  college  in  which  the  alcohol  withdrawn  from  bond  is  used  purely 
for  Bcicntiiic  purposes.     (T.  D.  1971;  Apr.  20,  1914.     T.  D.  2496;  May  31,  1917.) 

In  order  to  withdraw  alcohol  for  scientific  purposes  applicant  must  pi-esent  to 
collector  of  internal  revenue  application  to  Secretary  of  Treasury  for  permit  to  with- 
draw the  same;  form  and  contents  of  application;  evidence  as  to  nature  of  in.stitution; 
quantity  of  alcohol  appUed  for.     (,T-  IJ-  2496;  May  31,  1917.) 

Applicant  for  permit  to  withdraw  alcohol  must  execute  bond  in  duplicate,  signed 
by  himself.  ^\-ith  two  or  more  suieties;  form;  who  required  to  sign  bond;  attestation 
and  seal.     (T.  D.  2496;  May  31.  1917.) 

Storekeeper  at  bonded  warehouse  required  to  transmit  duplicate  permit  to  col- 
lector, who  will  take  credit  for  all  spirits  withdrawn  on  the  proper  line  of  his  bonded 
account  (I'orm  94a)  for  month  during  which  such  withdrawal  is  made,  and  he  will 
make  proper  entry  on  inside  page  of  such  account  as  to  quantity  covered  by  each 
permit  and  will  forward  each  of  Ihe  duplicate  permits  with  his  bonded  account  as 
vouchers  for  such  entry;  alcohol  withdrawn  is  subject  to  rcgauge.  l)ut  request  for 
regauge  on  modified  Form  179  must  be  filed.     (T.  D.  2496;  May  31,  1917.) 

Privilege  of  withdrawing  alcohol  in  bond  for  scientific  puiposes  applies  to  all 
institutions  of  learning  created  and  constituted  as  such  under  any  State  or  Terri- 
torial law,  and  to  hospitals  similarly  created,  and  having  connected  therewith  a 
training  school  for  nurses  or  v.hei'e  clinical  lectures  are  delivered.  (T.  D.  2496; 
May  31,  1917.) 

Alcohol  may  not  be  used  outside  of  the  chemical  laboratory,  and  its  use  in  the 
laboratory  must  be  such  as  either  to  secure  its  actual  destruction  or  destroy  its 
identity,  and  must  not  be  sold  to  any  person  whatever;  in  order  that  alcohol  may 
be  used  for  bathing  pitients  or  in  surgical  operations,  it  must  be  first  mixed  with 
a:n  antiseptic  and  in  such  proportions  as  to  change  its  identity;  formula  for  anti- 
septic purposes  in  general.     (T.  D.  2496;  May  31,  1917.) 

Upon  receipt  by  the  Commissioner  of  Internal  Revenue  of  application  to  with- 
draw alcohol  an  original  and  duplicate  permit  will  be  issued,  original  to  be  forwarded 
to  collector  of  internal  revenue  and  duplicate  to  be  transmitted  to  applicant,  who 


54^2    SCIENTIFIC    ORGANIZATIONS SEASON    TICKETS   AND   PASSES. 

AJcoiiol  withdrawn  for  scientific  purposes — Continued, 
must  Bigu  receipt,  wlaioli  diould  then  be  sent  to  the  distiller,  who  will  hand  it  to  the 
storekeeper  of  the  warehouse;  collector  will  notify  storekeeper  of  granting  of  i>ermit; 
duty  of  storekeeper.     (T.  D.  2496;  May  31,  1917.) 

For  cancellation  of  bond  or  for  the  puipose  of  obtaining  credit  on  such  bond,  certifi- 
cate under  oath,  substantially  in  stated  form,  will  be  required  of  officer  of  institu- 
tion under  whose  direction  alcohol  has  been  used,  such  certificate  to  be  filed  with 
collector  named  in  the  bond  and  by  him  forwarded  to  the  Commissioner  of  Interna! 
ReA'enue,  with  his  a,pproA'al  indorsed  thereon;  where  principal  to  bond  ls  unable 
from  good  cause  to  furnish  required  proof  \\athin  time  specified  in  his  bond,  an  exten- 
sion not  exceeding  12  months  may  be  obtained  upon  application  to  Commissioner 
of  Internal  Revenue,  accomi)anied.  by  consent  of  sureties.  (T.  D.  2496;  Mav  ?A, 
1917.) 

Regulations  of  October  26,  1917,  relative  to  sale  and  use  of  distilled  spirits  for 
other  than  beverage  purposes  under  acts  of  August  10,  1917,  and  October  3,  1917, 
do  not  apply  to  alcohol  withdrawn  for  scientific  purposes  under  section  3297,  Re- 
vised Statutes.     (T.  D.  2559;  Oct.  26.  1917.) 

Distilled  spirits. 

Distilled  spirits  for  nonbeverage  purposes  mayy'  be  used  only  in  the  arts,  sciences, 
and  trades,  where  circumstances  are  such  that  there  can  be  no  probability  that  the 
spirits  will  be  sold  or  used  for  beverage  purposes  or  in  the  manufacture  or  produc- 
tion of  any  article  intended  for  use  as  a  beverage.  (T.  D.  2559;  Oct.  26,  1917. 
T.  D.  2788;  Feb.  6,  1919.) 

SCIENTIFIC  ORGANIZATIONS. 

Capital  stock  tax — Exemption. 

Corporation  or  association  organized  and  operated  exclusively  for  .scientific 
purposes,  no  part  of  net  income  of  which  inures  to  benefit  of  any  private  stockholder 
or  individual,  is  exempt  from  tax  imi)osed  bv  section  407  of  the  act  of  September  8, 
1916.     (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750.  art.  12;  Aug.  9,  1918.) 

Income  taxes — Sxemption. 

Corporations  or  associations  organized  and  c/perated  exclusively  for  sclentirc 
pu'poses  are  not  as  such  exempt  from  tax;  exemption  is  conditional  on  fding  with 
collector  aflida\at  setting  cut  character  and  purpose  of  organization  and  showing 
that  no  part  of  any  income  inures  to  benefit  of  any  private  stockholder  or  individual, 
and  that  such  income  is  used  exclusively  to  promote  puipoaes  for  which  organized, 
.  as  indicated  in  particular  paragraph  under  which  exemption  is  claimed.  (T.  1). 
2690;  art.  67.) 

Exemption  from  filing  returns  and  paying  income  tax  of  corporations  or  associa- 
tions organized  and  operating  exclusively  for  scientific  puiposes  is  conditional 
uj>on  such  organization  filing  affidavit  shov/ing  character  and  purpose  of  organiza- 
tion, source  of  income  and  disposition  of  same,  whether  or  not  any  of  its  income  is 
credited  to  surplus  or  inures  to  benefit  of  any  private  stockholder  or  individual,  (;> 
which  affidavit  should  be  attached  copj'  of  charter  or  articles  of  incoiporation  aixl 
by-laws;  where  collector  is  in  doubt  as  to  taxable  status  of  organization,  upon  receipt 
01  affidavit,  etc.,  he  will  refer  affidavit  and  accompanying  papers  to  Commissioner 
of  Internal  Revenue  for  decision;  if  it  is  held  that  corporation  itself  is  exempt  from 
income  and  excess-profits  taxes  it  is  not,  however,  exempt  from  the  withholding 
requirements  nor  from  furnishing  information  in  accordance  with  provisiona  of  act 
of  October  3,  1917.     (T.  D.  2693;  Apr.  8,  1918.) 

SEASON  TICKETS  AND  PASSES. 
Admissions. 

Tax  imposed  by  section  700  of  act  of  October  3,  1917,  is  to  be  collected  upon  price 
paid  and  at  time  of  paying  for  season  tickets;  no  refund  of  any  part  of  the  tax  is 
authorized  because  one  or  more  performances  may  be  missed;  in  case  of  tickets 
covering  period  before  and  after  November  1.  1917,  tax  is  payable  on  proportion  of 
price  paid  representing  admissions  on  and  after  November  1,  1917,  and  should  be 
collected  upon  first  presentation  of  the  ticket  after  October  31.  1917.  (T.  D.  2681 ; 
Mar.  26,  1918.) 

Tiie  tax  collected  at  the  time  of  issue  of  a  season  ticket  or  pass  must  be  accounted 
for  in  full  in  the  next  monthly  return  irrespective  of  any  use  of  the  ticket  or  pass. 
(T.  D.  2681;  Mar.  26,  1918.) 


SECRECY.  543 

Ac?  missions— Conl  i  miod . 

Holder  of  season  pass  roquired  to  pay  tax  imposod  by  section  700  of  act  of  October 
3.  1017,  at  option  of  proijrietor  when  it  is  issued  (it  then  to  be  stamped  "  "Tax  paid' '), 
on  all  admiasions  to  whicli  pascs  entitles  or  whenever  it  is  presented  on  each  single 
admission;  tax  is  to  be  paid  !)y  holder  of  pass;  wliere  pass  is  "Tax  paid.  "  no  refund 
of  tax  will  be  allowed  on  account  of  failure  to  use  any  or  all  of  admissions  covered  by 
it.     (T.  I).  2G81;  Mar.  20,  1918.) 

The  tax  collected  at  the  time  of  issue  of  a  season  ticket  or  pass  must  be  accounted 
for  in  full  in  the  next  raonthlv  return  irre8i)ective  of  any  use  of  the  ticket  or  pass. 
(T.  D.  2681;  Mar.  2G,  1918.) 

When  a  Chautauqua  bureau  presents  a  Chautaucjua  under  the  usual  form  of  agree- 
ment witli  a  local  body  1)}  which  latter  subscribes  for  season  tiekets  and  receives 
them  to  resell  to  the  public,  the  adnussions  tax  is  payable  on  (1)  amount  paid  by 
local  body  to  the  bureau  regardless  of  number  of  tickets  not  resold  or  not  used,  on  (2) 
any  excess  received  by  local  body  from  resale  of  tickets  over  the  amounts  so  paid  Ijy 
it,  and  also  on  (3)  all  adnii.--vious  other  than  bv  tickets  so  sold  to  the  local  body. 
(T.  D.  2782:Dec.  21,  ]<)]8.> 

Dues. 

Golf  club  dues  for  which  the  member  receives  as  one  of  the  privileges  of  member- 
ship a  season  ticket  for  a  municipal  golf  course  are  subject  to  tax  without  deducting 
part  paid  by  club  to  city  for  the  .season  ticket.     (T.  D.  2782;  Dec.  24.  1918.  i 

Passenger  transportation. 

The  term  "commutation  or  season  tickets."  as  used  in  section  500,  subdivision 
(c),  of  the  act  of  October  .3,  1917,  inchules  all  forms  of  tickets  issued  and  intended 
for  use  for  a  certain  number  of  trips  between  tv/o  gi%en  termird.  whether  limited  or 
unlimited  as  to  the  time  in  which  they  are  to  be  used.     (T.  D.  2676;  Mar.  18,  1918.) 

The  8  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3, 
1917.  does  not  applv  to  amounts  paid  for  transportation  of  persons  in  case  of  season 
tickets  for  trips  less  than  30  miles.     (T.  D.  2676;  Mar.  18,  1918.) 

Season  tickets  sold  and  partially  iised  before  November  1.  1917,  are  not  taxable 
if  presented  after  that  date  for  remainder  of  journey  or  journeys  called  for.  (T.  D. 
2676;  Mar.  18.  1918.) 

SECBECY. 

Formulas  for  medicinal  preparations. 

Tax  imposed  by  section  600  (h)  of  the  act  of  October  3,  1917,  is  2  per  cent  of  tlie 
price  for  which  all  medicinal  preparations,  compounds,  or' compositions  whatsoever 
are  sold  by  the  manufacturer;  provided  that  the  manufacturer  claims  to  have  any 
private  formula,  secret  or  occult  art  for  making  or  preparing  them.  (T.  D.  2719;  Art. 
XIX.) 

Every  medicinal  preparation,  compound,  or  composition  embraced  within  one  or 
more  of  the  sudivisions  in  Article  XIX  of  Regulations  No.  44  is  subject  to  tax;  if 
article  is  made  or  prepared  by  manufacturer  claiming  to  ha',  e  private  formula,  secret 
or  occult  art  for  it,  it  is  taxable  even  though  it  is  not  prepared,  uttered,  vended,  or 
exposed  for  sale  under  any  letters  patent  or  trade-mark,  and  it  is  not  lield  out  or 
recommended  to  public  as  proprietary  medicine  or  medicinal  proprietary  article  or 
preparation  or  as  a  remedy  or  specific  for  any  disease  or  affection  of  the  luimau  or 
animal  body.     (T.  D.  2719;  Art.  XX.) 

Printing  on  labeis  the  directions  and  indications  for  use,  dosage  and  other  similar 
matter,  will  not  alone  render  preparations  made  under  a  standard  formula  taxable, 
provided  preparation  is  r.ot  held  out  or  recommended  as  a  proprietary  preparation  or 
as  a  remedy  or  specific ;  wliere  niedicirial  preparations  are  sold  under  labels  which  do 
not  indicate  that  the-  formula  is  published  they  will  be  considered  to  be  prepared 
under  private  formulas,  unless  proof  is  submitted  that  the  formula  is  not  secret. 
(T.  D.  2719;  Art.XXH.) 

Income  tax  returns. 
i=5ee  "Inspection." 

Copies  cf  returns  on  file  in  {Commissioner's  office  raay  not  be  sent  to  any  person, 

except  corporation  itself  ortoits  duly  authorized  attorney;  duly  authorized  attorney 

lor  thif:  purpose  is  one  possessing  projjerly  executed  power  of  attorney  in  writing  by 

corporation,  wliich  designation  shall  be  signed  by  two  officers  of  corporation  and  bear 

;  impress  of  the  seal.     (T.  D.  2690;  art.  220.) 


544  SECURITIES. 

Income  tax  returns — Conlinued. 

Disclosure  by  collector,  deputy  collector,  agent,  clerk,  or  other  officer  or  employee 
of  the  United  States  to  any  person  not  legally  authorized  to  receive  same,  of  any 
information  whatever  contained  in  or  set  forth  by  any  return  of  annual  net  income 
made  pursuant  to  the  law,  is,  by  the  act,  made  a  misdemeanor,  and  is  punishable  by 
line  not  exceeding  $1,000,  or  by  imprisonment  not  exceeding  one  year,  or  both,  in 
discretion  of  the  court,  and  if  offender  is  an  officer  or  employee  of  the  United  States 
he  shall  be  dismissed  and  be  incapable  thereafter  of  holding  any  office  under  the 
United  States  Government.     (T.  D.  2G90;  art.  229.) 

Proper  officers  of  State  impo.sing  income  tax  are  entitled  as  of  right  upon  request 
of  its  governor  to  have  access  to  income  and  profits  tax  returns  of  corporation,  etc., 
or  to  at)stract  thereof,  showing  its  name  and  income;  proper  officers  in  this  connec- 
tion are  only  those  officers  of  the  State  charged  with  enforcement  of  the  State  in- 
come tax  law  and  who  are  to  use  the  information  gained  by  the  access  only  in  con- 
nection with  such  enforcement;  contents  of  request  or  application  of  governor, 
which  must  be  in  writing,  signed  by  him  under  the  seal  of  his  State,  and  be  addressed 
either  to  the  Secretary  of  the  Treasury  or  to  the  Commissioner  of  Internal  Revenue, 
stated;  access  shall  be  given  only  in  the  office  of  the  Commissioner,  and  the  officers 
designated  by  the  governor  will  not  be  permitted  to  name  another  person  to  examine 
the  returns  or  abstra<?ts  for  them,  and  the  officers  designated  will  be  given  accesa 
only  to  returns  of  those  corporations,  etc.,  organized  and  doing  business  in  their 
State.     (T.  D.  2962;  Jan.  7,  1920.) 

Original  income  return  or  copy  thereof  may  be  furnished  by  Commissioner  to 
United  States  attorney  for  use  as  evidence  before  United  States  grand  jury  or  in 
litigation  in  any  court,  where  the  United  States  is  interested  in  the  result,  or  for 
vise  in  preparation  for  such  litigation,  or  to  attorney  connected  with  Department  of 
Justice  designated  by  Attorney  General  to  handle  such  matters,  if  and  when  Attor- 
ney Gejieral  states  to  Commi.^.sioner  in  writing  that  such  attorney  is  so  designated; 
return  or  copy  thereof  thus  furnished  must  be  limited  in  use  to  purpose  for  which 
furnished  and  is  under  no  conditions  to  be  made  public,  except  where  publicity 
nece.ssarily  results  from  such  use;  where  original  return  is  necessary,  it  shall  be 
placed  in  eWdence  by  the  Commissioner  for  that  purpose,  and  after  being  placed 
in  evidence  it  shall  be  returned  to  files  in  office  of  Commi.'i.sioner  in  Washington; 
original  return  will  be  furnished  only  in  exceptional  cases,  and  then  only  when  it 
is  made  to  appear  that  ends  of  justice  may  otherwise  be  defeated;  neither  the  origi- 
jial  nor  a  copy  desired  for  use  in  litigation  where  United  States  Government  is  not 
interested  and  where  such  use  might  result  in  making  public  the  information  con- 
tained therein  will  be  furni.shed,  except  as  otherwise  pro\ided  in  the  next  succeed- 
ing paragraph.     (T.  D.  2962;  Jan.  7,  1920.) 

Copy  of  income  return  may  be  furnished  by  the  Commis.sioner  to  person  who 
made  the  return  or  to  his  duly  constituted  attorney,  or  if  person  is  deceased,  to  his 
executor  or  administrator,  or,  if  entity  is  in  hands  of  receiver,  trustee  in  bank- 
iui)tcy,  guardian,  or  similar  legal  custodian,  to  the  receiver  or  other  custodian  np»a 
written  application  for  same,  accompanied  by  satisfactory  evidence  that  applicant 
comes  within  this  provision:  "person  who  made  the  return,"'  as  herein  used,  refers 
in  case  of  an  individual  return  to  the  individual  whose  return  is  desired,  and  iii 
case  of  return  of  corporation,  etc.,  or  (iduciary,  to  the  corporation,  etc.,  or  fiduciarv, 
a  copv  of  whose  return  is  desired:  corporation  may  also  designate  officer  or  indi- 
vidual to  whom  copy  made  by  corporation  may  be  furnished,  and  upon  sufficient 
evidence  of  such  action  and  of  identity  of  officer  or  individual,  copy  may  be  fur- 
nished to  such  person:  copy  of  partnership  return  will  be  furnished  to  partners  only 
in  case  all  the  partners  join  in  the  request  therefor,  and  if  partnership  has  been 
dissolved  the  members  sur\'iving  may  be  furnished  a  copy  if  all  the  members  sur- 
viving join  in  the  request.     (T.  D.  2962;  Jan.  7,  1920.) 

SECTJPvITIES. 
Dealers— Tax. 

I)ealer  in  securities,  for  purposes  of  T.  D.  2609.  is  a  merchant  of  securities  whether 
an  individual,  partnership,  or  corporation  with  an  established  place  of  business  and 
v/hose  principal  business  is  the  purchase  of  securities  and  their  resale  to  customers; 
one  who,  as  a  merchant,  buys  securities  and  sells  them  to  customers  with  a  view  to 
the  gains  and  profits  that  may  be  derived  therefrom.     (T.  D.  2649;   Jan.  30,  1918.) 

The  case  of  AUheimer  &  Rawlings  Investment  Co.  r.  Allen  holds  that  a  corpora- 
tion which  did  a  brokerage  business  and  bought  securities  for  customers  who  paid 
only  part  of  the  price,  paying  interest  on  balances,  corporation  also  paying  for 
securities  purchased  only  part  of  the  price  and  paying  interest  on  balances,  including 
in  return  of  gross  income  diiferences  between  interest  received  and  interest  paid, 


SECURITIES.  545 

Dealers — Tax — Continued 
made  incorreot  return;  interept  received  by  corporation  from  its  customers  should 
be  included  in  gross  income  and  interest  paid  by  the  corporation  on  said  purchase  is 
allowable  as  interest  payable  on  its  bonded  or  other  indebtodnea«;  in  determining 
net  income  interest  can  be  deducted  only  to  an  amount  not  exceeding  the  paid-up 
capital  stuck  outstanding  at  close  of  the  year.  (T.  D.  2441;  Feb.  8,  1917.  T.  D. 
2696;  Apr.  1,  1918.     Ct.  Decs.) 

A  bank  which  does  not  hold  itself  out  to  the  public  as  engaged  in  negotiating 
purchases  or  sales  of  stock,  bonds,  etc.,  but  merely  negotiates  the  purchase  and  sale 
thereof  for  depositors  and  other  patrons,  without  remuneration  and  for  their  accom- 
modation only,  does  not  thereby  incur  liability  to  sperial  tax  as  a  broker.  (T.  D. 
27S2;  Dec.  24,  191S.) 

Income  and  excess  profits  taxes. 

Dividends  declared  by  corporation  and  paid  Mith  securities  in  which  surplus  of 
of  corporation  has  been  invested,  regardless  of  character  of  securities,  must  be  ac- 
counted for  as  dividend  for  income  tax  purposes  by  recipients  to  extent  that  it  repre- 
sents distribution  of  surplus  accrued  to  corporation  since  March  1,  1913.  (T.  D. 
2690;   art.  4.) 

Commissions  paid  in  purchasing  and  selling  securities  are  a  jjart  of  the  cost  or  selling 
price  of  the  securities  and  not  otherwise  Qeductible;  thev  do  not  constitute  expense 
deductions.     (T.  D.  2690;  art.  8.) 

Section  30  of  the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3, 
1917.  does  not  exempt  from  tax  any  income  collected  by  foreign  Governments  from 
investments  in  the  United  States  in  stocks,  bonds,  or  other  domestic  securities, 
which  arc  not  bona  fide  owned  by  but  are  loaned  to  such  foreign  Government. 
(T.  D.  2690;  art.  87.) 

Corporation  possessing  securities  can  not  allowably  deduct  any  amount  claimed  as 
loss  on  account  of  shrinkage  in  value  through  fluctuation  of  market  or  otherwise;  only 
loss  to  be  allowed  is  that  suffered  when  securities  mature  or  are  disposed  of;  in  case 
of  banks  or  other  coiporations  subject  to  supervi.sion  by  State  or  Federal  authorities, 
and  which,  in  obedience  to  orders  of  supervisory  officers,  charge  off  as  losses  amounts 
represented  as  alleged  shrinkage  in  value  of  property,  amounts  so  charged  oif  do  not 
constitute  allowable  deductions;  this  apphes  only  to  owners  and  investors  and  not 
dealers  in  securities,  as  to  Avhich  see  T.  D.  2609.     (T.  D.  2690:  art.  148.) 

District  inigation  bonds  generally  are  a  lien  upon  real  estate  affected  by  irrigation 
project,  and  until  corporation  holding  such  bonds  has  taken  iiecessary  aelion  to  pro- 
tect its  interest  and  enforce  collection  of  such  bonds,  corporation  will  not  be  allowed 
to  deduct  face  value  or  any  estimated  amount  supposed  to  represent  lessor  shrinkage 
in  value  of  such  bonds;  any  estimated  shrinkage  in  value  docs  not  constitute  loss 
within  meaning  of  Title  I  of  the  act  of  September  8,  1916,  as  amended  by  act  of 
October  3,  1917;  so  long  as  value  of  security  is  uncertain  or  unknown  loss  can  not 
definitely  be  ascertained  and  is  therefore  not  deductible.     (T.  D.  2690;   art.  153.) 

Dealers  in  merchandise  and  dealers  in  securities  authorized  to  make  returns 
on  basis  of  inventories  taken  at  cost  or  market  price,  whichever  is  lower.  (T.  D. 
2609;  Dec.  ^9,  1917.)  Pending  decision  by  Supreme  Court  of  United  States  as  to 
legality  of  authorization  of  T.  D.  2609,  returns  made  upon  basis  of  T.  D.  2609  will 
be  tentatively  accepted.  (T.  D.  2649;  Jan.  30,  1918.)  Affirmed,  T.  D.  2744; 
July  11,  1918.) 

Sales — Affixing  and  canceling  stamps. 

Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer  is 
effected  by  delivery  of  certificate  of  stock  assigned  in  blank ;  in  case  change  of  owner- 
ship is  by  transfer  of  certificate  of  stock,  stamp  shall  be  alfixed  to  the  certificate;  in 
case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall  be  placed 
upon  the  books;  in  all  other  cases  payment  shall  be  evidenced  by  affixing  stamp 
upon  memorandum  or  agreement  of  sale  to  be  delivered  by  the  seller  to  the  buyer; 
manner  of  canceling  stamps  stated.     (T.  D.  2608;   Nov.  30,  1917.) 

— —  Exempt  transactions. 

No  tax  is  imposed  upon  agreement  evidencing  deposit  of  stock  certilicates  as  col- 
lateral security,  nor  upon  deliveries  or  transfers  to  broker  for  sale,  nor  upon  deliveries 
or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfers  shall  be 
accompanied  by  certificate  setting  forth  the  facts,  nor  upon  transfers  or  deliveries 
to  clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  between  mem- 
bers; no  by-law  or  custom  of  any  exchange  or  similar  institution,  nor  any  collateral 

70420''— 21 35 


546  SECURITY — SEIZURES. 

Sales — Continued. 

__ — Exerapt  transactions — Continued, 
or  additional  agreement  or  understanding,  inconsistent  or  in  conflict  with  any  ro- 
quiiement  of  the  act  of  October  3, 1917,  or  of  Regulation  No.  40,  Part  1,  shall  exempt 
any  person  from  the  payment  of  the  tax.     (T.  D.  2G08;  Nov.  30,  1917.) 

■ Memorandum  of  sales. 

Persons  selHng  or  agreeing  to  sell  stocks  required  to  deliver  to  buyer  a  numbered 
memorandum  of  sale,  or  agreement  to  sell,  signed  by  principal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  number  and 
price  of  shares.     (T.  D.  2608;  TSTov.  30,  1917.) 

- —  Rate  of  taxation. 

In  the  case  of  shares  or  certificates  of  stock  having  a  face  or  par  value,  amount  of 
tax  shall  be  based  upon  total  face  value  of  shares  involved,  and  shall  l>e  at  rate  of  2 
cents  for  each  SlOO  of  such  total  face  value  or  fraction  thereof,  whether  such  aggre- 
gate face  value  is  greater  or  less  than  $100.     (T.  D.  2603;  Nov.  30,  1917.) 

■ Records. 

Persons  engaged  in  lousiness  of  buying,  selling,  or  transferring  shares  of  stock,  re- 
quired to  keep  record  showing  specified  items  of  information ;  form  of  record  required 
(T.  D.  2608;   Nov.  30.  1917.) 

• E,egistration. 

Regulation  No.  40,  Part  1.  requires  a  statement  of  registration  by  persons,  corpora- 
tions.^etc,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock  and 
other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector  who 
must  issue  certificate  of  registration  to  be  posted  in  place  of  business.  (T.  D.  2G0S; 
Nov.  30,  1917.) 

Retiu'ns. 

Clearing  houses  and  per-sone  engaged  wholly  or  partl>;  in  buying,  selling,  or  trans- 
ferrino-  shares  of  etock,  required  to  make  returns  showing  specified  data  and  infor- 
mation; substitute  returns.     (T.  D.  2608;  Nov.  30,  1917.) 

— ^ —  Stamp  sales. 

Stamps  shall  l)e  sold  only  by  collectors,  their  deputies,  an  assistant  treasurer,  or 
other  designated  United  States  depositary;  State  agents;  requisitions  for  stiinips; 
records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 

SECURITY. 

See  "  Bonds." 

Agreements  -with  banks — Stamp  tax. 

Neither  security  agreement  signed  by  prospective  borrower  of  bank,  empowering 
bank  to  apply  any  securities,  money,  or  other  property  of  borrower  in  hand.s  of 
bank  to  satisfy  debt,  nor  form  of  application  for  the  loan  is  subject  to  stamp  tax 
imposed  bv  Schedule  A  of  section  807  of  act  of  October  3,  1917.  (T.  D.  2599;  Dec. 
3,  1917.) 

Collateral. 

See  "Collateral  Security." 

SEIZURES. 

See  '-Distraint;"  "Forfeitures." 

Distilled  spirits. 

Distilled  spirits  seized  because  of  filing  of  incorrect  return  or  failure  to  file  return 
not  willful  may  be  released  on  payment  of  tax  and  compromise  offer  of  25  per  cent; 
payment  of  tax  and  compromise  offer  of  100  per  cent  required  in  case  of  false  retiu'ii 
or  willful  failure  to  file  return.  Acceptance  of  such  offers  is  in  lieu  of  forfeiture 
only.     (T.  D.  2877;  June  27.  1919.) 

Evi  ienoe. 

The  fourth  amendment  of  the  Federal  Constitution  is  violated  if  Go^■ernment 
officeri^  seize,  mthout  warrant,  documents  of  defendant  named  in  a  pending  indict- 
ment; evidence  gained  by  such  seizure  may  not  bo  used  by  the  Government  in 
any  way,  and,  therefore,  refusal  bj^  defendant,  after  return  of  documents  seized,  to 


SELLING   COEPORATIONS — SHOWS.  547 

Evidence — Continued . 
comply  A\dth  court  order  to  produce  them,  is  not  contempt  of  court,  although  the 
order  was  regularly  drawn,  if  it  was  based  on  information  gained  by  the  illegal 
seizure  and  not  upon  knowledge  of  facts  gained  fnym  an  independent  source.     (T. 
T).  2984;  Feb.  25,  1920.     €t.  Dec.) 

Hclease — Bonds. 

In  case  of  seizurc.=i  of  automobiles,  horses,  and  other  similar  property,  coHccters 
instructed  to  refuse  to  acc:ept  bond  under  section  34.59,  Revised  Statutes,  for  release 
imless  propoit^'  vras  seized  luider  provisions  of  section  3453,  Rovis(Ml  Statutes,  only; 
where  seiziu'e  was  not  made  under  such  section,  it'  property  is  appraised  at  .%500  or 
less.,  collectors  will  dispose  of  same  promptly  under  provisions  of  section  34f)0,  un- 
less bond  for  costs  is  given,  in  which  event  bond  should  be  forwarded  to  I'nited 
States  attorney  with  request  to  institute  libel  proceedings;  if  value  exceeds  SoOO, 
property  should  be  turned  over  to  United  States  marshal  au<l  the  attojuey  re- 
quested to  institute  forfeiture  proceedings,  no  bond  for  costs  being  required;  ques- 
tion of  release  of  propertv  on  bond  is  within  jurisdiction  of  court .  (T.  L).  2511 ;  July 
12,  1917.) 

Shipments  of  liquors  into  "dry"  territory. 

Whero  shipment  is  discovered  by  intcynal-roveuue  officers,  involving  violations 
of  both  section  3449,  Revised  Statutes,  and  section  240  of  the  Criminal  Code,  seizure 
should  be  made  in  the  same  manner  as  though  the  former  section  only  v/as  involved, 
but  all  facts  should  be  disclosed  in  any  reports  submitted;  when  only  section  240 
i^^  involved,  it  is  the  duty  of  the  officers  of  the  Department  of  Justice  rather  than  of 
revenue  officers  to  see  that  such  section  is  enforced,  and  a  revenue  officer  Avho 
attempts  to  perform  the  official  functions  of  officers  of  the  Department  of  Justifo 
exceeds  his  authority;  revenue  officers  should  act  in  regard  to  violations  of  section 
240  as  citizens  rather  than  in  their  capacity  as  revenue  officers.  (T.  D.  2437;  Jan. 
19,  1917.) 

SELLING    CORPORATIONS. 

Manufacturers,  tax  on. 

In  case  of  selling  corporation  owning  substantially  all  the  stock  of  a  manufacturing 
corporation  which  nominally  sells  all  or  part  of  its  products  to  selling  corporation, 
manufacturing  corporation  is  regarded  as  a  manufacturing  agent,  and  taxable  sales 
rire  those  made  by  selling  corporation.     (T.  D.  2719;  Art.  V.) 

SHARES    OF    STOCK. 

See  "Stock." 

DolLiiition. 

The  term  "share  or  shares  of  stock,"  within  Regulations  No.  40,  Part  ],  relating 
to  stamp  taxes  on  sales  and  tTansfers  of  shares  of  stoclc  and  like  securities,  includes 
shares  and  certificates  for  shares  of  stock  r^j^resenting  interests  in  coq:)orations  and 
in  incorporated  and  unincorporated  associations,  as  well  as  voting  trust  certificates 
for  shares  and  certificates  for  shares  or  inteivsts  in  shares  "if,  as,  and  when  issued" 
and  for  "rights"  therein.     (T.  D.  2G08;  Nov.  30,  1917.) 

SHELLS. 

D  efinition. 

The  terra  "shells,  "  as  used  in  Title  III  of  the  act  of  September  8,  191G,  compre- 
hends any  receptacle  need  to  inclose  an  exi^osive  chai'ge,  «r  the  receptacle  and 
charge  combined.     (T.  D.  2384;  art.  2.) 

SHERRY 

See  "Wines." 

SHIPPING. 

;3ee  "Transportation  Tax." 

SHOWS. 

See  "Admissions";  "  Occupational  Taxes.". 


548  SIGHT   DRAFTS — SINKING   FUNDS. 

SIGHT  DRAFTS. 
Stamp  taxes. 

A  draft  might  be  drawn  stating  no  time  for  payment  which  Avould  class  it  as  a 
eight  draft  and  be  accepted  at  90  days  which  would  change  its  nature;  if  negotiated 
or  delivered  before  acceptance  holder  would  be  obliged  to  stamp  thereon  accept- 
ance, in  default  of  which  both  he  and  accepter  would  be  liable  for  statutory  penalty. 
(T.  D.  2682;  Mar.  26,  1918.) 

Ordinary  sight  draft  with  bill  of  lading  attached  is  not  taxable,  but  draft  ex- 
pressed to  be  payable  at  sight  "on  arrival  of  car,"  or  containing  memorandum  to 
hold  xmtil  arrival  of  car,  is;  sight  draft  accompanied  by  instructions  outside  the 
instrument,  as  "Do  not  present  until  arrival  of  car,"  or  some  such  memorandum, 
is  not  taxable.     (T.  D.  2682;  Mar.  26,  1918.) 

A  eight  draft  accepted  and  paid  for  the  drawee  by  the  collecting  bank,  which 
holds  it  and  charges  interest  until  the  drawee  takes  it  up,  is  not  taxable.  (T.  D. 
2682;  Mar.  26, 1918.) 

SIGNS. 

Admissions — Amount  charged,  tax  due,  and  total  thereof. 

Persons  charging  taxable  admissions  required  to  keep  conspicuously  posted  in 
their  places  of  business  signs  accurately  stating  prices  charged  for  admission,  tax 
due  on  each  admission,  and  total  of  aduiission  and  tax;  where  entertainment  enter- 
prises, finding  it  impracticable  to  handle  pennies  or  for  other  reasons,  have  advanced 
their  prices  5  or  10  cents,  including  tax  in  the  advance,  conspicuous  signs  must 
announce,  "The  charge  for  a  [denomination]  ticket  includes  the  tax  of  1  cent  for 
each  10  cents  or  fraction  thereof  of  the  amount  paid  for  admission. "  (T.  D.  2681; 
Mar.  26,  1918.) 

— —  Persons  liable  for,  and  object  of,  tax. 

By  appropriate  signs  and  by  notices  printed  in  programs  for  reasonable  period, 
public  should  be  informed  that  tax  imposed  by  section  700  of  the  act  of  October  3, 
1917,  is  required  to  be  paid  by  person  paying  for  admission,  and  that  amount  col- 
lected goes  to  United  States  Government  for  war  purposes.  (T.  D.  2681;  Mar.  26, 
1918.) 

■ Tax  not  charged. 

No  place  where  taxable  admissions  are  charged  will  be  permitted  to  display  any 
sign,  notice,  or  placard,  to  the  effect  that  the  war  tax  is  not  charged.  (T.  D.  2681; 
Mar.  26,  1918.) 

Wineries. 

Owner  or  occupant  of  winery  premises  producing  not  to  exceed  1,000  gallons  per 
year  must  keep  conspicuously  on  outside  of  building  nearest  street  or  highway 
sign  in  jilaln  letters  and  figures,  of  not  less  than  3^^  in  length  and  of  corresponding 
width,  indicating  the  premises  and  the  registry  number.  (T.  D.  2765:  Oct.  21, 
1918.) 

SINKING  FUNDS. 
Income  taxes. 

When  corporation  sets  aside  part  of  its  earnings  to  create  sinking  fund  with  which 
to  retire  indebtedness,  annual  additions  to  such  fund  are  not  allowable  deduction 
from  gross  income  or  as  or  in  lieu  of  depreciation  or  on  any  other  account;  earnings 
thus  sot  aside  are  an  asset  and  any  accretion  thereto  must  be  accounted  for  as  income ; 
ruling  will  not,  however,  forbid  deduction  or  reasonable  allowance  for  depletion 
of  natural  deposits  even  though  amount  so  deducted  be  used  in  whole  or  in  part 
in  payment  of  its  indebtedness.     (T.  D.  2690;  art.  166.) 

Wliere  trustees  of  sinking  fund  have  invested  amount  of  sinking  fund  received 
or  any  portion  of  it  in  bonds  of  corporation,  and  such  corporation  pays  to  trustees 
interest  thereon,  the  corporation  will  be  permitted  to  deduct  such  interest,  pro- 
vided amount  thus  paid,  plus  interest  on  any  other  outstanding  indebtedness,  does 
not  exceed  legal  limit;  interest  paid  to  trustees,  together  with  all  other  earnings 
on  investments  made  by  trustees  of  the  sinking  fund,  must  be  included  in  gross 
income  of  corporation.    '(T.  D.  2690;  art.  189.) 


SIRUPS — SNUFF.  549 

SIRTJPS. 
Beverages. 

A  "prepared  sirup,"  within  the  moanins;  of  RPction  313  (a)  of  the  act  of  October 
3,  1917,  is  a  simple  sirup  with  flavoring  and  perhaps  other  materials;  a  simple  sirup 
which  is  not  taxable  is  a  preparation  of  sugar  and  water,  or  rock  candy  and  water. 
(T.  D.  2719;  Art.  XXIX.) 

Tax  imposed  by  section  313  (a)  of  the  act  of  October  3,  1917,  is  based  on  price  for 
which  i)repared  sirups  or  extracts,  if  intended  for  use  in  manufacture  or  production 
of  beverages,  commonly  known  as  soft  drinks,  by  soda  fountains,  bottling  estab- 
lishments, and  other  similar  places,  are  sold  by  the  manufacturer;  possible  selling 
prices  and  corresponding  tax  per  gallon  in  each  case,  stated.  (T.  D.  2719;  Art. 
XXVIII.) 

Foam,  concentrates,  acid  solution,  cocoa  paste,  ginger  ale  paste  and  emulsions, 
and  ordinary  household  extracts  like  vanilla,  are  subject  to  tax  imposed  by  section 
313  (a)  of  act  of  October  3,  1917,  when  sold  if  intended  for  use  in  production  of  soft 
drinks;  cxti'acts  intended  for  use  for  culinary  purposes  or  in  manufacture  of  ice 
cream,  are  not  taxable;  ''Sundae  dressings,"  used  exclusively  for  pouring  over 
ice  cream,  are  not  taxable;  prepared  sirups  and  extracts  used  by  rectiiiers  of  spirits 
and  as  bar  flavors  are  not  taxable;  an  extract  sold  to  another  extract  or  sirup  manu- 
facturer for  use  in  production  of  prepared  sirup  which  is  to  be  sold  as  such,  is  not 
subject  to  tax,  but  manufacturer  of  prepared  sirup  must  pay  tax;  no  tax  is  imposed 
upon  sirups  or  extracts,  as  such,  used  by  the  maker  for  further  manufacturing  pur- 
poses and  not  sold  by  him.     (T.  D.  2719;  Art.  XXX.) 

The  tax  imposed  by  section  313  (b)  of  the  act  of  October  3,  1917,  is  1  cent  for  each 
gallon  of  unfermented  grape  juice,  soft  drinks,  and  artificial  mineral  waters,  not 
carbonated,  and  fermented  liquors  containing  less  than  one-half  per  cent  of  alcohol, 
sold  by  the  manufacturer  in  bottles  or  other  closed  containers;  tax  is  none  the  less 
payable  because  tax  may  have  been  paid  on  extracts  or  prepared  sirups  entering 
into  manufacture  of  such  soft  drinks;  manufacturer  may  be  bottler  or  proprietor 
of  soda  fountain.     (T.  D.  2719;  Art.  XXXI.) 

Manufacturers  of  flavoring  extracts  who  do  not  pay  special  tax  must  comply 
with  standards  prescribed  by  Secretary  of  Agriculture;  if  no  standard  has  been 
prescribed,  liability  to  special  tax  will  be  regarded  as  incurred  on  account  of  manu- 
facture of  flavoring  extracts,  as  well  as  of  essences,  soft  drinks,  sirups,  etc.,  if  finished 
product  contains  more  alcohol  than  is  necessary  to  cut  the  oils  or  extract  the  de- 
sired active  principles  and  hold  them  in  solution.     (T.  D.  2760;  Oct.  9,  1918.) 

Preparation  of  fruit  juice  and  sugar,  which  is  not  reasonably  suitable  for  beverage 

Purposes  and  is  not  so  used,  but  which  is  used  to  produce  a  palatable  beverage  by 
eing  mixed  or  diluted  with  water  at  soda  fountains,  bottling  establishments,  and 
other  similar  places,  is  a  prepared  sirup  within  the  meaning  of  section  313  (a)  of 
the  act  of  October  3,  1917,  and  was,  while  that  act  was  in  force,  subject  to  tax  levied 
upon  such  sirup.     (T.  D.  2932;  Oct.  7,  1919.) 

SNUFF. 

Exports — Application  for  witlidrawal. 

Instructions  with  reference  to  supplying  manufacturers  of  snuff  ^vith  revised 
P'orm  550,  application  for  withdrawal  for  export.     (T.  D.  2521;  Sept.  1,  1917.) 

Floor  tax. 

Tax-paid  manufactured  snuff  in  excess  of  specified  quantity  hi^ld  fi<r  sale  on 
October  4,  1917,  as  well  as  contents  of  broken  packages  and  goods  in  transit  on  such 
date,  required  to  be  inventoried  and  returned  for  assessment  of  tax  provided  for  by 
section  403  of  the  act  of  October  3,  191 7 ;  dealers  and  others  required  to  pay  tax  must 
make  return  on  Form  41 6C,  in  duplicate,  under  oath,  on  or  before  November  2, 1917; 
j)ayment  ot  tax  required  at  time  of  filing  return,  but  may,  upon  filing  of  bond,  be 
extended  to  date  not  exceeding  seven  months  from  passage  of  act  of  October  3,  1917; 
principal  office  or  place  of  business  to  make  return  where  two  or  more  stores  are 
operated  by  same  dealer.     (T.  D.  2556;  Oct.  16, 1917.) 

Manufacturers — Books  and  returns. 

Instructions  with  reference  to  entries  to  be  made  in  books  and  monthly  returns  on 
November  2,  1917,  when  full  increased  taxes  became  effective.  (T.  I).  2569;  Oct. 
17,  1917.) 


550  ,  SNUFE. 

Manufacturers — Continued. 
Inventories. 

Instructions  with  reference  to  inventories  required  to  be  filed  January  1 ,  1918,  and 
verification  thereof  by  collectors  of  internal  revenue  or  their  deputies;  further 
duties  of  deputy  collectors  stated.     (T.  D.  2583;  Nov.  17,  1917.) 

Manufacturers  of  tobacco,  snuff,  cigars,  and  cigarettes  required  to  make  inven- 
tories in  accordance  with  sections  3358,  3390,  Revised  Statutes,  such  inventory  to 
be  made  before  commencement  of  business  on  January  1,  1919;  tobacco  of  each 
class,  and  stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine-cut,  and 
smoking  tobacco,  snuff,  cigars,  and  cigarettes,  of  the  several  classes,  should  be 
weighed  separately;  inventory  must  include  unstemmed  tobacco  stored  off 
bonded  factory  j^ remises  and  also  the  attached  and  unattached  stamps;  tobacco 
material  in  factory  required  to  be  segregated  according  to  classification:  tobacco 
dust,  sweepings,  etc.,  must  be  inventoried  as  "waste";  weight  and  marks  of  each 
unopened  jiackage,  etc.,  required  to  be  listed  on  back  of  inventory  form;  record 
of  quantity  of  tobacco  used  from  date  of  inventory  to  date  of  deputy  collector's 
visit  requiredto  bekept;  inventory  must  be  A-erifled  early  as  practicable  after  Jan- 
uary 1,  1919;  duties  of  deputy  collectors  enumerated.     (T.  D.  2777;  Dec.  11,  1918.) 

Inventories  prepared  in  accordance  with  sections  3358  and  3390,  Revised  Statutes, 
required  to  be  filed  before  commencement  of  business  on  January  1,  1920;  weighing; 
inventory  of  attached  and  unattached  stamps  required;  segregation  of  tobacco 
material  in  factory;  tobacco  dust,  sweepings,  etc.,  to  be  inventoried  as  '"waste"; 
listing  of  weight  and  marks  of  unopened  packages,  etc.;  verififation;  duties  of 
deputy  collectors.     (T.  D.  2955;  Nov.  29,  1919.) 

A  corporation  carrjdng  on  business  as  a  manufacturer  of  tobacco,  snuff,  cigars,  or 
cigarettes,  or  as  a  dealer  in  leaf  tob-acco,  will  be  reqiured  to  have  the  monthly 
reports  and  inventories  signed  and  sworn  to  by  a  duly  authorized  ofncer  or  agent  of 
the  corporation  and  to  file  tlie  monthly  reports  within  the  prescribed  time  witii 
the  collector  of  the  district  in  wluch  the  factorv  or  dealer's  place  of  l:)U8ine3a  is 
located.     (T.  D.  3073:  Sept.  27,  1920.  > 

An  ofRcer's  authority  to  sign  and  make  oath  to  a  corporation's  monthly  reports 
and  inventories,  tmless  specifically  given  in  the  charter  or  by-la^vs,  must  be  con- 
ferred by  a  resolution  in  due  course  of  the  board  of  directors.  In  case  of  such 
resolution,  a  certificate  thereof  in  duplicate,  executed  by  the  president  and  attested 
by  the  secretary,  should  be  filed  with  the  collector  of  the  district  in  which  the 
monthly  reports  and  inventories  are  to  be  filed;  one  copy  should  l)e  retained  by  the 
collector  and  one  forwarded  bv  him  to  the  Commissioner.  t^T.  D.  3073;  Sept.  27, 
1920.) 

Whenever  it  is  not  possiljle  or  convenient  for  a)i  ofiicer  of  a  corporation  to  sign 
and  sweai'  to  its  monthly  reports  and  inventories  as  a  manufacturer  of  tobacco, 
snuff,  cigars,  or  cigarettes,  or  as  a  dealer  in  leaf  tobacco,  an  agent  may  be  authorized 
to  execute  them  and  may  l)ind  the  corporation  as  fully  as  an  officer,  under  the 
following  conditions: 

A  resolution  in  due  course  of  the  board  of  directors  should  appoint  and  authorize 
the  superintendent  or  manager  of  the  factory  or  leaf  establishment,  identifying  botli 
the  individual  and  the  factory  or  leaf  establishment,  to  execute  the  monthly  reports 
and  inventories  required  of  the  corporation,  and  provide  further  that  the  power  of 
attorney  so  created  shall  continue  in  full  force  luitil  written  notice  of  the  revocation 
thereof  is  given  to  the  collector  of  tlie  district  thereby  affected.  A  certificate  in 
duplicate  of  such  resolution,  executed  l)y  the  president  and  attested  ]:)y  the  secre- 
tary, should  then  be  tiled  with  the  collector  of  the  district  in  which  the  monthly 
reports  and  iliventories  are  to  be  filed;  one  copy  should  Ije  retained  by  the  collector 
and  one  forwarded  by  him  to  the  Commissioner.  Such  certificate  will  constitute 
authority  for  the  collector,  luitil  he  has  actual  notice  of  the  recall  of  the  power,  to 
accept  monthlv  reports  and  inventories  executed  bv  such  agent.  (T.  D.  3073; 
Sept.  27,  1920.) 

Actual  and  accurate  inventories  as  required  by  lav/  must  be  made  by  manu- 
facturers of  tobacco,  snuff,  cigars,  and  cigarettes  on  January  1,  1921.     Each  manu- 
'  facturer  should  observe  carefully  the  following  instructions: 

(1)  The  inventory  must  l^e  made  l^efore  the  commencement  of  business  on 
January  1,  1921.  After  it  is  completed  the  correct  totals  should  l)c  immedjately 
entered  on  the  blank  form  which  will  be  furnished  to  each  manufacturer  I^y  the 
collector  of  the  district  in  which  his  factory  is  located. 

(2)  All  stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine  cut,  and 
smoking  toliacco,  snuff,  cigars,  and  cigarettes  of  the  several  "classes  must  be  sepa- 


SNUET.  551 

Manufacturers — Continued . 
Inventories— Continued. 

rately  weighed  or  counted,  as  the  case  may  l5e.     An  accurate  inventory  oi  attached 

and  unattached  stamps  must  also  be  made. 

(3)  All  tobacco  material  in  the  factory  should  be  segregated  according  to  the 
dassilication  pro^■ided  in  the  ]»'escribed  inventory  form,  and  weighed  separatel>'. 

(4)  The  weight  and  marks  of  each  unopened  hogshead,  case,  or  bale,  or  other 
package  of  tobacco,  and  all  broken  packages  of  tobacco  and  loose  tobacco  witliin 
the  factory  and  inventoried  by  the  manufacturer,  should  be  listed  and  each  item 
should  be  sufficiently  described  to  aid  the  deputy  collector  in  verif>-ing  the  in- 
\entoiy .  Such  list  should  be  made  on  the  ])ack  of  the  inventory  form  or  on  separate 
sheets  of  the  same  size  attached  thereto. 

(5)  Tobacco  dust,  siftiugs,  sweepings,  and  waste  shall  be  inventoried  by  cigar 
manufacturers  under  the  head  of  ''waste"  only,  and  by  quasi  manufacturers  of 
tobacco  under  separate  heads,  each  properly  deacribed. 

(6)  An  accurate  record  of  the  quantity  of  tobacco  of  each  class  used  during  the 
period  froin  the  date  of  in^•cutory  to  the  date  of  the  A-isit  of  the  deputy  should  l)e 
kept  for  the  purpose  of  eaa!;Iing  him  to  arrive  at  the  actual  quantity  of  toljacco  of 
each  class  whicli  was  on  liand  on  the  inventory  date.     (T.  1).  3099:  i)ec.  10,  1920.) 

Each  inventory  shall  l)e  verified  l)y  a.  deputy  collector  at  the  earliest  practicable 
date  after  January  1,  1921.  Each  deputj'  should  be  directed,  in  determinj!;  the 
con-ectness  of  the  "ligures  shown  in  the  inventory,  to  take  into  account  the  quantity 
of  tobacco  of  eadi  different  kind  sold  and  used  on  the  one  hand  and  i)urchased  on 
the  other  hand  between  the  time  of  his  ^isit  and  the  taking  of  the  iuA'cntory.  The 
deputy  should  require  any  necessary  amcTidment  to  be  made  l)efore  pei'mitting  oath 
to  be  tikeu  and  should  observe  xho  instructions  in  Regulations  No.  8  d'ovised 
July  1 ,  1910),  page  (iO,  under  the  head  of " '  Behcieiitdes  found  by  examining  officers. ' ' 
Any  deficiencies  which  may  be  discovered  should  be  reported  immediatelv.  (T.  D. 
3099:  Dec.  10,  1920.) 

Hastes  of  tax. 

Taxes  imposed  by  sactions  401  and  403  of  the  act  of  October  3,  1917,  removed  from 
factorv  or  cust>)mhouse  for  consumption  or  use  on  and  after  October  4,  1917,  and 
Novei'nber  2,  1917,  shown  by  table.     (T.  D.  2569;  Oct.  17,  J917.) 

Stamps — Cancellation. 

Stamps  for  the  new  sizes  of  pav  ktiges  for  manufticlured  snuff  pr()\ided  for  in  sec- 
tion 401  of  act  of  October  :5, 1917,  shall  be  affixed  and  canceled  in  .wame  manner  as  are 
other  strip  stamps  for  tobacco  and  snuff  under  the  pr(.)visi(m.s  of  existing  reguhit  inn.? 
No.  8,  revised  July  1,  1910,  piige  41 .     (T.  D.  2569;  Oct.  17,  1917.) 

Inventory  and  return. 

All  attachecl  and  unattached  stamps  for  payment  of  tax  on  cigars  held  by  manu- 
fact:uTers  in  their  factories  on  October  4,  1917,  and  November  2,  1917.  before  com- 
mencement of  business  on  said  days,  required  to  be  imentoried  and  returns  fihvl 
for  additional  tax,  as  provided  in  section  1006  of  act  of  October  3,  1917;  stamji.s  in 
transit  on  date  inventory  is  required  purchased  at  old  rates  must  be  included  in 
inventory;  forms  for  returns  and  inventories;  manufacturers  required  to  renfler 
retiUTi  and  inventorv  notwithstanding  ho  nun-  have  no  stamps  on  hand  on  date.) 
mentioned.     (T.  D.  2569;  Oct.  17,  1917.) 

Orders. 

Forms  of  orders  for  stani]).-:,  revised,  standardized  as  to  size,  i)rinied  in  different 
colors,  required  to  be  used  as  soon  as  .vsu])ply  is  forwarded  U)  collectors  and  dis- 
tributed by  them  to  manufacturers.     (T.  D.  2411;  Dec.  12,  1916.) 

Instructions  with  reference  to  use  by  manufacturer  of  rcAised  Form  173  orders  for 
stamps  for  snuff.     (T.  D.  2604;  Dec.  12,  1917.) 

- —  Sales. 

Stamps  for  tax  payment  on  imported  snuff,  to  be  sold  only  to  owners,  consignees, 
or  importers,  on  requisition  of  proper  customhouse  officer;  stamp  order  P'orras  168, 172, 
173, and  485  restricted  to  use  of  manufacturers  in  the  United  States;  regulations  No. 
8,  revised  July  1,  1910,  page  62,  amended  to  provide  that  when  snuff  imported  in 
tlie  maids  is  for  delivery  at  plitces  other  than  where  examined  by  customs  officers, 
and  are  forwarded  to  the  postmaster  wlio  notifies  the  addressee,  furnishing  him 
with  customs  Cat.  No.  3493,  which  is  forwarded  to  i)iislmaster  with  the  package, 
necessary  stamps  shall  be  procured  from  and  sold  by  the  nearest  collector  of  internal 
revenue.     (T.  1).  2500;  June  15,  1917.) 


552  SNUFF. 

Time  when  act  effective. 

Section  401  of  the  act  of  October  3,  1917,  levying  a  tax  upon  snuff,  took  effect  on 
November  2,  1917.     (T.  D.  2547;  Oct.  22,  1917.) 

Withdrawal  for  use  of  United  States — Application. 

Manufacturer  must  file  application  in  duplicate  on  Form  664  for  permit  to  make 
withdrawal  of  product  in  specific  lots  from  his  factory,  and  in  addition  to  giving 
number  of  factory,  district,  and  State,  the  number  of  original  or  statutory  package.s 
and  contents  of  each  shall  be  set  forth  in  each  application  as  well  as  the  total  quantity 
covered,  rate  of  tax  applicable,  amount  of  tax  to  be  remitted,  and  the  institution 
or  name  of  the  person  or  officer  to  whom,  and  the  address  to  which,  shipment  or 
delivery  is  to  be  made;  these  applications  may  be  forwarded  direct  to  the  Com- 
missioner of  Internal  Revenue,  in  which  case  the  duplicate  application  will  be 
forwarded  by  the  Commissioner  to  the  collector,  or  filed  with  the  collector  for  the 
district,  in  which  case  the  collector  must  forward  the  original  application  immedi- 
ately to  the  Commissioner;  application  should  be  filed  sufficient  time  in  advance  of 
date  upon  which  withdrawal  is  contemplated  to  be  made  to  allow  of  receipt  and 
issuance  of  permit  by  the  Commissioner  and  receij^t  thereof  by  the  manufacturer 
prior  to  that  date.     (T.  D.  2982;  Jan.  22,  1920.) 

• Bills  of  lading. 

Where  product  withdrawn  is  transported  by  common  carrier,  the  manufacturer 
must  file  with  the  collector  of  the  district  in  which  the  factory  making  withdrawal 
is  located  bills  of  lading  in  duplicate  covering  each  shipment  from  the  factory  to 
the  point  of  final  destination;  one  of  these  bills  of  lading,  which  must  be  filed 
promptly  after  withdrawal  is  made,  will  be  filed  with  the  copy  of  the  application 
and  permit  which  it  covers  in  the  collector's  office,  and  the  other  shall  be  forwarded 
immediately  with  letter  of  transmittal  to  the  Commissioner.  (T.  1).  2982;  Jan.  22, 
1920.) 

■ Bond  for  transportation  and  delivery. 

The  manufacturer  is  recjuired  to  furnish  transportation  and  delivery  bond  in 
duplicate  on  Form  665  with  satisfactory  sureties  and  in  penal  sum  of  not  less  than 
tlie  (ax  on  the  total  cpiantity  specified  in  the  recpiisition;  this  bond,  which  shall 
state  quantity  of  product  requisitioned,  number  of  factory,  and  its  location,  includ- 
ing the  district  and  State,  from  which  withdrawal  is  to  be  made,  and  the  institution 
or  name  of  the  person  or  officer  to  whom,  and  address  to  which,  shipment  or  delivery 
is  to  be  made,  may  be  executed  by  corporate  surety  or  individual  sureties,  in  the 
latter  case  each  individual  surety  being  re(iuired  to  show  qualification  on  Form  33 
executed  in  duj^licate,  and  the  duplicate  form  to  be  attached  to  the  duplicate  bond; 
the  original  and  duplicate  bond  must  be  filed  with  the  collector  for  the  district  in 
which  the  factory  is  located,  who  will,  if  the  bond  meets  his  approval,  enter  an 
indorsement  to  that  eft'ecl  on  both  the  original  and  duplicate,  and  forward  the  dupli- 
cate immediately  to  the  Commissioner  of  Internal  Revenue.  (T.  D.  2982;  Jan.  22, 
1920.) 

— —  Certificate  of  receipt  by  Government  officer. 

The  GovernmeJit  receiving  officer  at  the  place  of  deliverj  should  inspect  each 
shipment,  in  order  that  he  may  certify  as  to  the  quantity  received  and  the  date  of 
receipt,  his  certificate  to  be  made  on  Form  667  in  duplicate  and  forwarded  promjitly 
to  the  manufacturer,  who  must  file  both  copies  of  the  certificate  of  receii^t  with  the 
collector  of  internal  revenue  for  the  district  within  30  days  of  date  of  withdrawal; 
where  there  is  loss  of  goods  in  transit,  the  receipt  should  specify  the  number  of 
etatutory  packages,  the  number  of  inner  packages,  if  any,  and  the  total  quantity  so 
lost,  and  the  amount  reported  lost  or  any  difference  between  the  quantity  with- 
drawn imder  permit  and  that  certified  to  by  the  receiving  officer  will  remain  as 
charged  against  the  transportation  bond,  and  assessment  of  tax  thereon  will  be  made 
against  the  manufacturer  in  the  absence  of  evidence  showing  that  the  goods  not 
covered  by  the  receiving  officer's  certificate  were  actuallv  destroyed.  (T.  D.  2982; 
Jan.  22,  1920.) 

Collector's  accomit;  credit  on  bond. 

The  bond  covering  the  total  quantity  of  product  requisitioned  will  be  credited 
in  the  office  of  the  Commissioner,  to  whom  the  collector  will  forward  the  original 
certificate  of  receipt  immediately  after  it  is  received  by  him.  (T.  D.  2982;  Jan. 
22,  1920.) 


SOAP.  553 

Withdrawal  for  use  of  United  States — Continued. 

Departmental  requisition. 

Wlienever  snuff  is  purchased  for  use  of  the  United  States  and  it  is  proposed  to 
make  withdrawals,  tax  free,  from  the  place  of  manufacture,  requisition  in  duplicate 
on  Form  663,  approved  by  head  of  department  or  head  of  bureau,  or  other  organiza- 
tion, if  independent  of  a  department,  must  be  liled  with  the  Commissioner  of  Inter- 
nal Revenue;  this  requisition  must  specify  the  total  quantity  of  the  product  con- 
tracted for  at  a  price  not  including  the  tax  thereon,  the  name  of  the  manufacturer, 
his  factory  number,  district  and  State,  the  location  of  the  factory  and  the  institution 
and  name  of  the  person  or  ollicer  to  whom,  and  address  to  which,  shipment  or 
delivery  is  to  be  made;  one  copy  of  the  requisition  Avill  be  forwarded  by  the  Com- 
missioner to  the  collector  of  internal  revenue  for  the  district  in  which  is  located  the 
factory  designated  to  furnish  the  product.     (T.  D.  2982;  Jan.  22,  1920.) 

Entries  in  manufacturer's  records  and  reports. 

Eacli  VviihdrawAl  of  a  ])roduct  from  tho  factory  shall  be  entered  by  the  manufac- 
turer in  his  reA'onue  book  on  the  day  withdrawal  is  made,  and  shall  be  included  in 
his  monthlv  or  annual  report  under  an  ai)proj)riate  heading  and  carried  in  tho 
recapitulation  as  a  special  credit.     iT.  D.  2982;  Jan.  22,  1920.) 

Labeling  or  branding. 

Each  individual  package  of  tobacco  manufactures  shall  be  labeled  or  branded 
"For  the  use  of  U.  S.  Government,"  together  with  number  of  permit  and  the  date 
thereof,  the  letters  and  figures  of  such  printing  to  be  conspicuous,  in  boldface  type, 
of  not  less  than  one-fourth  of  an  inch  in  height.     (T.  D.  2982;  Jan.  22,  1920.) 

Permit. 

Re(}uisition  and  bond  ha\  ing  been  filed,  permit  in  duplicate  on- Form  666  for  each 
withdrav,'al,  for  which  application  is  made  and  api)roved,  will  be  issued  by  the  Com- 
missioner and  forwarded  to  the  collector,  and  the  original  permit  ■nill  bo  delivered 
by  the  collector  to  the  manufacturer  to  be  retained  as  authority  for  making  the 
withdrawal;  no  more  than  the  quantity  named  in  the  permit  may  be  M-ithdiawa 
thereunder  and  no  withdrawal  shall  be  made  in  advance  of  the  issue  of  a  permit; 
withdrawals  must  be  made  within  a  reasonable  time  after  receipt  of  permit  or  else 
request  should  be  made  for  cancellation  of  such  permit;  all  products  v.ithdrawn  in 
advance  of  issue  of  permit  will  be  held  subject  to  tax,  and  a  manufacturer  v.ho 
violates  the  law  by  withdrawing  products  on  which  ta.x  has  not  been  paid,  v.ithout 
permit,  will  be  liable  also  to  statutory  penalties.     (T.  D.  2982;  Jan.  22,  1920.) 

SOAP. 

Denatured  alcohol. 

Alcohol  denatured  according  to  stated  formula  may  be  used  in  the  manufacture  of 
soap  liniment  (U.  S.  P.),  chloroform  liniment  (U.  S.  P.),  liniment  of  soft  soap,  and 
green  soap  when  manufactured  in  accordance  with  standards  of  United  States 
Pharmacopoeia  vrixh  exception  that  products  will  contain  camphor  and  rosemary; 
denaturant  may  boused  only  in  central  denaturing  and  distilling  plant  of  industrial 
character  as  established  under  subsection  2,  of  paragraph  N,  of  section  4,  of  the  act  of 
October  3,  1913,  and  supplement  No.  2  to  Regulations  No.  30;  samples  of  liniment 
of  soft  soap  and  green  soap  required  to  be  submitted  together  with  formula,  before 
bond  is  approved:  permission  for  use  of  special  denaturants  must  be  obtained. 
(T.  D.  2465;  Mar.  24,  1917.) 

Formula  3A,  for  special  denaturation  of  alcohol  for  use  in  the  manufacture  of 
transparent  soap,  modified.     (T.  D.  2820;  Apr.  10,  1919.) 

Excise  taxes. 

The  tax  imposed  by  section  600  (g)  of  the  act  of  October  3, 1917,  is  2  per  cent  of  the 
price  for  which  soaps  are  sold  by  the  manufacturer;  soaps  advertised  or  held  out  as 
suitable  for  toilet  purposes  are  taxable:  kitchen  soap  powders  and  other  article, 
ordinarily  used  for  household  and  not  for  toilet  purposes  are  not  subject  to  tax.  (T, 
D.  2719;  "Art.  XVIII.) 

A  soap  powder  chiefly  designed  for  laundry  purposes  and  sold  by  the  manufac- 
turer in  bulk  to  laundries  and  also  sold  for  retail  distribution  to  the  public  in  pack- 
ages bearing  directions  for  use  as  a  hair  shampoo,  for  which  it  is  to  a  small  extent 
actually  used,  is  subject  to  excise  tax  upon  the  sales  in  packages,  but  not  upon  the 
sales  in  bulk      {T.  D.  2785;  Jan.  23,  1919.) 


554  SOCIAL  CLUBS 

Excise  taxes — Continued. 

On  the  sale,  for  a  lump  price,  of  a  fountain  shaving  brush  with  a  filled  shaving 
cream  cartridge  which  is  separate  and  replaceable,  the  excise  tax  is  only  upon  the 
price  of  the  filled  cartridge  as  separately  determined,  namelv,  the  established  retail 
price  of  the  filled  cartridges  sold  separately.     (T.  D.  2782;  Dec.  24,  1918.) 

SOCIAL  CLUBS. 

Capital  stock  tax — Exemption. 

Clubs  organized  and  operated  exclusively  for  pleasure,  recreation,  and  other 
nonprofitable  purposes,  no  part  of  net  income  of  which  inures  to  benefit  of  any 
private  stockholder  or  member,  is  exempt  from  tax  imposed  b\;  section  407  of  act  of 
Septembers,  1916.     (T.  D.  2383;  Oct.  19,  1916.     T.  D.  2750,  art.  12;  Aug. -9,  1918.) 

Dues — Definition. 

Any  organization  which  maintains  quarters  or  arranges  periodical  dinners  or 
meetings  for  purpose  of  affording  its  memlsers  opportunity  of  congregating  for  social 
intercourse,  is  a  social  club  vrithin  tlie  meaning  of  section  701  of  the  act  of  October 
3,  1917,  unless  its  social  features  are  subordinated  and  merely  incidental  to  the 
furtherance  of  business  or  other  special  interests;  Commissioner  of  Internal  Revenue 
shall  determine  whether  club  or  organization  comes  within  words  "social,  athletic, 
or  sporting,"  upon  being  furnished  charter  or  constitution  and  by-laws  of  organiza- 
tion, statement  as  to  its  actual  activities  and  practices,  and  such  other  informati(  ii 
as  he  may  deem  pertinent.     (T.  D.  2681;   Mar.  26,  1918.) 

Those  social  facilities  afforded  by  a  commercial  club  which  are  kept  open  freely 
to  the  public  and  not  limited  to  members  are  not  sufiicient  to  constitute  the  club  a 
social  club  for  purposes  of  the  dues  tax.     (T.  D.  2782;  Dec.  24,  1918.) 

Fraternal  orders. 

Dues  or  fees  paid  to  fraternal  orders  not  falling  ■within  the  express  exemption 
of  section  701  of  the  act  of  October  3,  1917,  are  not  subject  to  the  tax  imposed  ))y 
that  section,  if  the  purposes  and  practices  of  the  order  to  which  they  are  paid  arc 
religious,  bene\'olent,  or  ediicational,  and  any  social  activities  of  the  order  are 
incidental  and  subordimite;  where  the  purpose  er  practices  of  any  fraternal  order 
are  primarily  social  in  character,  dues  or  fees  paid  to  it  arc  subject  to  the  tax.  (T.  D, 
2681;  Mar.  26,  1918.) 

Incorae  taxes — Exemptions. 

Social  clubs  are  not,  as  such,  exempt  from  tax;  exemption  is  conditional  on  filing 
with  collector  affidavit  setting  out  character  and  purpose  of  organization,  and  show- 
ing that  no  part  of  any  income  inures  to  benefit  of  any  jirivate  stockholder  or  indi- 
vidual, and  that  such  income  is  used  exclusively  to  promote  purposes  for  which 
organized  as  indicated  in  particular  paragraph  under  which  exemption  is  claimed. 
(T.  D.  2690;  art.  67.) 

Social  clubs  organized  and  operated  exclusive!}-  for  pleasure,  recreation,  and 
other  nonprofitable  purposes,  are  exempt  from  tax,  provided  no  part  of  any  net  in- 
come inures  to  benefit  of  any  private  stockholder  or  individual;  this  exemption 
reaches  practically  all  social  and  recreation  clubs  supported  by  membership  fees, 
dues  and  assessments;  if  a  club,  by  reason  of  comprehensive  powers  granted  in 
its  charter,  engages  in  any  business  for  profi.t,  it  will  be  held  that  such  club  is  not 
a  social  club,  it  thus  becoming  a  biisinese  or  commercial  enterprise,  and  any  profit 
realized  is  sul)ject  to  tax.     (T.  D.  2fi90;  art.  72.) 

Exemption  from  filing  returns  and  paying  income  tax  of  ];)leasure  and  recreation 
clubs  is  conditional  upon  such  an  organization  filing  affidaAit  sho%^ang  character  and 
purpose  of  organization,  source  of  income  and  disposition  of  same,  whether  or  not 
any  of  its  income  is  credited  to  surplus  or  inures  to  benefit  of  any  private  stocklK  dder 
or  "indi\idual,  to  ^^^lich  affidavit  should  be  attached  copy  of  charter  or  articles 
of  incoi-poration  and  ])y-laws;  where  collector  is  in  doiibt  as  to  taxable  status  of 
organization,  upon  receii)t  of  affidavit,  etc.,  ho  will  refer  affidavit  and  accompan^'ing 
papers  to  Commissioner  of  Internal  Reve^nue  for  decision;  if  it  is  held  that  corpora- 
iiun  itself  is  exempt  from  income  and  exccss-protite  taxes  it  is  not ,  however,  exempt 
from  the  withhokling  requirements  nor  from  furnishing  information  in  accordance 
with  provisions  of  act  of  October  3,  1917.     (T.  D.  2693 ;  Apr.  8,  1918.) 


SOFT   DRINKS.  555 

SOFT  DRINKS. 

Apple  cider. 

Sweet  apple  cider  is  taxed  viuder  section  313  (b)  of  act  of  October  3,  1917,  if  it 
contains  less  than  one-half  per  cent  of  alcohol  and  no  added  sugar.  (T.  D.  2719; 
Art.  XXXI.) 

Carooiiated  beverages. 

Carbonated  fermented  liquors  containing  less  than  one-half  per  cent  of  alcohol 
are  to  be  classed  as  carbonated  beverages  and  not  as  fermented  liquors  within 
meaning  of  section  313  (b)  of  the  act  of  October  3,  1917,  and  are  accordingly  not 
directly  taxed  unless  manufactured  and  sold  by  the  manufacturer,  producer,  or 
importer  of  the  carbonic  acid  gas  used  in  carbonating  them.  (T.  D.  2719;  .\rt 
XXXI.) 

The  tax  imposed  Ijy  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each 
gallon  of  carbonated  waters  and  beverages  manufactured  and  sold  by  the  manu- 
facturer of  the  carbonic  acid  gas  used  in  carbonating  same;  tax  attaches  when  per- 
son who  (a)  manufactures  and  (b)  sells  such  waters  and  beverages  is  also  (c)  the 
manufacturer,  producer,  or  importer  of  the  carbonic  acid  gas  used  in  their  manu- 
facture; soda  fountain  proprietor  manufacturing  his  own  carbonic  acid  gas  must 
pay  tax  on  carbonated  drinks  dispensed  at  such  fountain;  carbonated  waters  or 
beverages  are  not  taxable  when  manufacturer  buvs  his  carbonic  acid  giis  and  jjays 
tax  of  5  cents  per  pound.     (T.  D.  2719;  Art.  XXXII.) 

Carbonic  acid  gas. 

Tax  imposed  by  section  315  of  the  act  of  October  3,  1917,  is  5  cents  for  each  pound 
of  carbonic  acid  gas  in  drums  or  containers  sold  by  manufacturer,  if  intende<l  for 
use  i;i  the  manufacture  or  production  of  carbonated  water  or  drinks,  including 
fermented  liquors  containing  less  than  one-half  per  cent  of  alcohol;  carbonic  acid 
gas  used  in  drawing  beer  from  containers  or  in  operation  of  refrigerating  plants!,  or 
in  preserving  food  products,  or  in  manufacture  of  beverages  containiiig  one-half 
per  cent  or  more  of  alcohol,  is  not  subject  to  the  tax;  in  all  cases  of  sales  of  carbonic 
acid  gas  for  use  other  than  in  the  manufiicturft  of  carbonated  water  or  other  drinks, 
manufacturer  must  prominently  stamp  on  or  affix  to  container  a  warning,  as  fol- 
lows: "Federal  tax  not  paid.  Unlawful  to  use  in  the  manufacture  of  beverages  " 
(T.  D.  2719;  Art.  XXXV.) 

Tax  imposed  by  section  315  of  the  act  of  October  3,  1917,  on  carbonic  acid  gas 
is  to  be  paid  to  manufacturer  by  producer  of  such  gas  at  the  time  of  sale,  and  former 
must  collect  amount  of  tax  and  make  monthly  returns  under  oath  in  duplicate  on 
Form  726  aixl  pay  taxes  so  collected  to  collector  of  district  in  which  his  priHcijjal 
office  or  place  of  business  is  located;  returns  are  to  be  rendered  and  tax  paid  on  or 
before  lAst  day  of  each  month,  covering  transactions  of  preceding  month,  first  return 
to  cover  all  transactions  since  October  3,  1917.     (T.  D.  2719;  Art.  XXXVI.) 

Computation  of  tax. 

In  computing  tax  a  fractional  part  of  a  cerA,  should  be  disregarded  unless  It  amounts 
to  one-half  cent  or  more,  in  which  case  it  shoidd  be  increased  to  a  full  cent.     (T  D 
2719;  Art.  XXXIX.) 

DefirJ.tion. 

A  "soft  drink'"  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3,  1917, 
is  a  nonintoxicating  beverage  containing  less  than  one-half  per  cent  of  alcohol. 
(T.  D.  2719;  Art.  XXIX.) 

Exports. 

Taxes  imposed  by  sections  313  and  315  of  the  act  of  October  3,  1917,  do  not  apply 
to  articles  sold  in  foreign  commerce  by  any  of  the  methods  outlined  by  manufoc- 
turer,  producer  or  importer  located  in  one  o'"  the  Feveral  States  of  the  I'nited  States; 
taxes  apply,  however,  to  articles  sold  in  foreign  commerce  by  manufacturer  located 
in  a  Territory  or  elsewhere  in  the  United  Stales  than  in  a  State,  and  to  articles  sold 
in  commerce  between  United  States  and  any  of  its  island  or  other  possessions  except 
the  West  Indian  Islands  acquired  from  Denmark.     (T.  D.  2739;  June  24,  1918.) 

Articles  may  })e  normally  exported  in  several  ways— (1)  the>'  may  be  shipped 
by  the  manufacturer  to  agent  in  foreign  coimtry  and  after  reaching  tnere  may  ])c 
sold  by  the  agent;  (2)  they  may  be  shipped  b}'  manufacturer  to  foreign  purchaser 


g56  SOFT  DRINKS. 

Exports — Continued, 
to  fill  orders  received  by  agent  in  foreign  country;  (3)  they  may  be  shipped  by 
manufacturer  to  foreign  purchaser  to  fill  orders  received  by  manufacturer  in  United 
States;  (4)  they  may  be  shipped  by  manufacturer  to  foreign  purchaser  to  fill  orders 
solicited  by  mail  and  received  by  mail  from  foreien  purchaser.  (T.  D.  2739;  June 
24,  :i918.) 

Extracts  and  sirups. 

Tax  imposed  by  section  313  (a)  of  the  act  of  October  3,  1917,  is  based  on  price  for 
which  prepared  sirups  or  extracts,  if  intended  for  use  in  manufacture  or  production 
of  beverages,  commonly  known  as  soft  drinks,  by  soda  fountains,  bottling  estab- 
lishments, and  other  similar  places,  are  sold  by  the  manufacturer;  possible  selling 
prices  and  corresponding  tax  per  sallon  in  each  case  stated.  {T.  D.  2719;  Art. 
XXVIII.) 

"Other  similar  places,' '  as  used  in  section  313  (a)  of  the  act  of  October  3,  1917, 
includes  all  places  where  soft  drinks  are  sold.     (T.  D.  2719;  Art.  XXIX.) 

An  "extract"  is  a  preparation  supposed  to  po-ssess  the  characteristic  property 
or  virtue  of  the  original  substance  in  concentrated  form,  and  includes  essences, 
flavoring  extracts,  and  the  like.     (T.  D.  2719;  Art.  XXIX.) 

A  "prepared  sirup' '  is  a  simple  sirup  with  flavoring  and  perhaps  other  materials; 
a  simple  sirup,  which  is  not  taxable,  is  a  preparation  of  sugar  and  water  or  rock  candy 
and  water.     (T.  D.  2719;  Art.  XXIX.) 

Foam,  concentrates,  acid  solution,  cocoa  paste,  ginger  ale  paste  and  emulsions, 
and  ordinary  household  extracts  like  Aanila.  are  subject  to  tax  imposed  by  section 
313  (a)  of  act  of  October  3,  1917,  when  sold  if  intended  for  use  in  production  of  soft 
drinks;  extracts  intended  for  use  for  culinary  purposes  or  in  manufacture  of  ice 
cream  are  not  taxable;  'sundae  dressings,''  used  exclusively  for  pouring  over  ice 
cream,  are  not  taxable;  prepared  sirups  and  extracts  used  by  rectifiers  of  spirits  and 
as  bar  flavors  are  not  taxable;  an  extract  sold  to  another  extract  or  sirup  manufacturer 
for  use  in  production  of  prepared  sirup  which  is  to  be  sold  as  such,  is  not  subject 
•  to  tax,  but  manufacturer  of  prepared  sirup  must  pay  tax;  no  tax  is  imposed  upon 
sirups  or  extracts  as  such  used  by  the  maker  for  further  manufacturing  purposes 
and  not  sold  by  him.     (T.  D.  2719;  Art.  XXX.) 

Manufacturers  of  flavoring  extracts  who  do  not  ])ay  special  tax  must  comply  with 
standards  prescribed  by  Secretary  of  Agriculture;  if  no  standard  has  been  prescribed, 
liability  to  special  tax  will  be  regarded  as  incurred  on  account  of  manufacture  of 
flavoring  extracts,  as  well  as  of  essences,  soft  drinks,  sirups,  etc.,  if  finished  product 
contains  more  alcohol  than  is  necessary  to  cut  the  oils  or  extract  the  desired  active 
principles  and  hold  them  in  solution.    (T.  D.  2760;  Oct.  9,  1918.) 

Preparation  of  fruit  juice  and  sugar,  which  is  not  reasonably  suitable  for  beverage 
purposes  and  is  not  so  used,  but  which  is  used  to  produce  a  palatable  beverage  by 
being  mixed  or  diluted  vrith.  water  at  soda  fountains,  bottling  establishments,  and 
other  similar  i)laces,  is  a  prepared  simp  within  the  meaning  of  section  313(a)  of  the 
act  of  October  3,  1917,  and  was,  while  that  act  was  in  force,  subject  to  tax  levied 
upon  such  .sirup.     (T.  D.  2932;  Oct.  7,  1919.) 

Ginger  ale. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  ginger  ale  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used  in 
carbonating  s.ime;  tax  attaches  when  person  who  manufactures  and  sells  ginger  ale 
is  also  manufacturer,  producer,  or  importer  of  carbonic  acid  gas  used  in  its  manu- 
facture; such  ale  is  not  taxable  when  manufacturer  buys  his  own  carbonic  acid  gaa 
and  pays  tax  of  5  cents  per  pound.     (T.  D.  2719;  Art.  XXXII.) 

Inspection  of  books. 

Books  of  every  person  liable  to  tax  imposed  by  section  313  of  the  act  of  October  3, 
1917,  shall  be  open  at  all  times  for  inspection  by  examining  internal-revenue  officers. 
(T.  D.  2719;  Art.  XXXIV.) 

Mineral  -waters. 

Tax  imposed  by  section  313  (c)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon 
of  mineral  waters  or  table  waters  sold  by  the  producer,  bottler,  or  importer  in  bottles 
or  other  closed  containers,  at  over  10  cents  per  gallon;  a  mineral  water  sold  just  as  it 
comes  from  the  ground,  except  for  filtration,  is  subject  to  the  tax;  distilled  waters, 
aerated  waters,  and  artesian  well  waters  sold  for  drinking  purposes  are  subject  to  the 
tax;  a  "bottler"  is  the  producer  or  any  person  who  puts  a  liquid  in  bottles  or  other 
closed  containers  and  sells  it.     (T.  D."2719;  Art.  XXXIII.) 


SOFT   DRINKS.  557 

"Other  similar  places." 

"Other  similar  places,"  as  used  in  section  313  (a)  of  the  act  of  October  3,  1917.  in- 
cludes all  places  where  soft  drinks  are  sold.     (T.  D.  2719;   Art.  XXIX.) 

Payment  of  tax. 

The  raaufacturer,  producer,  bottler,  or  importer  of  any  of  the  beverages  enumer- 
ated must  pay  taxes  imposed  to  collector  for  distructin  which  his  principal  place  of 
of  business  is  located;  tax  to  be  paid  on  or  before  last  day  of  each  month  covering 
transactions  of  preceding  month;  Mhere  articles  are  sold  over  period  of  time  under 
agreement  for  (juantity  rebate,  tax,  if  originally  computed  on  gross  price,  may  bo 
adjusted  in  return  for  month  in  which  price  is  finally  determined;  itinerant  manu- 
facturer should  pay  tax  to  collector  of  district  where  sales  are  made.  (T.  D.  2719: 
Art.  XXXIV.) 

Tax  imposed  by  section  315  of  the  act  of  October  3,  1917,  on  carbonic  acid  gas,  is  to 
be  paid  to  manufacturer  by  producer  of  such  gas  at  time  of  sale,  and  former  must 
collect  amount  of  tax  and  pay  same  to  collector  of  district  in  which  his  principal 
office  or  place  of  business  is  located;  tax  is  to  be  paid  on  or  before  last  day  of  each 
month,  covering  transactions  of  preceding  month.     (T.  D.2719;   Art.  XXXVI.  i 

The  term  "dealer  "  does  not  refer  to  or  include  a  purchaser  for  his  own  use,  unless 
such  use  is  the  manufacture  or  production  of  aiiother  article  intended  for  sale.  (T. 
D.  2719;  Art.  XXXVII.) 

A  State  or  any  political  subdivision  thereof  buying  or  leasing  an  article  for  its  own 
use  is  not  a  dealer.     (T.  D.  2719;   Art.  XXXVII.) 

Where  manufacturer  has,  prior  to  Alay  9, 1917,  made  bona  fide  contract  with  dealer 
for  sale  after  tax  takes  effect  of  any  article  upon  which  sales  tax  is  imposed,  and  such 
contract  does  not  permit  adding  of  whole  of  such  tax  to  amount  to  be  paid  under  such 
contract,  dealer  shall  pay  so  much  as  is  not  permitted  to  be  added  to  contract  price. 
(T.  D.  2719;  Art.  XXXVII.) 

A  foreign  Government  buying  or  leasing  an  article  for  its  own  use  is  not  a  dealer. 
(T.  D.  2719,   Art.  XXXVII.) 

Section  1007  of  the  act  of  October  3,  1917,  permits  an  adjustment  of  tax  between 
manufacturer  and  dealer,  but  it  does  not  affect  the  liablity  of  the  manufacturer  to 
return  and  pay  tax  to  the  Government.     (T.  D.  2719;   Art.  XXXMI.) 

Taxes  payable  by  dealer  must  be  paid  to  manufacturer  at  time  sale  or  lease  is  con- 
summated, and  such  manufacturer  shall  collect  amount  of  tax  from  the  dealer  and  pay 
same  to  collector  of  district  in  which  liis  principal  office  or  place  of  business  is 
located.     (T.  D.  2719;  Art.  XXXVIII.) 

Penalties. 

In  addition  (o  penalties  provided  by  section  1004  of  the  act  of  October  3,  1917, 
other  punishment  for  failure  to  comply  with  law  and  regulations  is  prescribed  by  sec- 
tion 317(i  of  the  Revised  Statutes,  as  amended,  and  by  other  sections  of  the  internal 
revenue  laws.     (T.  D.  2719;   Art.  XL.) 

Pop. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon  of 
l>oi>  manufactured  an.d  sold  by  manufacturer  of  carbonic  acid  gas  used  in  cavbonating 
same;  tax  attaches  when  person  who  manufactures  and  sells  pop  is  also  manufac- 
turer, i)roducer,  or  importer  of  carbonic  acid  gas  in  its  manufacture;  such  pop  is  not 
taxable  when  manufacturer  buys  his  own  carbonic  acid  gas  and  pavs  tax  of  5  cents 
per  pound.     (T.  D.  2719;   Art.  XXXII.) 

Returns. 

Each  manufacturer,  producer,  bottler,  or  importer  of  beverages  enumerated,  re- 
(juired  to  make  monthly  returns  under  oath,  in  duplicate,  for  district  in  which  his 
principal  place  of  inisincss  is  located;  returns  to  be  made  on  Form  72f),  and  to  bo 
rendered  on  or  before  last  day  of  each  month  covering  transactions  of  preceding 
month,  first  return  to  cover  all  transactions  since  October  3, 1917;  where  articles  are 
sold  over  period  of  time  under  agreement  for  quantity  rebate,  tax,  if  originally  com- 
puted on  gross  price,  may  be  adjusted  in  return  for  month  in  which  price  is  finally 
determined ;  branch  houses  should  in  general  make  reports  to  parent  house  wliich 
is  liable  to  make  monthly  returns  of  sales  of  branch  houses;  itinerant  manufaciurer 
should  make  return  to  collector  of  district  where  sales  are  made.  (T.  D.  2719;  Art. 
XXXIV.) 


558  SOLDIERS — rSPA^USH  ESTiFLUENZA. 

Returns — Continued. 

Manufacturer  of  carbonic  acid  gas  must  make  monthly  returns  under  oath,  in 
duplicate,  on  Form  72G.;  such  returns  to  be  rcudered  on  or  before  last  day  of  each 
month,  covering  transactions  of  preceding  month;  first  return  to  cover  all  trans- 
actions since  October  3,  1917.     (T.  D.  2719;   Art.  XXXVI.) 

I\Ianufacturer  who  has  collected  amount  of  tax  from  dealer  required  to  make 
monthlv  returns  under  oath  in  duplicate  on  Form  728  or  Form  726.  (T.  D.  2719; 
Art.  XXXVill.) 

Root  beer. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each  gallon  of 
root  beer  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used  in  car- 
bonating  same;  tax  attaches  when  person  who  manufactures  and  sells  root  beer  is 
ako  manufacturer,  producer,  or  importer  of  carbonic  acid  gas  used  in  its  manufac- 
ture; such  root  beer  is  not  taxable  when  manufacturer  buys  his  own  carbonic  acid 
gas  and  pays  tax  of  5  cents  per  pound.     (T.  D.  2719;   Art.  XXXII.) 

Sargaparilla. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3, 1917,  is  Icent  for  each  gallon  of 
sarsaparilla  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used  in  car- 
bonating  same;  tax  attaches  when  person  who  manufactures  and  sells  sarsaparilla 
is  also  manufacturer,  producer,  or  importer  of  carbonic  acid  gas  used  in  its  manufac- 
ture; such  sarsaparilla  is  not  taxable  wlien  manufacturer  buys  his  own  carbonic 
acid  gas  and  pays  tax  of  5  cents  -per  pound.     (T.  B.  2719;   Art.  XXXII.) 

Soia  •water. 

Tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917.  is  1  cent  for  each  gallon  of 
soda  "water  manufactured  and  sold  by  manufacturer  of  carbonic  acid  gas  used  in  car- 
lionating  same;  attaches  when  person  who  manufactures  and  sells  soda  Vv^ater  is  also 
manufacturer,  producer,  or  importer  of  carbonic  acid  gas  used  in  its  manufacture; 
such  soda  water  is  not  taxable  when  manufacturer  buys  liis  own  carbonic  acid  gas 
and  pays  tax  of  5  cents  per  pound.     (T.  D.  1719;  Art.  XXXII.) 

Uncarbonated  drinks. 

The  tax  imposed  by  section  313  (b)  of  the  act  of  Octolier  3,  1917,  is  1  cent  for  each 
gallon  of  unfermented  grai^e  juice,  soft  drinks,  and  artificial  mineral  waters,  not  car- 
l)onated,  and -fermented  liquors  containing  less  than  one-half  per  cent  of  alcohol,  sold 
by  the  manufacturer  in  bottles  or  otlaer  closed  container.';;  tax  is  none  the  less  pay- 
able because  tax  may  have  Ijeen  paid  on  extracts  or  prepared  sirups  entering  inio 
manufacture  of  soft  drinks;  manufacturer  mav  be  bottler  or  proprietor  of  soda  foun- 
tain.    (T.  D.  2719;   Art.  XXXI.) 

Bottled  nonciirbonated  fruit  juice?,  somewhat  concentrated,  when  reasona))ly 
suitable  for  lieverage  purposes  and  so  u.^ed  only  in  a  diluted  form,  are  not  oi  them- 
selves soft  drink.^  and  are  not  subject  to  txix  imposed  on  auch  drinks  bv  act  of  Oc- 
tober 3,  1917.     (T.  D.  2932;  Oct.  7,  1919.) 

Tax  imposed  by  section  313  of  act  of  October  3,  1917.  appiie.^  to  l^ottled  noncar- 
bonated  fruit  juices,  although  soiaewhat  concentrated,  if  as  l)ottled  they  are  rea- 
eonablv  suitable  for  use  ar;  loeverage-  and  are  so  .used  wiLliout  addition  of  water. 
(T.  D.'2932;  Oct.  7,  1919.) 

SOLDIEKS. 

See  "Army  and  Xavy." 

SOURCE   OF   INCOME. 
Reports. 

See  "Income  Taxes  (Corporations^ '•  :  ''Income  Taxes  (Individuals)." 

SPANISH  INFLTJENZA. 

Narcotics — ^Refilling  presdipticHis. 

Article  11  of  R.egulation3  Xo.  35,  prohibiting  refilling  of  narcotic  prescriptions, 
modified,  so  that  prescriptions  caHiagior  morphine,  codeine,  or  heroin,  which  are 
WTitten  by  registered  practitioners  for  patients  suffering  from  Spanish  influenza  and 
any  pulmonary  or  l^ronchial  affections,  may  be  refilled,  ]:)rovided  that  at  time  of 
issuance  by  physicians  instructions  are  noted  in  body  of  such  prescriptions,  '"  Repeat 
if  necessary."  and  druggist  filling  and  refilling  same  shall  note  thereon  each  and 
every  date  upon  which  such  prescription  is  refilled.     (T.  D.  27GG;   Oct.  22,  1918.) 


SPARKLING  WINES — STAMPS  AND  STAMP   TAXES.  559 

SPARKLING   WINES. 


See  '"Wines.", 

Particular  taxes. 
See  specific  heads. 


SPECIAL  TAXES. 


SPECIFICS  FOR   DISEASE. 

See  "Medicinal  Preparations." 

SPENDING  MONEY. 

Income  taxes — Deductions. 

So-called  ''spending  or  treating  money"  actually  advanced  l)y  coiporation.s  to 
their  traveling  salesmen  to  be  used  by  them  as  part  of  expense  incident  to  Belling 
product  is  allowable  deduction,  but  deduction  is  conditioned  iipon  satisfactory 
showing  that  all  allowance  claimed  was  actually  expended  for  and  was  an  ordinary 
and  usual  expense  incurred  in  selling  the  product  or  merchandise  of  the  conjora- 
tion.     (T.  D.  2690;  art.  133.) 

SPlitlTS. 

See  "Distilled  Spirits";  "Rectified  Spirits." 

SPORTING   CLUBS. 

Definition. 

Atliletic'  and  sporting  clubs  include  boating,  tennis,  golf,  boxing,  canoe,  fishing, 
and  hunting  clubs  and  any  organizations  for  practice  or  promotion  of  athletics  or 
sports;  Commissioner  of  Internal  Revenue  shall  determine  whether  a  club  or  organ- 
ization is  an  athletic  or  sporting  club  within  meaning  of  section  701  of  act  of  October 
3,  1917,  upon  being  furnished  charter  or  constitution  and  by-laws  of  organizaticn, 
statement  as  to  its  actual  activities  and  practices,  and  such  other  information  as  he 
may  deem  pertinent.     (T.  D.  2681;  Mar.  26,  1918.) 

SPORTING   GOODS. 
Excise  taxes. 

Tax  imposed  by  section  GOO  (f)  of  the  act  of  October  3,  1917,  is  3  per  cent  cjf  the 
price  for  whicli  tennis  rackets,  baseball  bats,  and  other  s])orting  goods  therein  enu- 
merated are  sold  by  the  manufacturer;  sleds,  snow.^ihoes,  skis,  and  skates  are  not 
taxed;  ])arts  of  sporting  good  sand  accessories  not  enumerated  are  not  taxed  if  sold 
separately;  heads  and  shafts  of  golf  clubs  are  not  taxo;l  until  combined  and  s  )ld 
as  complete  clubs;  balls  of  all 'kinds  are  taxabh^,  including  balls  for  putting  the 
shot.     (T.  D.  2719;  Art.  XVII.) 

STAMPS  AND  STAMP  TAXES. 
Alcohol. 

Each  tank  or  tank  car  v,-ill  he  regarded  as  an  original  ])ackage,  and  an  ex]):.'rL 
stamp,  to  be  procured  by  the  shipper,  will  be  afh.Kcd  U;  each  such  tank  or  tank  car. 
T.  D.  2368;  Sept.  11,  19J6.) 

Steel  dnims  and  packages,  without  wooden  heads  or  lead  plates,  may  be  used  a.s 
containers  for  denatured  alcohol,  provided  that  in  case  of  specially  denatnred  alcohol 
one  end  of  each  such  ]>ackage  is  pninted  yellow,  upon  which  p.\inted  end  required 
marks  and  brands  shall  be  stenciled  and  stamps  afiixed;  stamps  required  to  be  pro- 
tected with  coating  of  shellac  or  varnish  impervious  to  water;  packages  intended  t'^ 
contain  complete! v  denatured  alcohol  are  to  be  painted  light-greeji  colori  article! 
36  and  37  of  Regulations  No.  3i)  modified.     (T.  I).  2824;  Apr.  22,  1919.) 

Alien  Property  Custodian — Conveyances  by  and  to. 

Conveyance  by  Alien  Propei'ty  Custodian  <•[  realty  sold  by  him  under  authority 
of  section  12  of  the  trading  with  the  enemy  act  of  October  6,  1917,  as  amended,  is 
not  subject  to  stamp  tax  imposed  l>y  Schedule  A  of  Title  XIll  of  the  act  of  October 
3,  1917.     (T.  I).  2786;  Jan.  29,  1919.) 


560  STAMPS   AND  STAMP   TAXES. 

Alien  Property  Custodian — Conveyances  by  and  to— Continued. 

Transfer  to  Alien  Property  Custodian  of  shares  or  certificates  of  stock  in  compli- 
ance with  demand  made  by  "him  under  the  tradin<^  with  the  enemy  act  of  October 
6  1917,  as  amended,  is  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title 
VIII  of  act  of  October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Conveyance  of  realty  to  Alien  Property  Custodian  in  compliance  with  demand 
made  by  him  under  trading  with  the  enemy  act  of  October  6,  1917,  as  amended,  is 
not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  act  of  October 
3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Sale  by  Alien  Property  Custodian  of  shares  or  certificates  of  stock,  under  authority 
of  section  12  of  the  tradino;  with  the  enemy  act  of  October  6,  1917,  as  amended, 
his  agreement  so  to  sell,  and  his  transfer  of  legal  title  to  certificates  or  shares  so  sold 
are  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  the  act  of 
October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Aliens — Declarations  of  intention  to  become  citizens. 

T3eclaralions  of  intention  of  aliens  to  become  citizens  of  United  States,  whether 
originals  or  duplicates,  are  not  taxable  under  act  October  22,  1914;  certified  co]5y  of 
declaration  for  personal  use  and  benefit  of  person  demanding  same  is  taxable  in 
amount  of  10  cents,  stamp  to  be  furnished  by  person  applying  therefor;  duplicate 
copies  of  declarations,  to  be  furnished  by  clerk  of  court  to  Department  of  Labor, 
are  not  taxable.     (T.  D.  2329;  April  29,  1916.) 

Articles  of  incorpora^tion. 

Articles  of  incorporation  are  not  subject  to  stamp  tax.    (T.  D.  2599;  Due.  3, 1917.) 

Assignment  of  insurance  policy. 

No  stamp  tax  is  imposed  upon  power  of  attorney  contained  in  transfer  by  as-ugn- 
ment  of  interest  in  contract  of  insurance,  if  power  of  attorney  grants  authority  to 
d.)  or  perform  only  such  acts  for  or  in  behalf  of  assignor  as  are  otherwise  vested  in 
the  assignee.     (T."  D.  2599;  Dec.  3,  1917.) 

Bankers'  acceptances. 

The  rule  that  the  stamp  tax  on  drafts  and  checks  imposed  by  Schedule  A  of 
Title  VIII  of  the  act  of  October  3,  1917,  attaches  to  drafts  or  checks  at  the  time  of 
delivery,  if  delivered  within  the  territorial  jurisdiction  of  the  United  States  and 
expressed  to  be  payable  otherwise  than  at  sight  or  on  demand,  but  not  to  drafts  or 
checks  not  yet  delivered  or  delivered  in  a  foreign  country  or  expressed  to  be  payable 
at  sight  or  on  demand,  is  applicable  to  bankers'  acceptances  as  defined  by  the  reg- 
ulations of  the  Federal  Reserve  Board.     (T.  D.  2682;  Mar.  26,  1918.) 

Bills  of  exchange. 

The  rule  that  the  stamp  tax  on  drafts  and  checks  imposed  by  Schedule  A  of  Title 
VIII  of  the  act  of  October  3, 1917,  attaches  to  drafts  or  checks  at  the  time  of  delivery, 
if  delivered  within  the  territojial  jurisdiction  of  the  United  States  and  expressed 
to  be  payable  otherwise  than  at  sight  or  on  demand,  but  not  to  drafts  or  check;; 
not  yet  delivered  or  delivered  in  a  foreign  country  or  expressed  to  be  payable  at 
eight  or  on  demand,  is  applicable  to  ordinary  bills  of  exchange.  (T.  D.  2682;  Mar. 
26,  1918.) 

Bonds. 

Bonds  given  under  sections  3459  and  3460,  Revised  Statutes,  and  forwarded  to 
United  States  attorney  in  connection  with  seizures  of  goods  for  A"iolation  of  internal 
revenue  laws,  are  exempt  from  stamp  tax.  as  being  required  in  legal  proceedings. 
(T.  D.  2328;  Apr.  29,  1916.) 

Bonds  given  to  a  State,  townshii?,  county,  or  village,  covering  contracts  for  gov- 
ernmental purposes  or  the  protection  of  the  State,  l^ownship,  county,  village,  or 
municipality  are  free  from  stamp  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

Bonds  given  by  officials  of  a  State,  township,  county,  or  village  for  the  faithful 
performance  of  duties  are  not  subject  to  stamp  tax.     (f.  D.  2624;  Dec.  14,  1917.) 

Indemnity  or  surety  bonds  given  by  trustees  in  bankruptcy  for  purpose  of  quali- 
fying as  such  are  bonds  required  in  legal  proceedings,  and  therefore  exempt  from 
taxation  under  Schedule  A,  act  of  October  3,  1917.    '(T.  D.  2647;  Feb.  2,  1918.) 

Instrument  under  seal  conditioned  in  penal  amount  for  payment  of  sum  of  money, 
such  as  often  accompanies  mortgages,  is  bond  within  meaning  of  Schedule  A  of 
Title  VIII  of  the  act  of  October  ■3,'l917.     (T.  D.  2713;  May  14,  1918.) 


STAMPS  AND   STAMP   TAXES.  5G1 

Bonds  —Continued . 

InHlrunients  c<  ntaining  esfionlial  features  of  promissory  note  but  issued  by  cor- 
porations in  numbers,  under  trust  indenture,  either  in  registered  form  or  witli  cou- 
pons attaehed,  embodying;  provisions  for  acceleration  of  maturity  in  event  of  de- 
fault by  obligor,  for  optional  registration  in  case  of  bearer  bonds,  for  autheniicatiou 
by  trustee  and  s(;metimes  for  redemption  before  maturity,  or  similar  ]>rovisions,  are 
bonds  within  meaning  of  Schetlule  A  of  Title  V^i  1 1  of  act  of  October  3,  1917,  whether 
called  bonds,  debentures,  or  notes.     (T.  D.  2713;  May  14,  1918.) 

Stamp  tax  imposed  on  in<lemnity  and  surety  l)onds  by  paragraph  2  of  Schedule  A, 
Title  VllI,  act  of  October  3,  1917,  applies  to  indemnity  bonds  made  to  the  Govern- 
ment to  secure  issuance  of  duplicate  checks  for  allotment  and  allowance  or  other 
benefits  under  the  act  of  October  (3,  1917.     ( T.  D.  2795;  Feb.  2(i,  1919.) 

Premiums  on  indemnity  or  surety  bonds  executed  prior  to  December  1,  1917, 
are  not  the  subject  of  stamp  tax  when  premiums  due  and  payable  subsequent  to 
December  1,  1917,  are  not  essential  to  continuance  in  force  oi'  such  Vjonds;  where 
bonds  issued  prior  to  December  1,  1917,  are  continued  in  force  after  Deceml)er  1, 
1917,  by  the  execution  of  continuation  certificates  the  tax  applies  to  the  premium 
charged  for  the  issuance  of  such  certiticates.     (T.  D.  2782;  Dec.  24,  1918.) 

Bonds  of  a  private  corporation,  delivered  by  it  to  the  United  States  Housing 
Corporation  as  collateral  security  lor  a  loan  to  aid  the  borrower  in  performing  its 
contract  >vith  the  United  States  Housing  Torparation,  are  sul)ject  to  stamp  tax. 
(T.  D.  2782;  Dec.  24,  1918.) 

Capital  stock — Issue. 

Tax  imposed  b}'  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
certificates  representing  stock  never  before  issued,  no  matter  when  authorized. 
(T.  D.  2752;  Aug.  14,  1918.) 

Where  corporation  issues  preferred  stock  in  |)lace  of  common,  or  one  kind  of  pre- 
ferred stock  in  place  of  another  kind  of  preferred  stock,  or  stock  without  par  value 
in  place  of  stock  with  par  value,  tax  imposed  by  act  October  3,  19J7,  on  issue  of 
capital  stock  applies,  even  though  total  outstanding  stock  is  not  thereby  increased. 
(T.  D.  2752;  Aug.  14,  1918.) 

Tax  imj)osed  by  act  October  3,  1917,  on  issue  of  capital  stock,  does  not  apply  to 
isstie  of  voting-trust  certificates,  representing  stock  certificates  already  issued,  nor 
to  mere  issue  of  new  certificates  in  place  of  old  certificates  for  stock  preA'iously  out- 
standing.    (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  OcUjber  3,  1917,  on  issue  of  capital  stock  applies  to  issue  of 
certificates  of  shares  in  so-called  Massachusetts  trusts  and  other  unincorporated 
associations.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
stock  of  either  corporation  in  addition  to  already  existing  stock  upon  merger  of  trust 
companies  under  sections  487-490  of  Nevv'  York  Banking  Law,  but  sucfi  tax  does 
not  attach  to  substitution  of  new  certificates  for  certificates  representing  old  stock  of 
merging  corporation.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
preferred  and  common  stock,  whether  or  not  exchanged  for  okl  stock,  uj/on  reorgan- 
ization of  corporation  under  section  24  of  the  New  York  Stock  Corporation  Law  for 
purpose  of  issuing  stock  without  par  value,  but  tax  on  transfers  of  stock  is  inapj^li- 
cable  to  surrender  of  old  stock  in  exchange  for  new  stock  pursuant  to  such  reorgani- 
zation.    (T.  D.  2752;  Aug.  14,  1918.) 

Issue  of  stock  by  a 'consolidated  corporation,  in  exchange  for  stock  of  the  consol- 
idating corporation's,  is  a  taxable  original  issue  under  act'October  3,  1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  is  measured,  not  by 
amount  paid  in,  on,  or  for  the  stock,  but  by  the  face  or  par  value  in  the  case  of  shares 
having  a  face  or  par  value,  and  by  the  actual  value  determined  by  the  market  price 
or  otherwise  in  case  of  shares  having  no  face  or  par  value  but  an  actual  value  in  excess 
of  1100  a  share.     (T.  D.  2752;  Aug.  14,  19L8.) 

— —  Sales  or  transfers. 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  is  measured,  not 
by  amount  paid  in,  on,  or  for  the  stock,  but  by  the  face  or  par  value  in  the  case  of 
sliares  having  a  face  or  jpar  value,  and  by  the  actual  value  determined  by  the  mar- 
ket price  or  otherwise  m  case  of  shares  having  no  face  or  par  value  but  an  actual 
value  in  excess  of  $100  a  share.     (T.  D.  2752;  Aug.  14,  1918.) 

70420^—21 3(3 


562  STAMPS   AND  STAMP   TAXES, 

Capital  stock — Continued. 

Sales  or  transfers — Continued. 

Tax  imposed  by  act  Octobex  3,  1917,  on  traiisier  of  capital  stock  does  not  apj^ly 
to  ti-ansfer  of  "rights"  to  subscribe  for  stock,  prior  to  exercise  of  the  right,  and 
actual  subscription.     (T.  D.  2752;  Aug.  14,  1518.) 

Tax  iniposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  attaches  to  sales 
or  transfers  of  stock,  whether  or  not  represented  bv  certificates.  (T.  D.  2753;  Aug. 
14,  1918.) 

Tax  imposed  l)y  act  October  3,  1917,  on  transfers  of  capital  stock,  does  not  apply 
to  smTemier  of  certificates  in  exchange  for  other  certificates  representing  same  or 
new  stock,  provided  they  are  issued  to  ^amo  hol'der,  nor  does  it  apply  to  surrender 
of  stock  certificates  for  retirement  and  redemption  for  cash;  if,  however,  corporation 
buj's  some  of  its  own  stock  and  transfere  it  to  itself,  v.'hethc-r  or  not  it  intends  cv?niU- 
ally  to  cancel  it,  transfer  is  suVjject  to  tax.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3, 1917,  on  transfer  of  capital  stock,  applies  to  transfer 
of  stock  to  or  from  voting  trustees  or  other  trustees,  to  titinsfer  of  voting-trust  certlfi- 
c-ates,  to  transfer  of  shares  in  so-called'Massachusetts  trusts  and  other  unincorporated 
associations,  to  transfer  of  right  to  receive  a  stock  dividend  already  declared,  and 
to  transfer  of  interest  of  a  subscriber  for  stock,  however  such  interest  may  be  evi- 
denced or  conditioned  upon  furtlier  payments.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3, 1917,  on  if--sue  of  capital  stock  attaches  to  issue  o'- 
preferred  and  common  stock,  whether  or  not  exchanged  for  old  stock,  upon  reorgan- 
ization of  corporation  under  section  24  of  the  Nev/  York  stock  corporation  la.w  for 
purpose  of  issuing  stock  vrithout  par  value,  but  tax  on  transfers  of  stock  h  inappli- 
cable to  suiTcnder  of  old  stock  in  exchano-e  for  new  stock  pursuant  to  such  reorgan- 
ization.    (T.  D.  2752;  Aug.  14,  1918.) 

Tax  iraposed  by  act  October  3,  1917,  on  transfers  of  stock,  does  not  attach  to  ex- 
change of  stock  certificates  of  merg'ed  corporation  for  stock  certificates  of  merging 
corporation  at  the  time  and  as  part  of  the  merger  of  trust  companies  under  sactioas 
487-496  of  the  New  York  banking  law,  nor  to  substitution  of  new  certificates  ?or 
certificates  representing  old  stock  of  the  merging  corporation.  fT.  D.  2752;  Aug. 
14,  1918.) 

Where,  as  under  section  15  of  the  New  York  stock  corporation  lav,",  providing 
for  merger  of  ordinary  corporatious,  acquisition,  of  stock  of  corporation  to  be  mergecl 
is  condition  precedent  to  merger,  transfer  of  such  stock  to  merging  corporation 
prior  to  actual  merger  is  taxable  under  act  October  3,  1917.  (T.  D.  2752;  Aug.  14, 
1918.) 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the 
consoUdated  corporation,  is  not  taxable  transfer  imder  act  October  3,  1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Certificates  of  deposit. 

Certificates  of  deposit  are  not  taxed  bv  Schedule  A  of  Title  VIII  of  the  act  of 
October  3,  1917.     (T.  D.  2713;  May  14,  1918.) 

Certificates  of  indebtedness. 

A  certificate  f)f  indeijtedness  is  ordinaiilj-  any  instrument  acknowledging  liability 
for  pavment  of  money  not^in  recognized  form  of  promissory  note  or  bill  of  exchange. 
(T.D^  2713;  May  14,  1918.) 

Charters,  application  for. 

Applications  for  issuance  of  corporate  chartei^  arc  not  subject  to  stamp  tax, 
(T.  D.  2599;  Dec.  3,  1917.) 

Checks. 

The  stamp  tax  on  checks  imposed  by  Schedule  A  of  Title  VIII  of  the  act  of  Octo- 
ber 3,  1917,  attaches  to  checks  at  the  time  of  delivery,  if  delivered  within  the  ten-i- 
torial  jurisdiction  of  the  United  States  and  expressecl  to  be  payable  otherwise  than 
at  sight  or  on  demand,  but  not  to  checks  not  yet  delivered  or  delivered  in  a  foreign 
country  or  expressed  to  be  payable  at  sight  or  on  demand.  (T.  D.  2G82;  Mar.  26, 
1918.) 

Cocktails. 

Cocktails  prepared  on  premises  where  they  are  consumed  and  not  exposed  for 
sale  need  not  be  labeled  or  siau^ped.     (T.  D.  2387;  Oct.  39,  1916;) 


STAMPS  AND  STAMP   TAX  MS.  5G3 

Contracts. 

Contracts  lor  the  pertormaiice  of  services  are  not  eubiect  to  stamp  tax.  (T.  I). 
2599;  Dae.  3,  19L7.) 

Contract  for  sale  of  real  estate,  makinc:  provision  for  future  delivery  l)y  deed,  is 
Jiot  subject  to  stamp  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

Stam])  tax  does  not  ayjplv  to  contract  or  agreement  \)y  corjxiration  to  issu'-  slock. 
(T.  D.  2.599;  Doe.  3,  1917.)' 

Cordials —Bar  bottles. 

.Jug  of  cordial  which  retailer  keeps  beneath  his  counter,  not  exposed  to  view,  and 
from  which  he  lills  bar  bottles,  should  have  i)roper  stamps  aflixed  at  each  refilling 
for  use  and  sale,  but  aiiv  bar  Ijottlos  tilled  therefrom  need  not  be  stamped.  (T  D. 
23-52;  July  27,  1910.^ 

Cotton  futures. 

Contracts  oi  sale  of  cotton  for  future  delivery  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  business,  "is  taxed  at  the  rate  of  $0.02  for  each 
pound  of  cotton  involved  (to  be  paid  by  stamp) ;  tax  not  to  be  levied  on  contracts 
complying  with  conditions  prescribed.  "  (T.  D.  2558;  Oct.  26.  1917.) 

Date  act  eflf-aotive. 

Title  VII],  .'schedule  A,  act  of  October  3,  1917,  effective  on  and  after  December 
1,  1917.     (T.  D.  2-543;  Oct.  19,  1917.) 

Debentures. 

The  term  '"debenture"  ordiuarilv,  although  noc  necessarily,  refers  to  an  un.sc- 
cured  l)ond.     (T.  D.  2713;  May  M,  1918.) 

Deeds. 

The  tax  stamj-*  oi  face  value  corresponding  with  amount  representing  vendor's 
equity  conveyed,  shoidd  be  attached  on  instnimeDt  conveying  real  estate;  where 
exchange  of  equal  ecjuities  in  real  estate  is  made  between  two  persons,  tax  stamps 
should  be  attached  to  each  of  the  two  deeds,  corresponding  with  amount  of  each 
equity  exchanged;  in  determining  amount  of  incumbrance  upon  realty  being 
transferred  no  consideration  is  to  be  given  to  new  incumbrances  placed  upon  same 
at  time  of,  or  after,  the  sale;  only  incumbrances  v,-hich  rest  on  the  property  before 
sale  and  which  are  not  removed  l)v  the  sale  are  to  be  considered.  (T.  D.  2^S)d; 
Dec.  3,  1917.) 

Delivery  of  stanaps  to  taxpayer. 

Internal  revenue  stamps  should  be  delivered  by  ct)Hectors  directly  to  taxpayer 
or  his  representative,  except  only  in  cases  where  law  or  regulations  expressly  pro- 
vide otherwise;  stamps  should  not  be  delivered  to  a  gauging  officer  or  other  person 
employed  in  or  connected  with  the  Internal-Revenue  Service;  where  ap))!icant 
requests  that  stamps  be  forwarded  by  mail  or  express,  collectors  absolved  from 
responsibility  upon  complying  w^ith  shipping  instructions;  inslruction  is  applica- 
ble to  deliveries  nf  stamps  by  stam.p  deputies.     (T.  D.  2-504;  June  22,  1917.) 

Distilled  spirits. 

Instruction  with  reference  to  omission  of  stamps  from  head  of  package  and  refer- 
ences thereto  from  marks;  canceling  stencil  of  gauging  officer  to  be  applied  to 
head.     (T.  D.  2548,  2.560;  (Dct.  4,  1917.) 

Metal  packages  for  containing  nonbeverage  di.'^tilled  .spirits  for  domestic  ur^e  are 
not  required  to  be  equipped  witli  wooden  surfaces  for  receiving  the  marks,  l)rands, 
ami  stamps,  provided  stamps  are  securely  attached  to  metal  head  by  imper^•ious 
paste  and  protected  by  coating  of  varnish,  and  ])rovided  that  marks  arc  stenciled 
on  heads  by  use  of  permanent  stenciling  material.     (T.  D.  2891;  July  21,  1919.) 

Metal  packages  for  containing  distilled  spirits  for  export  not  required  to  be 
equipped  with  wooden  surfaces  for  receiving  the  marks,  brands,  and  stamp.^,  pro- 
vided stamp?!  are  secin-ely  attaclied  to  nietn!  head  by  impervious  paste  and  protected 
by  coating  of  varnish,  and  ]>rovided  the  i'j-;iiired  marks  are  stenciled  on  the  heads 
by  use  of  permanent  stenciling  materiail.     (T.  D.  2822;  Apr.  19,  1919.) 


564  STAMPS  AND   STAMP  TAXES. 

Drafts. 

Ordinary  sight  draft  with  bill  of  lading  attached  is  not  taxable,  but  draft  ex- 
pressed to  be  payable  at  sight  "on  arrival  of  car,"  or  containing  memoranf'mm  to 
hold  until  arrival  of  car,  is;  sight  draft  accompanied  by  instructions  outside  the 
instrument,  as  "Do  not  present  until  arrival  of  car,' '  or  some  such  memorandum,  is 
not  taxable.     (T.  D.  2682;  Mar.  26,  1918.) 

The  rule  that  a  taxable  draft  or  check  becomes  subject  to  the  tax  imposed  by 
Schedule  A,  of  Title  VIII,  of  the  act  of  October  :i,  1917,  if  delivered  within  the 
territorial  jurisdiction  of  the  United  States,  means  that  the  tax  does  not  attach  to 
a  draft  drawn  and  accepted  here,  but  delivered  abroad,  whether  before  or  alter 
acceptance,  but  does  attach  to  a  draft  delivered  here,  whether  before  or  after  accept- 
ance, although  drawn  and  accepted  abroad;  in  general,  a  draft  sent  tkrough  the 
mail  is  delivered  when  and  whei'e  deposited  in  the  mail  addressed  to  the  payee  or 
the  indorsee  from  the  drawer.     (T   D.  2682;  Mar.  26,  1918.) 

If  a  draft  drawn  abroad,  on  a  foreign  drawee,  with  a  foreign  payee,  passes  through 
a  bank  here  in  the  course  of  collection,  no  tax  is  payable  unless  it  should  be  deliv- 
ered by  an  agent  of  the  drawer  to  an  agent  of  the  payee  within  the  United  States. 
(T.  D.  2682;  Mar.  26,  1918.) 

Because  of  the  constitutional  restriction  that  no  lax  or  duty  shall  be  laid  on 
articles  exported  from  any  State,  drafts  with  bills  of  lading  attached  covering  goods 
in  course  of  exportation  are  not  subject  to  the  tax.     (T.  D.  2682;  Mar.  26,  1918.) 

A  sight  draft  accepted  and  paid  for  the  drawee  by  the  collecting  bank,  which 
holds  it  and  charges  interest  until  the  drawee  takes  it  up,  is  not  taxable.  (T.  D. 
26S2;  Mar.  26,  1918.) 

The  stamp  tax  on  drafts  imposed  by  Schedule  A,  of  Title  YIII,  of  the  act  of  Octo- 
ber 3,  1917,  attaches  to  drafts  at  the  time  of  delivery,  if  delivered  within  the  terri- 
torial jurisdiction  of  the  United  States  and  expressed  to  be  payable  otherwise  than 
at  sight  or  on  demand,  but  not  to  drafts  not  yet  delivered  or  delivered  in  a  foreign 
country  or  expressed  to  be  payable  at  sight  "or  on  demand.  (T.  D.  2682;  Mar.  26, 
1918.) 

The  general  rule  that  a  taxable  draft  becomes  subject  to  the  tax  concurrently 
with  its  delivery  means  that  the  tax  attaches,  not  when  it  is  signed  by  the  drawer 
or  presented  to  the  drawee  for  acceptance,  or  accepted  by  him,  but  -when  it  is  deliv- 
ered to  the  payee,  if  drawn  on  a  third  person,  or  negotiated  by  the  drawer,  if  drawh 
to  his  order,  whether  such  delivery  or  negotiation  takes  place  before  or  after  accept- 
ance; if  draft  was  drawn  and  accepted  before  passage  of  act  of  October  3,  1917,  but 
not  delivered  or  negotiated  until  afterwards,  tax  is  payable;  if  draft  is  presented 
to  drawee  for  acceptance  and  discounted  by  him,  stamps  must  be  first  affixed  by 
drawer.     (T.  D.  2682;  Mar.  26,  1918.) 

Payee  or  indorsee  from  drawer  must  see  to  it  that  drawer  pays  tax  before  delivery; 
the  word  "accept'  is  used  in  section  802  of  the  act  in  the  general  sense  of  "receive,  " 
not  in  the  special  sense  peculiar  to  drafts;  no  drawee  accepting  an  unstamped, 
imdelivered  draft  would  violate  the  law,  but  if  the  draft  has  already  become  taxable 
because  of  a  prior  deliverv.  acceptor  must  be  sure  that  stamps  are  aflixed.  (T.  D. 
2682;  Mar.  26,  1918.) 

A  draft  might  be  drawn  stating  no  time  for  payment,  which  would  class  it  as  a 
sight  draft,  and  be  accepted  at  90  days  which  would  change  its  nature;  if  negotiated 
or  delivered  before  acceptance  holder  would  be  obliged  to  stamp  thereon  accept- 
ance in  default  of  which  both  he  and  acceptor  would  be  liable  for  statutory  penalty. 
(T.  D.  2682;  Mar.  26,  1918.) 

The  stamp  tax  imposed  by  subdivision  (b)  of  Schedule  A  of  the  act  of  October  3, 
1917,  attaches  to  time  drafts  covering  articles  shipped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Temtory  of  Hawaii,  and  the  Canal  Zone,  and 
although  time  drafts  covering  shipments  to  the  Virgin  Islands,  the  Philippine 
Islands  and  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles  shipped 
to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or  Porto  Rico 
must  be  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modified.  (T.  D. 
2782;  Dec.  24,  1918.) 

(ieneral  rule  that  time  drafts  are  sxibject  to  stamp  tax  im.posed  by  act  of  October 
3,  1917,  when  delivered  within  territorial  jurisdiction  of  United  States,  and  not 
otherwise,  is  applicable  to  time  drafts  used  between  the  territorial  jiu-isdiction  of 
the  United  States  (including  the  States,  the  District  of  Columbia,  the  Territory  of 
Hav/aii,  and  the  Territory  of  Alaska),  and  the  Canal  Zone,  Philippine  Islands,  the 
Virgin  Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.  (T.  D.  2795; 
Feb.  26,  1919.) 


STAMPS   AND   STAMP   TAXES.  565 

Exchange  of  property. 

Where  exchani^e  of  eijaal  equities  in  real  estate  is  made,  tax  stamp  should  be 
attached  to  each  of  the  two  deeds  corresponding  with  the  amount  of  each  equity 
exchanged.     (T.  D.  2599;  Dec.  3,  1917.) 

Fermented  liquors. 

Form  7,  as  revised,  re()uired  to  V)e  used  to  ex-'lusion  of  all  former  editions  on  and 
after  July  1,  1917,  at  which  date  all  forms  of  former  edition  reriuired  to  be  destroyed; 
revised  t^'orm  7  required  to  be  hied  in  check-size  drawers  behind  guide  cards  bear- 
ing name  of  each  brewer,  forming  original  record  of  orders  for  stamps,  and  taking 
place  of  record  19;  two  sets  of  guides  to  be  used,  providing  current  and  closed  file. 
(T.  D.  2471;  Apr.  2,  1917.) 

Income  taxes— Deduction  of  stamp  taxes. 

.Stamp  taxes  imposed  by  internal  revenue  laws  and  paid  to  collectors,  are  deduc- 
tible as  taxes  imi)osed  under  authorHy  of  United  States,  provided  they  are  not 
added  to  and  made  a  part  of  the  cost  of  articles  of  merchandise,  with  respect  to  which 
they  are  paid,  in  which  case  they  v/ill  be  reflected  in  cost  of  merchandise  and  can 
not'be  separately  deducted.     (T".  D.  2G90;  art.  195.) 

Incumbrances.  , 

In  determining  the  amount  of  incumbrances  on  real  estate  being  transferred,  no 
consideration  is  ito  be  given  to  new  incumbrances  placed  upon  same  at  the  time  of 
sale;  only  incuml)rances  which  rested  upon  the  property  before  the  sale  and  which 
were  not  removed  by  the  sale  are  to  be  deducted  from  the  consideration  in  com- 
puting the  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

Insurance. 

Policy-loan  and  premium  extension  agreements  are  not  promissory  notes  as  con- 
templated by  the  act  of  October  3,  1917^  and  therefore  are  not  liable  to  stamp  tax. 
(T.  D.  2599;  Dec.  3,  1917.) 

Policies  of  gaara/ity  and  fidelity  insurance,  including  policies  guaranteeing  titles 
to  real  estate  and  mortgage  guaranty  policies,  are  subject  to  stamp  tax  on  bonds 
imposed  by  subdivision  2  of  Schedule  A,  of  Title  VIll,  of  the  act  of  October  3,  1917, 
and  not  to  the  tax  on  insurance  imposed  by  section  504  (c)  of  that  act.  (,T.  D.  2704; 
Apr.  23,  1918.) 

Merely  incidental  profit  earned  by  way  of  interest  on  its  invested  safety  funds  or 
on  its  bank  balance  does  not  change 'purely  mutual  character  of  company  or  indicate 
that  its  business,  though  thus  earning  a  profit,  is  "carried  on  for  profit,"  so  as  to 
require  the  stamping  of  policies  under  act  October  22,  1914.  (T.  D.  2743;  July  2, 
19J8.    Ct.  Dec.) 

Purely  cooperative  or  mutual  fire  insurance  companies  or  associations  carried  on 
by  members  thereof  solely  for  protection  of  their  own  property  and  not  for  profit, 
life  insurance,  persona!  accident  insurance,  health  insurance,  workmen's  compensa- 
tion insurance,  carried  on  by  members  solely  for  their  own  protection  and  not  for 
j>rotit,  represent  the  only  insurance  exempt  under  act  October  22,  1914;  hail  insur- 
ance does  not  fall  within  such  exemption.     (T.  D.  2318;  Apr.  5,  191G.) 

Leases. 

Tax  stamps  are  not  required  to  be  attached  to  leases.     (T.  D.  2599;  Dec.  3,  1917.) 

Loans. 

Policy-loan  and  premium-extension  agreements  are  not  promissory  notes  as 
contemplated  by  the  act  of  October  3,  19 17,  and  therefore  are  not  liable  to  stamp 
tax;  neither  security  agreements  signed  by  prospective  borrower  of  bank,  erapower- 
ing  bank  to  apply  any  securities,  money,  or  other  property  of  the  prospective  bor- 
rower in  the  hands  of  the  bank  to  satisfy  the  debt,  nor  the  form  of  application  for 
tha  loan,  is  subject  to  the  stamp  lax.     (t.  D.  2599;  Dec.  3,  1917.) 

Mixed  flour — Cancellation  of  stamps. 

Tax-paid  stamps  on  mixed  flour  may  be  canceled  l)y  perforation  by  manufacturer 
at  his  option,  provided  factory  nmnber,  district,  and  State,  and  name  of  person  by 
whom  or  for  whom  canceled,' or  suitable  abbreviation  thereof,  together  with  date 
affixed  and  canceled,  are  shown  by  this  means,  and  letters  or  numerals  employed 
in  perforation  are  plain  and  legible.     i^T.  D.  27G1;  Oct.  10,  1918.) 


566  STAMPS   AND  STAMP   TAXES. 

Naturalization  certificates. 

Gertilieates  of  natui-alization  or  duplicates  thereof  not  subject  to  tax  under  act  of 
October  22,  1914;  certified  copy  of  certificate  for  personal  use  and  benefit  of  person 
demanding  same  is  taxable  in  amount  of  10  cents,  stamp  to  be  furnished  by  person 
anpU-ing  for  certificate:  duplicate  copies  of  certificates,  to  he  furnished  by  clerk  of 
court  to  Department  of  Labor,  are  not  taxable.     (T.  D.  2.329;  Apr.  29,  191G.) 

Official  bonds. 

Bonds  given  by  officials  of  a  State,  township,  county,  or  village  for  the  faithful 
performance  of  duties  are  not  subject  to  stamp  tax.     (T.  D.  2624;  Dec.  14,  1917.) 

Oleomargarine. 

Manufacturers  permitted  to  use  as  original  containers  for  packing  oleomargarine 
paper  or  fiber  boxes,  provided  l^oxes  are  din-able  and  of  substantial  character; 
provisions  of  exisdug  Tegulations  governing  marking-  and  l)randiug  and  affixing 
and  canceling  of  tax-paid  stamps  declared  applicable  to  original  packages  of  pap?r 
or  fiber,  except  that  such  stamps  may  be'' affixed  by  paste  or  glue,  ^vithout  addi- 
tion of  tacks,  staples,  or  brads,  and  -without  using  shellac  or  other  -waterproofiiig 
material  to  cover  the  stamps;  such  original  contaiiiei-s  to  be  of  such  texture  as 
will  meet  requirements  for  transportation  of  common  cai-riers  under  existing  classi- 
fications; manufacturers  and  wholesalers  permitted  to  sell  only  in  original  packages, 
;;j'd  retailers  must  sell  only  from  original  stamped  package  in  quantities  not  exceed- 
ing- 10  pounds  and  shall  pack  oleomargarine  sold  by  them  in  suitable  wood  or  paper 
retail  packages  properlv  marked  and  branded;  par.  1,  page  44,  Regulations  No. 
9,  amended.     (T.  D.  2764;  Oct.  21,  1918.     T.  D.  2774;  Nov.  19,  1918.) 

Parcsl-post  packag-es. 

Parcel-post  packages  mailed  in  this  country  to  Porto  Rico  and  such  packages 
mailed  in  Porto  Rico  to  other  points  therein  are  not  subject  to  stamp  tax.  T.  D. 
2599;  Dec.  3,  1917.) 

Passage  tickets. 

Passage  tickets  issued  to  United  States  Government  and  foreign  Government 
officials,  employees,  and  military  and  na^-al  forces,  as  well  as  officials  of  States  and 
their  political  subdivisions,  traveling  in  course  of  duty  on  vessels  operated  privately 
or  by  any  Government,  are  not  subject  to  stamp  tax  imposed  by  subdi\i«ion  10  of 
Schedule  A,  section  807,  of  act  of  October  3,  1917;  passage  tickets  issued  to  privat.? 
individuals  traveling  on  vessels  operated  privatelv  or  bv  anv  Government  -n-e 
taxab-le.     (T.  D.  2676;  Mar.  18,  1918.) 

Stamp  tax  provided  for  by  subdivision  10  of  Schedule  A,  section  807  of  act  of 
October  3,  1917,  is  imposed  on  cost  of  a  one-way  or  round-trip  ticket  for  each  pas- 
senger sold  or  issued  in  United  States  for  passage  by  any  vessel  from  port  in  United 
States,  Canada,  or  Mexico,  to  port  or  place  not  in  United  States,  Canada,  or  Mexico, 
provided  cost  of  vessel's  proportion  exceeds  $10;  if  passage  "be  paid  on  through,  one- 
-^vay,  or  round-trip  ticket,  involving  transportation  partly  by  rail  and  partly  by 
water,  tax  applies  to  that  proportion  of  amount  paid  whicii  accrues  to  vessel;  table 
fihowingvessersproportionoisellingprice  of  each  ticket.     (T.  D.  2876;  Mar.  18, 1918.) 

Taxes  on  passage  tickets  must  be  paid  in  adliesive  internal-revenue  stamps,  to 
be  furnished  by  purchasers;  such  stamps  must  be  affixed  to  the  portion  of  the  ticket 
or  on  the  order,  covering  the  vessel  passage,  and  "the  person,  corporation,  partiier- 
ship,  or  association  using  or  affixing  the  same  shall  write  or  stamp  or  cause  to  h? 
written  or  stamped  thereupoir  the  initials  of  his  or  its  name  and  the  date  upon 
which  the  same  is  attached  or  used."     (T.  D.  2076;  Mar.  18,  1918.) 

Passage  tickets  sold  in  United  States  from  Hongkong  to  Vancouver,  not  sold 
as  part  of  round-trii?  or  through  ticket  from  a  port  in  the  United  States,  Canada, 
or  Mexico,  are  not  subject  to  st-amp  tax  imposed  bv  section  807,  Schedule  A,  para- 
graph 10,  act  of  October  3,  1917.     (T.  D.  2795;  Feb.  26,  1919.) 

Playing  cards. 

Manufacturers  and  importers  of  playing  cards  required  to  render  sv^^orn  inventory, 
in  duplicate,  on  or  before  October  31,  1917,  showing  number  of  packs  of  cards  and 
number  of  stamps;  on  October  31,  1917,  or  10  days  thereafter,  retm-n  covering  period 
October  4  to  31  required,  which  retui-n  must  be  rendered  for  each  subsequent  month 
on  last  day  thereof,  or  on  or  before  lOtli  day  of  succeeding  month,  until  supply  of 
stamps  at  old  rate  is  exhausted;  verification  of  inveEttories  and  returns.  (T.  D. 
2538;  Oct.  10,  1917.) 


STAI'JPS  AND  STAMP  TAXES.  5G7 

Plajdng  cards — Continued. 

Additional  tax  imposed  by  Title  VIII,  Schedule  A,  act  of  October  3,  1917,  does 
nut  ivpply  to  cards  manufactured  and  removed  tax  paid  prior  to  October  4,  in  hands 
(.i  jobbers  and  retail  dealers,  unless  packs  to  which  stamps  are  affixed  have  been 
broken  and  cards  repacked  in  new  cases,  in  which  event  dealer  so  packing  same 
would  be  liable  to  tax  as  in  case  of  original  manufacturer,  under  provisions  of  T.  D. 
1100.     (T.  D.  2538;  Oct.  10,  1917.     T.  D.  2543;  Oct.  19,  1917.) 

Additional  fax  upon  playing  cards  became  effective  on  and  after  October  4,  iS'17, 
but  such  tax  attaches  only  to  pla\-ing  cra-ds  manufactured  or  imported  and  sold  or 
removed  for  sale  on  and  after  that  date  and  is  to  be  paid  by  the  manufactiu-ers  or 
importers;  tax  does  not  apply  to  tax  paid  stocks  in  hands  of  wholesale  or  retail 
dealers  who  may  sell  all  cards  tax  paid  at  2  c  ents  under  act  of  August  28,  1S94, 
which  they  had"  on  hand  on  October  4,  1917,  without  incurring  liability  to  addi- 
tional tax.     (T.  D.  2543;  Oct.  19,  1917.) 

Power  of  attorney. 

No  stamp  tax  is  imposed  upon  power  of  attorney'  contained  in  transfer  by  assign- 
ment of  interest  in  contract  of  insurance,  if  power  of  attorney  grants  authority 
to  do  or  perform  only  such  acts  for  or  in  behalf  of  assignor  as  are  otherwise  vested 
in  the  assignee.     (T.  D.  2599;  Dec.  3,  1917.) 

Proroissory  notes. 

Policy-loan  and  premium-extension  agreements  are  not  promissory  notes  a-  con- 
templated by  the  act  of  October  3,  1917,  and  therefore  are  not  liable  to  stamp  tax. 
(T.D.  2599;  Dec.  3, 1917.) 

Promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
))ledge  of  any  bonds  or  obligations  of  United  States,  issued  after  April  24,  1917,  and 
all  promissory  notes  issued  and  delivered  on  or  after  April  (>,  1918,  and  secured  by 
pledge  of  promissory  note  which  itself  is  secured  by  pledge  of  United  States  bond.s 
or  obligations  issued  after  April  24,  1917,  are  exempt  from  stamp  tax  imposed  by 
section  301  of  the  act  of  jVpril  5,  1918;  bonds  herein  mentioned  include  Liberty 
bonds;  exemption  applies  only  where  par  value  of  bonds  or  obligations  pledged  shall 
ecjual  amount  of  promissory  note.     (T.  D,  2701;  Apr.  16,  1918.) 

Instrutaent  not  under  seal  containing  simple  promise  to  pay  sum  of  money  at 
specified  time,  such  as  is  common  in  evervdav  commercial  use,  is  promissory  note 
within  meaning  of  Schedule  A  of  Title  VIII  of  the  act  of  October  3,  1917.  (T.  D. 
2713;  May  14,  1918.) 

Short-term  instrument,  although  issued  by  corporation  under  trust  indenture, 
may  be  r^arded  as  a  note  if  every  instrument  of  such  issue  both  (a)  is  payable  to 
bearer  and  incapable  of  registration,  and  (b)  lacks  interest  coupons  and  so  requires 
presentation  upon  each  payment  of  interest.     (T.  D.  2713;  May  14,  1918.) 

Failure  to  stamp  promissory  notes,  which  are  subject  to  stamp  tax  under  sub- 
division 6  of  Schedule  A,  Title  VIII,  act  of  October  3,  1917,  renders  maker  and 
acceptor  of  such  notes  separatelv  liable  under  section  802(a)  of  the  act.  (T.  D.  2795; 
Feb.  2('),  1919.) 

Sales  for  future  delivery — Affixing  and  canceling  stamps. 

Stanii^s  in  value  equal  to  amount  of  tax  on  sales  must  bo  affixed  to  memorandum 
or  other  evidence  of  sale  or  agreement  to  sell;  clearing  house,  acting  as  agent,  re- 
quired to  make  returns  showing  staini)s  affixed  and  ancoled;  manner  of  canceling 
stamps  stated.     (T.  D.  2608;  Nov.  30,  1917.) 

Cotton. 

Contract  of  sale  of  cotton  for  future  delivery  made  on  any  exchange,  board  of 
trade,  or  similar  institution  or  place  of  business,  is  taxed  at  the  rate  of  §0.02  for 
each  pound  of  cotton  involved  (to  be  ))aid  by  stamp);  tax  not  to  be  levied  ou  con- 
tracts complying  with  conditions  prescribed.     (T.  D.  2558;  Oct.  26,  1917. ') 

— —  Exempt  transactions. 

No  tax  is  imposed  on  cash  sales  of  produce  or  merchandise  for  immediate  or 
prompt  delivery  which  in  good  faith  are  actually  intended  to  be  delivered;  sellers 
of  produce,  etc.,  may  transfer  contracts  to  clearing-house  association  and  such 
transfer  shall  not  be  deemed  to  be  a  sale  or  agreement  of  sale,  provided  it  does  not 
vest  beneficial  interest  in  such  association  and  is  made  only  to  enable  such  associa- 
tion to  adjust  accounts  of  its  members;  no  by-law  or  custom  of  any  exchange  or 
similar  institution,  inconsistent  with  the  act  of  October  3,  1917,  or  any  regulations 


568  STAMPS   AND  STAMP  TAXES. 

Sales  for  future  delivery — Continued. 

Exempt  transactions — Continurd. 

thereunder,  nor  any  collateral  agreement  inconsistent  with  such  act  or  regulations 
thereunder  shall  exempt  any  person  from  payment  of  tax.  (T.  D.  2608;  Nov.  30, 
1917.) 

Sales  of  produce  or  merchandise  for  future  delivery  must  he  made  at  an  exchange 
or  board  of  trade  or  other  similar  place  in  order  for  tax  imposed  by  section  807, 
Schedule  A,  subdivision  5,  act  of  October  3,  1917,  to  apply;  sale  by  member  of 
exchange  made  bv  mail  or  wire  not  at  an  exchange  is  not  subject  to  the  tax.  (T.  I>. 
2795;  Feb.  26,  19i9.) 

Memorandum  of  sales. 

Every  sale  or  agreement  not  evidenced  by  memorandum  or  contract  expressly 
requiring  immediate  or  prompt  delivery  shall  be  deemed  to  be  for  future  delivery; 
ever>'  person  making  sale  of  any  product,  etc.,  at,  on,  or  in  any  exchange  for  future 
delivery,  shall  deliver  to  the  buyer  a  bill,  memorandum,  or  other  evidence  of  such 
sale,  showing  certain  specified  data  and  items  of  information;  no  single  sale  or  con- 
tract made  upon  an  exchange  by  one  member  for  another  need  be  evidenced  by 
more  than  one  memorandum;  written  return  or  sheet  to  clearing  house,  acting  as 
agent,  considered  to  be  memorandum;  return  by  clearing  house.  (T.  D.  2608;  Nov, 
30,  1917.) 

Records. 

All  persons  who  make  sales  or  contracts  of  sales,  including  "transferred  or  scratched 
sales,"  "pass  outs,"  "pair-offs,"  or  "matched  trades,"  and  all  other  forms  of  sale 
of  any  product  or  merchandise  on  exchanges  for  future  delivery  required  to  keep 
record  showing  specified  items  of  information;  form  of  record  required;  clearing 
houses  to  keep  record  sho-wing  certain  data.     (T.  D.  2608;  Nov.  30,  1917.) 

Registration. 

Regulation  No.  40,  Part  2,  requires  a  statement  of  registration  by  persons  making 
contract  of  sale  of  produce  or  merchandise  on  exchanges  for  future  delivery;  record 
of  registration  to  be  kept  by  collector  and  certificate  of  registration  to  be  issued  and 
posted;  forms;  statement  of  registration  by  exchanges  and  clearinghouses.  (T.  D, 
2608;  Nov.  30,  1917.) 

Returns. 

Clearing  houses  and  persons  making  contracts  of  sale  at,  on,  or  in  any  exchange 
etc.,  for  future  delivery,  required  to  make  return  showing  specified  data  and  infor- 
mation; substitute  returns;  clearing  houses,  acting  as  agents,  required  to  return 
statement  of  amounts  of  stamps  affixed  to  memoranda  of  sales.  (T.  D.  2608;  Nov. 
30,  1917.) 

Stamp  sales. 

Stamps  required  to  be  afRxed  to  contracts  of  sale  of  any  product  or  merchandise 
before  a  delivery  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treas- 
urer, or  other  designated  United  States  depositary;  State  agents;  requisitions  for 
stamps;  records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 

Sales  of  realty. 

Contract  for  sale  of  real  estate,  making  provision  for  future  delivery  by  deed,  is 
not  subject  to  stamp  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

Sales  of  stock  and  like  securities — Affixing  and  canceling  stamps. 

Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer 
113  effected  by  delivery  of  certificate  of  stock  assigned  in  blank;  in  case  change  of 
ownership  is  by  transfer  of  certificate  of  stock,  stamp  shall  be  affixed  to  the  certifi- 
cate: in  case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall 
be  placed  upon  the  books;  in  all  other  cases  payment  shall  be  evidenced  by  aflfixing 
stamp  upon  memorandum  or  agreement  of  sale  to  be  delivered  by  the  seller  to  the 
buyer;  manner  of  canceling  stamps  stated.     (T.  D.  2G08;  Nov.  30,  1917.) 

Exempt  transactions. 

No  tax  is  imposed  upon  agi-eement  evidencing  deposit  of  stock  certificates  as  col- 
lateral security,  nor  upon  deliveries  or  transfers  to  broker  for  sale,  nor  upon  deliveriea 
or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfers  shall  be 
accompanied  by  certificate  setting  forth  the  facts,  nor  upon  transfers  or  deliveries 


STAMPS   AND   STAMP   TAXES.  569 

Sales  of  stock  and  like  securities — Continued. 

Exempt  transactions — Continued. 

to  clearing  house  for  sole  purpo.se  of  clearing  or  adjusting  accounts  between  luem- 
bera;  no  by-lav/  or  custom  of  any  exchange  or  similar  institution,  nor  any  collateral 
or  additional  agreement  or  understanding,  inconsistent  or  in  conflict  with  any  re- 
quirement of  the  act  of  October  3,  1917,  or  of  Regulation  No.  40,  Part  1,  shall 
exempt  any  person  from  the  payment  of  the  tax.     (T.  D.  2(303;  Nov.  20,  1917.) 

Loans  for  purpose  of  sale. 

Transfer  of  shares  or  certificates  of  stock  in  any  association,  company,  or  corpora- 
tion, made  by  the  person  loaning  stock  to  another  borrowing  such  stock  to  effect  a 
sale,  and  also  transfer  of  shares  or  certificates  of  stock  from  a  borrower  returning 
them  to  lender,  in  fulfillment  of  borrower's  obligation  to  buy  in  and  return  stock, 
are  both  subject  to  tax  imposed  by  sections  800  and  807  of  the  act  of  October  3,  1917; 
in  so-called  short-sale  traiisaction,  there  are  four  taxable  sales  or  transfers:  (1)  Sale 
of  slock  by  person  making  short  sale,  (2)  transfer  from  lender  of  stock  to  person  mak- 
ing short  sale,  (3)  purchase  by  borrower  of  stock  to  return  to  lender,  (4)  transfer  by 
borrower  to  lender  of  shares  to  replace  those  borrowed.     (T.  D.  2G85;  Mar.  30,  1918.) 

Memorandura  of  sales. 

Persons  selling  or  agreeing  to  sell  stocks  required  to  deliver  to  buyer  a  numbered 
memorandum  of  sale,  or  agreement  to  ^ell,  signed  by  ])rincipal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  number  and 
price  of  shares.     (T.  D.  2.i(>S;  Nov.  30,  1917.) 

Hate  of  taxation. 

In  the  case  of  shares  or  certificates  of  stock  having  a  face  or  par  value,  amount  of 
lax  shall  be  based  upon  total  face  value  of  shares  involved,  and  .'^hall  be  at  rate  of  2 
cents  for  each  $100  of  such  total  face  value  or  fraction  thereof,  whether  such  aggre- 
gate face  value  is  greater  or  less  than  $100.     (T.  D.  2608;  Nov.  30,  1917.) 

— - —  Records. 

Persons  engaged  in  business  of  bujdng,  selling,  or  transferring  shares  of  stock, 
required  to  keep  record  shov/ins:  specified  items  of  information;  form  of  record 
required.     (T.  D.  2G08;  Nov.  30,1917.) 

Registration. 

Regulation  No.  40,  Part  1,  requires  a  statement  of  registration  by  persons,  corpora- 
tions, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock  and 
other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector  who 
must  issue  certificate  of  registration  to  be  posted  in  place  of  business.  (T.  D.  2608; 
Nov.  30,  1917.) 

Returns. 

Clearing  houses  and  persons  engaged  wholly  or  partly  in  biiying,  selling,  or  trans- 
ferring shares  of  stock,  required  to  make  returns  showing  specified  data  and  infor- 
mation; substitute  returns.     (T.  D.  2003;  Nov.  30,  1917.) 

• Stamp  sales. 

Stamps  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  trea.surer,  or 
other  designated  United  States  dei)ositary;  State  agents;  requisitions  for  stamps; 
records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 

Schedule. 

Taxes  imposed  on  various  instruments  by  act  of  October  3,  1917,  set  forth,  (T.  D. 
2558;  Oct.  26,  1917.) 

Secui-ity  agreemeBts. 

Neither  security  agreements  signed  by  prof-pective  borroAver  of  bank,  empowering 
bank  to  apply  any  securities,  money,  or  other  property  of  the  prospective  borrower 
in  the  hands  of  the  bank  to  .satisfy  the  debt,  nor  the  form  of  application  for  the  loan, 
is  subject  to  the  stamp  tax.     (T.  D.  2599;  Dec.  3,  1917.) 

Stock  certifica-tes, 

it;sues  of  interim  certificates  p^-nding  stock  issue  of  corpo."ations  organized  or  reor- 
gani-^ed  on  and  after  October  4,  1917,  are  subject  to  tax  of  5  cents  on  each  $100  face 
value  or  fractional  part  thereof;  subsequent  exchange  of  such  interim  certificates 
for  regular  stock  certificates  to  same  owner  will  not  be  subject  to  tax.  (T.  D.  2584; 
Nov.  20,  1917.) 


570  STAMPS   AND  STAMP   TAXES. 

Stock  certiiicates— Continued . 

Tax  of  5  cents  on  each  $100  of  face  value  or  fraction  thereof  attaches  to  original 
issue  of  each  certificate  of  stock,  and  tax  of  2  cents  on  each  $100  of  face  value  or  frac- 
tion thereof  to  each  transfer  or  sale  of  stock,  whether  transfer  is  luado  before  or  after 
issuance  of  original  certificate.     (T.  D.  2599;  Dec.  3.  1917.) 

A  stock  certificate  is  a  document  which  is  evidence  of  the  number  of  shares  of 
stock  which  the  holder  of  it  owns,  and  the  stamp  tax  is  laid  not  on  each  stock 
certificate  that  is  issued  but  on  each  original  issue  of  certificates.  (T.  D.  ."002; 
Apr.  20,  1920.     Ct.  Dec.) 

Issue  of  certificates  of  preferred  or  no  par  value  stock  in  lieu  of  outstanding 
certificates  of  common  stock,  or  vice  ^'ersa,  is  not  an  original  issue  of  stock.  (T.  D. 
3002:  Apr.  20,  1920.     Ct.  Dec.) 

V  corporation  engaged  in  organization  is  defined  to  issue  stock  vrhen  it  obtains 
subscription  for  it.  ^  (T.  D.  3002;  Apr.  20,  1920.     (^t.  Dec.) 

So-called  business  property  investment  l)ond,  wherein  it  is  certified  that  tlie 
holder  thereof  is  the  owner  of  interest  in  certain  specified  real  property,  legal  title 
to  which  was  previously  con^'eyed  to  a  trustee,  and  whereby  corporation  issuing 
same  ao-rees  to  manage' the  proj^erty  and  distril)ute  proceeds  in  certain  manner, 
is  not  subject  to  tax  a^s  a  certificate  of  stock.     (T.  D.  279.5;  Feb.  2G.  1919.) 

Temperance  beer. 

Responsibility  of  brewers,  manufacturers  of  beverages,  and  dealers  who  place  or 
market  unstamped  beverages  found  to  contain  more  than  one-half  of  1  per  cent  of 
alcohol  by  volume,  stated;  duty  of  revenue  agents  having  reason  to  suspect  that 
such  beverages  are  placed  on  market  without  payment  of  tax.  (T.  D.  2370;  Sept. 
18,  1916.^ 
Temporary  use  of  stamps. 

Instructions  as  to  use  of  regular  documentary  stixmp.^.  pending  prtpiration  and 
distribution  of  special  supply  of  ovciprinted  stamps  provided  to  temporarily  take 
l)lace  of  distinctive  colored  adhesive  dc  cumentary  stamps  designed  for  use  in  pay- 
mei^t  of  war  stamp  taxes  imposed  by  paragraphs  4  and  5,  Title  VIII,  Schedule  A, 
act  of  October  3,  1917:  requisition":  issuance  and  exchange.  (T.  D.  2.594;  Nov. 
28,  1917.) 

Tobacco,  cigars,  etc. 

Forms  of  orders  for  stamps,  revised,  standardized  as  to  size,  printed  in  different 
colors,  required  to  be  used  as  soon  as  supply  is  forwarded  to  collectors  and  distrib- 
uted by  them  to  manufacturers.     (T.  D.  2411;  Dec.  12,  1916.) 

Stamps  required  by  section  400  of  the  act  of  October  8,  1917,  must  be  affixed  in 
such  manner  as  to  seal  the  package  and  shall  bo  canceled  by  the  manufacturer  writ- 
ing cr  imprinting  on  each  stamp  his  factory  number,  the  number  of  the  district  and 
State,  and  date  of  cancellation  to  include  month  and  year;  in  case  of  importer  of 
small  cigars  or  cigarettes  the  stamps  shall  be  canceled"  by  the  owner  or  importer 
writing  or  imprinting  upon  same  his  name  and  date  of  cancellation  to  include  month 
and  year.     (T.  D.  2569;  Oct.  17,  1917.) 

All  attached  and  unattached  stamps  for  payment  of  tax  on  tobacco,  cigars,  ciga- 
rettes, and  snuff  held  by  manufacturers  in  their  factories  on  October  4,  1917,  and 
November  2,  1917,  before  commencement  of  bu.'siness  on  said  days,  required  to  i)e 
inventoried  and  returns  filed  for  additional  tax,  as  provided  in  section  1006  of  act 
of  October  3,  19J7;  stamps  in  transit  on  date  inventory  is  required  purchased  at  old 
rates  must  be  included  In  inventory;  forms  for  returns  and  inventories;  manufac- 
turers recjuired  to  render  return  and  inventory  notwithstanding  he  may  hnve  no 
stamps  on  hand  on  dates  mentioned.     (T.  D.  2569;  Oct.  17,  1917.) 

Stamps  for  new  sizes  of  packages  for  manufactured  snuff  or  tobacco  provided  for 
in  section  401  of  act  of  October  3,  1917,  shall  be  affixed  and  canceled  in  same  manner 
as  are  strip  stamps  for  tobacco  and  snuff  under  Regulations  No.  8,  revised  July  J, 
1910,  page  41.     (T.  D.  2569;  Oct.  17,  1917.) 

Instructions  with  reference  to  use  by  manufacturer  of  revised  Forms  168,  172, 
173,  485,  orders  for  stamps  for  cigars,  tobacco,  snuff,  and  cigarettes,  re.si5ecti\-ely. 
(T.  D.  2604;  Dec.  12,  1917.) 

Stamps  on  tax-paid  tobacco,  snuff,  and  cigars  entered  for  export  may  ];e  destroyed 
by  exporter's  employees  in  presence  of  otticer  detailed  l)y  collector  in  charge  of 
ex]X)rts  and  drawbacks,  officer  to  verify  by  count  the  pat'kages  and  see  that  stamps 
affixed  are  genuine,  etc. ;  return  of  inspection;  so  much  of  articles  1G4-166  as  requires 
presence  of  customs  officer  during  inspection  and  which  requires  internal  revenue 
inspector  to  personally  destroy  stamps,  revoked.     (T.  D.  2330;  Mav  1 ,  1916.) 


STAMrS   AND  STAMP   TAXHS.  571 

Trade  acceptances. 

The  rule  that  tlie  stamp  tax  on  drafts  and  diecks  imposed  by  Schedule  A  of  Title 
VIII  of  the  act  of  October  3,  1917,  attaches  to  drafts  or  checks  at  the  time  of  deUv- 
ery,  if  delivered  within  the  territorial  jurisdiction  of  the  United  Stales  and  exprcs^ctl 
tobe  payable  otherwise  than  at  .sight  or  on  demand,  but  not  to  drafts  or  check.-*  not 
yet  delivered  or  delivered  in  a  foreign  country  or  expre.ssed  to  be  payable  at  sight  or 
on  demand,  is  applicable  to  trade  acceptances  as  defined  In'  the  regulation.^  ol  the 
Federal  Reserve  Board.     (T.  D.  2682;  Mar.  26,  1018.) 

Wines. 

Wholesale  dealers  carrying  unstamped  wine.?  must  keep  same  separate  and  apart 
from  tax-paid  wines;  separate  buildings  or  rooms,  however,  will  not  be  required. 
(T.  I).  2387;  Oct.  30,  1916.) 

Transfers  of  wines  by  wholesale  dealers  from  stamped  to  unstamped  packages 
phould  be  reported  by  such  dealers  in  their  monthly  statements.  (T.  D.  2387; 
Oct.  30,  1916.) 

Wines  hereafter  removed  from  Avholesalers'  premises  or  from  any  bonded  premise.^ 
unless  transferred  to  other  bonded  premises,  must  be  first  tax  paid;  unstamperl 
wines  heretofore  removed  should  be  at  once  reported  for  assessment.  (T.  D.  2387; 
Oct.  30,  1916.) 

^\'holesale  dealers  who  have  shipped  untax-paid  wines  subsequent  to  September 
9.  1916,  should  make  returns  thereof  and  affix  to  such  returns  necessarv  tax-i)aid 
stamps.     (T.  D.  2387;  Oct.  30,  1916.) 

'  Wine  stamps  issued  under  emergency  revenue  act  of  October  22,  191-1,  may  be 
used  for  wines,  cordials,  etc.,  taxable  under  ihe  act  of  September  8,  1916;  .such 
stamps  may  be  affixed  to  the  casks  or  outer  case.^  containing  the  taxable  wines;  bot- 
tles f)f  wine  removed  from  stamped  cases  should,  however,  be  labeled  by  the  dealer 
as  containing  wine  removed  from  stamped  ])ackages  or  cases;  bottles  removed  from 
unstamped  cases  should  be  stamped.     (T.  D.  2387;  Oct.  30,  1916.) 

Importer  of  wines  or  his  agent  permitted  as  matter  of  convenience  to  affix  re- 
quired stamps  to  custom  entry  instead  (;f  stamping  packages  cir  cases  containing 
such  wines,  uj^on  the  compliance  with  stated  instructions;  where  importer  prefers 
to  stamp  each  package  or  case,  he  raav  do  so.  (T.  D.  2391;  Nov.  6,  1916.  T.  D. 
2414;  Dec.  11,  1916.)' 

Shipper  required  to  make  bill  of  lading  in  triplicate,  two  copies  to  be  filed  with 
collector  of  district  from  which  wines  are  shipped,  with  uncanceled  stamps  of  re- 
quired denominations  affixed  to  one  of  such  copies;  bill  cf  lading  to  which  uncan- 
celed stamps  are  attached  Avill  then  be  checked  with  maker's  or  dealer's  monthly 
statement,  and,  together  with  uncanceled  stamps,  ■ivill  be  forwarded  by  collector 
by  registered  mail  to  Commissioner  of  Internal  Revenue  at  close  of  each  month; 
collector  required  to  mail  one  copy  of  bill  of  lading  to  collector  of  district  to  which 
tank  cars  are  consigned,  noting  thereon  that  appropriate  stamps  have  been  receive! 
in  his  office,  and  third  copy  oi  bill  will  be  sent  by  shipper  to  consignee,  after  noting 
thereon  that  appropriate  stamps  were  forwarded  te  collector's  office;  collector  <»t" 
district  to  which  cars  ai-e  consigned  will  see  that  they  are  not  released  to  consignee 
until  he  has  received  copy  of  bill  of  lading  duly  certified  by  collector  of  district 
from  which  shipped,  stating  that  pro])er  stamps  have  been  recei\-ed  in  his  office; 
label  to  be  affixed  to  car  will,  in  addition  to  j)re.?cribed  marks,  contain  words  '"Tux 
paid;"  shipments,  whether  iji  bond  or  tax  paid,  will  be  reported  as  separate  items 
on  l^\>rm  701  or  702,  as  case  nuvy  be;  wine  shipped  to  other  than  bonded  premises, 
on  which  tax  has  not  been  paid  "by  stamp,  will  be  seized  and  shipper  thereof  will  bo 
l^rosecuted  under  proWsions  of  paragraph  (f)  of  section  402  of  the  act  of  September  8, 
1916.     (T.  D.  2474;  Apr.  4,  1917.     T.  D.  2555;  Oct.  25,  1917.) 

"^.Mnes  may  be  removed  from  stamped  jjackages  to  show  casks  if  on  ins]>ection  of 
premises  by  deputv  cidlector  all  wines  are  found  to  be  duly  stamped.  (T.  D.  2387; 
Oct.  30,  1910.) 

Tax  on  unstamped  wines  removed  from  or  to  premises  not  bonded  should  bo 
reported  for  assessment  against  siipper  of  such  wines.     (T.  D.  2387;  Oct.  30,  1916.) 

Unstamped  wines  in  hands  of  wliolesaler  or  recei\-ed  by  retailers  on  and  after  Sep- 
tember 9,  1916,  ai-e  .subject  to  tax  imposed  b\'  the  act  of  September  8,  1916.  (T.  D. 
2387;  Oct.  30,  1916.1 

Imported  or  domestic  still  wines  on  which  tax  has  lioen  paid,  but  wliich  wlien 
subsequently  bottled  become  carbonated  by  sec.-ndary  fermentation,  are  subject 
to  tax  as  sparkling  wiues;  where  such  change  in  wine  is  not  produced  by  addition 


572  STAMPS  AND  STAMP   TAXES. 

Wines — Continued, 
of  sugar  for  purpose  of  starting  secondary  fermentation  and  is  merely  incidental 
to  bottling,  dealer  in  such  case  not  regarded  as  producer;  to  avoid  double  taxation 
additional  tax  found  to  be  due  may  be  paid  by  affixing  additional  stamps  to  b(;)ttle3 
containing  such  wines,  with  label  showing  Vines  to  have  been  bottled  without 
treatment.     (T.  D.  2387;  Oct.  30,  1916.) 

Imported  wines  when  removed  from  customhouse  must  be  tax  paid  by  stamp. 
(T.  D.  2387;  Oct.  30,  1916.) 

Wines  received  by  other  than  bonded  dealers  may  be  withdrawn  from  stamped 
packages  to  be  clarified  or  placed  in  other  c:"ntainers,  but  all  such  new  containers 
shall  be  labeled  by  the  dealer  showing  the  wine  was  ^\-ithdrawrl  from  stamped  pack- 
ages.    (T.  D.  2387;  Oct.  30,  1916.) 

Wines  returned  to  bonded  premises  in  stamped  packages  to  be  clarified  may, 
when  clarified,  be  replaced  in  such  stamped  packages,  which  should  be  set  apart 
for  that  particular  purpose;  if  otherwise  recasked  the  wines  will  be  subject  to  tax 
as  if  G.-iginally  produced.     (T.  D.  2387;  Oct.  30,  1916.) 

'Wliere  wines  of  different  alcoholic  strength  are  blended,  tax  will  be  computed 
and  paid  on  resultant  product;  this  applies  to  wines  previously  tax  paid,  and  any 
additional  tax  in  such  cases  must  be  paid  by  stamps  to  be  affixed  to  packages  or 
cases  coBtaining  such  blended  wines.     (T.  D.  2387;  Oct.  30,  1916.) 

Unstamped  wines  may  be  blended  on  bonded  premises,  but  when  removed  must 
be  stamped  according  to  the  alcoholic  strength  of  wine  as  blended.  (T.  D.  2387; 
Oct.  30,  1916.) 

In  all  cases  where  wines  are  sold  for  consumption  on  premises,  barrels  of  wine 
exposed  for  sale  in  retail  place  must  be  stamped,  but  where  dealers  are  limited 
by  local  regulations  to  sale  for  consumption  off  the  premises,  such  barrels  need  not 
be  stamped,  but  stamps  shall  be  afSxed  to  containers  in  which  wine  is  delivered  to 
consignor.     (T.  I).  2338;  May  23,  1916.) 

■ — —  Family  use. 

Exemption  of  tax  on  win^^s  produced  for  family  use,  under  section  102  (b)  of  act 
September  8, 1916,  does  not  apply  to  (a)  wines  made  by  one  person  for  us?  of  another, 
whether  consumed  on  premises  or  removed  therefrom  for  family  use  of  owner; 
(b)  wines  produced  by  a  single  person,  unless  he  is  the  head  of  a  family;  (c)  wines 
produced  by  married  man  living  apart  from  his  family,  and  not  for  use  of  that  family; 
(d)  wines  made  by  partnership,  or  to  mnes  j)roduced  at  a  winery  owned  and  operated 
by  several  heads  of  families  jointlv;  (e)  winea  furnished  ranch  hands  or  boarders. 
(T.  D.  2765;  Oct.  21,  1918.) 

Each  person  entitled  to  and  desiring  to  avail  himself  of  exemption  pro-vided 
by  section  402  (b)  of  act  September  8,  1916,  must  file  notice  with  collector  of  internal 
revenue  before  comm.encing  manufacture  of  wine;  each  notice  must  be  on  paper 
8  X  lOi  inches  in  size  and  in  stated  form.     (T.  D.  2765;  Oct.  21,  1918.) 

• Small  quantity  production. 

All  parties  producing  not  exceeding  1 ,000  gallons  of  wine  per  year,  and  who  receive 
no  wine  in  bond,  must  file  notice  on  Form  698,  two  copies  to  be  filed  with  collector, 
and  one  retained  on  A\-inery  premises;  notice  must  describe  and  show  location  of 
buildings,  size  and  use  of  each,  number  of  fermenters  and  of  wine  tanks,  respectively, 
and  size  of  each;  and  estimated  quantity  of  finished  wine  to  be  produced;  and  dupli- 
cate of  notice  on  which  registry  number  will  be  noted  should  be  forwarded  to  Com- 
missioner of  Internal  Revenue!!    (T.  D.  2765;  Oct.  21,  1918.) 

In  case  of  production  not  exceeding  1,000  gallons  of  wine  per  year  all  fermenters 
and  all  tanks  must  be  numbered  s?riaily,  commencing  with  No.  1,  and  the  assigned 
number  and  capacity  in  wine  gallons  must  be  plainly  and  diu'ably  marked  on  each; 
upon  receipt  of  specified  notice  collector  will  assign  registry  number  to  premises,  and 
duplicate  of  notice  on  which  such  registry  number  will  be  noted  should  be  forwarded 
to  Commissioner  of  Internal  Revenue.    (T.  D.  2765;  Oct.  21,  1918.) 

Wine  maker  producing  not  exceeding  1,000  gallons  may  either  file  bond,  Form  699, 
or  may  depcsit  with  collector  as  security  liberty  Loan  bonds  or  cash  equal  to  amount 
oi  tax;  if  Liberty  Loan  bonds  are  deposited,  he  must  execute  bond,  in  duplicate, 
in  stated  form,  and  in  such  form  with  appropriate  substitutions  in  case  cash  is  de- 
posited; bond  and  securitv  must  be  filed  with  collector  prior  to  time  of  crushing 
grapes.     (T.  D.  2765;  Oct.'21,  1918.) 

When  Liberty  Loan  bonds  or  cash  are  deposited  as  security  by  wine  maker  pro- 
duction not  exceeding  1,000  gallons  per  year,  the  collector  should  give  the  depositor 


STATES.  573 

Wines — Contimipd 

Small  quantity  production^Confinuod. 

a  rcf-eipt  in  etatt'd  form,  wbioh  roccipt  phould  be  made  in  triplicate,  one  fopy 
being  immediately  transmitted  to  (^ornmipsioner  of  Internal  Pievenue;  safekee]>ing 
of  bonds;  assi^'ninir  of  refjistered  bonds;  peeurity  thus  pled<,'ed  should  not  be  held  by 
collector  except  upon  instructions  from  Commissioner,  and  security  will  be  sur- 
rendered as  soon  as  tax  and  anj'  accrued  penalty  and  interest  liave  been  paid. 
(T.  D.  2705;  Oct.  21,  1918.) 

In  arriving  at  amount  of  tax  to  be  paid  by  producers  in  quantities  not  exceeding 
1,000  gallons  per  year,  the  quantity  removed  in  bond,  quantity  set  aside  for  family 
use,  actual  quantity  of  lees  f>r  sediment,  and  actual  loss  resulting  from  shrinkage, 
soakage,  etc.  (n(jt  exceeding  3J  per  cent  of  quantity  on  which  tax  is  paid)  may  be 
deducted.     (T.  D.  2765;  Oct.  21,  1918.) 

Owner  or  occupant  of  winery  premises  producing  Ti<>t  to  exceed  1,000  gallonrj 
per  year  must  keep  conspicuously  on  outside  of  building  nearest  street  or  highway 
sign  in  plain  letters  and  figures,  of  not  less  than  3  inches  in  length  and  of  corre- 
sponding width,  indicating  the  premises  and  the  registry  number.  (T.  D.  27(i5; 
Oct.2J,  1918.) 

When  grapes  are  first  crushed  wine  maker  producing  not  to  exceed  1,000  gallons 
per  year  must  render  report  in  stated  form,  in  triplicate,  and  under  oath,  and  two 
copies  must  be  forwarded  to  collector  and  one  retained  on  winery  premises;  if 
wines  are  shipped  in  bond  from  such  wineries  to  other  bonded  premises,  each  ship- 
ment must  be  covered  by  Form  703,  in  quadruplicate,  filed  with  collector  as  pro- 
vided in  case  of  other  shipments  of  wines  in  bond.     (T.  D.  2705;  Oct.  21,  1918.) 

Tax  on  all  wine  produced  by  wine  maker  in  quantities  not  exceeding  1,000  gal- 
lons per  year  must  be  paid  not  later  than  90  days  after  manufacture  thereof  is  com- 
menced by  affixing  proper  stamps  to  containers,  and  cancellation  of  the  stamps, 
unless  wine  has  been  previously  shipped  in  bond  to  other  bonded  premises  and 
properly  accounted  for.     (T.  D.  2765;  Oct.  21,  1918.) 

After  comjnitation  of  tax  on  wines  produced  in  quantities  not  exceeding  1,000 
gallons  per  year  has  been  made,  and  necessary  stamps  affixed  and  canceled,  Avine 
maker  must  render  a  report,  in  triplicate,  in  stated  form,  two  copies  of  which  report 
must  be  forwarded  to  collector  and  one  retained  on  the  winery  premises.  (T.  D. 
2705:  Oct.  21,  1918.) 

Where  po.ssible,  collectors,  upon  receipt  of  reports  from  producers  of  wines  in 
(juantities  n<jt  exceeding  1,000  gallons  per  year  should  detail  officers  to  wineries 
to  see  that  stamps  are  affixed  to  containers  and  prfii)erly  canceled  by  writing  in  ink 
or  stamping  name  or  initials  of  producer  and  date  of  cancellatinn  on  tax  stamps; 
stamps  must  also  be  rendered  entirely  unfit  for  reuse  by  cutting  them  through 
diagonally  or  crosswise  fjr  by  perforation,  so  as  to  remove  substantial  portion  of  paper. 
(T.  D.  2765;  Oct.  21,  1918.") 

Provisions  of  section  3324,  Revised  Statutes,  relative  to  obliteration  of  stamps  on 
emT)ty  distil led-spirits  casks  and  packages,  including  provisions  imposing  penalties, 
apply  to  empty  v.ane  packages;  therefore,  in  case  of  wines  produced  in  cjuantities 
not  exceeding  1,000  gallons  per  year,  unless  stamps  on  empty  packages  are  effaced 
and  obliterated  penalties  pro\'ided  by  such  section  will  be  asserted.  (T.  D.  2765; 
Oct.  21,  1918.) 

Where  regulations  relating  to  production  of  wine  in  quantities  not  exceeding 
1 ,000  gallons  per  year  are  not  complied  with,  penalties  provided  in  paragraph  (f), 
Bcction  402,  act  September  8,  1916,  will  be  incurred.     (T.  D.  2705;  Oct.  21,  1918.) 

STATES. 

Apportionment  of  t.axes  en  income. 

The  sixteenth  amendment  to  the  (.'onstitution  of  the  United  States  does  not  ex- 
tern] the  taxing  power  to  new  or  excepted  subjects,  but  merely  removes  all  occasion 
which  otherwise  might  exist  for  an  apportionment  anmng  the  States  of  taxes  laid 
on  in(;ome,  whether  it  be  dcirved  from  one  source  or  another.  (T.  D.  2726;  June 
4,  1918.     Ct.  Dec.) 

Bonds  or  obligations — Exemption  from  income  tax. 

Interest  on  State,  municipal,  and  United  States  bonds  received  by  corpora- 
tions is  not  taxable  to  the  corporation;  u])on  amalgamation  Avith  other  funds  of 
corporation  such  income  loses  its  identity;  when  distributed  to  stockholders  as  a 
dividend,  .entire-amount  of  dividend  is  subject  to  inclusion  in  returns  of  income  for 
purposes  of  tax;  foregt;ing  holds  true  for  scrip  payment  of  inten/.-t.  (T.  D.  2090; 
art.  4.) 


574  STATES. 

Bonds  or  obligations — Exemption  from  income  tax — Coiiliniiod. 

Interest  on  oblisjations  of  a  State  or  any  political  subdivision  thereof  shall  not  l»e 
included  as  inconie.     (T.  D.  2690;  art.  5*.) 

All  interest  received  on  obligations  of  United  States  or  its  possessions  or  on  obli- 
gations of  a  State,  or  any  political  subdivision  thereof,  should  be  eliminated  in 
ascertaining  gross  income;  accrued  interest  on  bonds  i3urchased  must  not  be  in- 
cluded in  amount  eliminated  from  gross  income;  in  case  of  obligations  of  United 
States  issued  after  September  1 ,  1917,  income  therefrom  is  exempt  from  tax  only  to 
extent  provided  in  the  act  authorising  their  issue,  and  income  from  such  obligations 
received  by  insurance  companies  is  exempt  from  2  per  cent  and  4  per  cent  tax. 
(T.  B.  2090;  art.  239.) 

Interest  upon  obligations  of  State  or  any  political  subdivision  thereof  is  exempt; 
obligations  issued  for  public  i)urpose  by  or  on  behalf  of  State  or  duly  organized  polit- 
ical subdivision  acting  by  constituted  authorities  duly  empowered  to  issue  such 
obligations  are  obligations  of  a  State  or  political  siibdi vision  thereof.  (T.  D.  2715; 
May  20,  1918.) 

Term  '•political  subdi\ision,"  as  used  in  article  83  of  Regulations  No.  33,  relating 
to  exemption  of  incomes  from  interest  upon  obligations,  denotes  every  division  of 
the  State  made  by  proper  anthorities  thereof  acting  "vvithin  their  constitutional 
powers  for  pur|>oso  of  carrying  out  portions  of  those  functions  of  State  which  by 
long  usage  and  inherent  necessities  of  government  have  always  been  regarded  a.^ 
public;  tlie  term  includes  special-assessment  districts  so  created,  such  as  rv-^ad, 
water,  sewer,  gas,  light,  reclamation,  drainage,  irrigation,  levee,  school,  harbor, 
port  improvement,  and  similar  districts  and  divisions  of  State.  (T.  B.  2715;  May 
20,  1918.) 

Carriers'  facilities,  exemption  from  tax  on  use  of. 
See  "Trans|5ortation  Tax." 

Colleges — Income  tax  on  salaries  under  Smith-liever  Act. 

Where  employees  of  uni\-ersities  receiving  salaries  i)aid  in  part  or  in  whole  from 
funds  received  under  the  Smith-Lever  Act  of  May  8,  1914,  are  officers  or  employeca 
of  a  State,  they  are  not  required  to  include  in  their  income  tax  returns  as  taxable 
income  the  salaries  sr)  recei'\-cd;  if  organization  of  college  is  one  which  belongs  to 
State  and  which  State  governs,  legislature  may  vacate  offices,  elect  new  professors, 
and  do  whatever  it  thinks  necessary  in  management  of  the  college,  'out  if  colleges 
are  governed  by  trustees  not  directly  responsible  to  State  legislatures,  omployecj 
receiving  salarie.^  paid  in  part  from  Smith-I.ever  funds  are  not  employees  of  the 
State,  and  are  not  exempt  from  tax  on  that  ground.     (T.  D.  2868;  Mar. "9,  1918.) 

Definition. 

The  word  "State,"'  as  used  in  section  502  of  the  act  of  October  3,  1917,  includes 
political  subdivisions  thereof,  such  as  counties,  cities,  towns  and  other  munici- 
palities.    (T.  D.  2676;  Mar.  18,  1918.; 

Destruction  of  property — In-ioraa  ta-xes. 

Property  destroyed  by  order  of  authorities  of  State  or  of  United  States  may  be 
claimed  as  a  loss;  if  reimbursement  is  made,  amount  received  shall  be  reported  as 
income  for  year  in  y,-hich  reimbursement  is  made.     (T.  D.  2690;  art.  4.) 

Actual  cost  01  property  destroyed  by  order  of  authorities  of  a  State  or  ol  the  United 
States  may  be  claimed  as  a  loss;  but  if  reunbursement  is  made  by  a  State  or  United 
States,  amount  received  shall  be  reported  as  income  for  year  in  which  reunbursement 
is  made.     (T.  D.  2690;  art.  123.) 

Estate  tax — Deductions. 

Amounts  paid  to  States  on  account  of  inheritance,  succession,  or  legacy  taxes, 
are  not  "such  other  charges  against  the  estate  as  arc  allowed  by  the  laws  of  the 
jurisdiction,"  and  are  not  deductible  in  arriving  at  amount  of  Federal  estate  tax. 
(T.  D.  2524;  Sept.  10,  1917.) 

Excise  taxes. 

Articles  sold  to  a  State  or  a  political  subdivision  thereof  for  use  in  carrying  on  its 
fioverrm.ertal  operations  are  not  subject  to  tax.     (T.  D.  2719;  Art.  VII.) 

A  State  or  any  political  subdivision  thereof  buying  or  leasing  an  article  for  its  own 
use  is  not  a  dealer,  nor  in  the  case  of  moving-picture  films  is  it  doomed  an  exhibitor 
or  exchange.     (T.  D.  2719;  Art.  XXXVII.) 


STATES.  575 

Insurance  department  ^Reports  to,  accoxupa-nying  income-tax  returns. 

Copy  of  report  to  State  insurance  dopartnient  should,  wherever  possible,  be  sjl)- 
iniltod  -with  reiturns;  otherwise  Schedule  D,  parts  ],  '>,  and  4  of  report,  should  \)'y 
atlachcd  thereto,  allowing  Fedora),  State,  and  muuir-i  1  obligations  from  which 
interest  omitted  from  gross  income  was  derived;  amounis  representing  reinsiiraiu'c 
treaties  will  be  eliminated  from  income  and  disbursements;  dqposit  premiums  or 
perpetual  risks  recedved  and  returned  should  be  treated  in  same  manner,  but  ftarn- 
ings  on  deposits  will  l)e  included  in  premium  income.     (T.  D.  2G90;  art.  239.  i 

Occupational  taxes. 

Pool  table.-  and  bowling  alleys  arc  exempt  imder  act  of  Septemljer  8,  1916,  if  ta.x 
would  fall  upon  State  treasury;  otherwise  tax  is  due  on  account  of  pool  tables  and 
i)owling  alleys  in  State  armories,  fire  houses,  etc.,  and  also  in  clubs,  fraternity 
houses,  lodge  halls,  charitable  institutions,  Y.  M.  C.  A.  buildings,  hotels,  board isiij 
houses,  etc.     (T.  I).  2462;  Feb.  10,  1917.) 

Officers  or  employees — Incom.e  taxes. 

Individual  who  contiacts  with  State  or  any  political  subdivision  thereof,  for  doing 
of  specific  tbings,  completion  of  which  will  constitute  fulfillment  of  contract  on  part 
of  su(;h  individual,  is  not  an  odicer  or  employee  of  the  State,  or  political  subdi\'ision 
thereof,  within  section  4  of  the  income-tax  law,  and  amount  received  l)y  him  is  to 
be  accounted  for  as  income.     (T.  D.  2690;  art.  4.) 

(Compensation  of  all  officers  and  employees  of  a  State  or  any  political  subdivision 
thereof,  except  when  such  compensation  is  paid  by  United  States  Govommont, 
shall  not  be  included  as  income.     (T.  D.  .2690;  art.  5.) 

Proper  officers  of  State  imposing  income  tax  are  entitled  as  of  right  upon  request 
of  its  governor  to  liaA'e  access  to  income  and  profits  tax  returns  of  corporation,  etc., 
or  to  abstract  thereof,  showing  its  name  and  income;  proper  oflicere  in  this  connec- 
tion are  onlv  those  officers  of  the  State  charged  with  enforcement  of  the  State  income 
tax  law  and  vjho  are  to  use  the  information  gained  by  the  access  only  in  connection 
with  such  enforcement;  contents  of  retpicst  or  application  of  governor,  which  must 
be  in  writing,  signed  by  him  under  the  seal  of  his  State,  and  be  addressed  either  to 
the  Secretary  of  the  Treasury'  or  to  the  Commissioner  of  Internal  Revenue,  stated; 
access  shall  be  given  only  in  the  office  of  the  Commissioner,  and  the  oflicers  desig- 
nated by  the  governor  will  not  be  permitted  to  name  another  person  to  examine 
the  returns  or  abstracts  for  them,  and  the  oflicers  designated  will  be  given  access 
only  to  returns  of  those  corjjorations,  etc.,  organized  and  doing  business  in  their 
State.     (T.  D.  2962;  Jan.  7,  1920.) 

War  tax  on  bonds. 

I'.onds  given  by  official-;  of  a  State,  townsliip,  county,  or  village,  for  faithful  per- 
foi-mance  of  duties,  are  free  from  Federal  taxation  on  broad  ground  that  sovereign 
States  and  subdivisions  thereof  are  constitutionall\'  iree  from  taxation  by  Federal 
Governmejit.     (T.  I).  2624;  Dec.  14,  1917.) 

Public  u.tilit.ie3 — income  taxes. 

Where  public  utility  constructed,  operated,  or  maintained  by  corporation  under 
contract  with  any  city.  State,  Territory,  or  the  District  of  Colunibia,  agrees  that 
])ortion  of  net  earnings  shall  be  paid  to  such  city,  State,  Territory,  or  the  District 
of  Columbia,  amount  so  paid  may  be  deducted  by  the  public  utility  company  as 
necessary  expense  of  transacting  business.     (T.  D.  2690;  art.  142.) 

Taxes — Deductions  for  income-tax  purposes. 

'I'nxes  imposed  against  a  corporation  ))y  authority  of  any  State  or  Iiixing  subdi- 
vision of  the  State  (not  including  those  assessed  against  local  bene(ils)  and  ))aid 
within  year  for  which  return  is  made,  are  deductible  from  gross  income  of  domc.-;tic 
corporation;  similar  taxes  with  like  exceptions  assessed  against  and  paid  by  foreign 
corporation  receiving  income  from  any  source  within  United  States  are  deductiiyio 
from  gJOBs  income  re.'eived  from  such  source,  exceptthat  taxes  imposed  by  foreign 
government  and  paid  bv  foreign  corporations  are  not  deductible  from  gross  incomo 
jo:-eivod  from  sources  within  llnited  States.     (T.  D.  2690;  art.  191.) 

Tax  imposed  by  laws  of  New  York  iqwn  transfer  of  property  by  will  or  under 
intestate  laws  is  not  deductible  in  ascertaining  net  income  of  legatee  or  distributee 
•under  act  of  October  3,  1913;  it  is  not  a  tax  within  tlie  meaning  of  X'^n'agraph  15, 
Section  II,  rpermitting  deduction  of  all  national,  State,  countv,  school,  and  munic- 
ipal taxes  paid  during  the  year.     (T.  D.  2933;  Oct.  9,  1919.     Ct.  Dec.) 


576  STATUTES — STOCKS. 

Telegraph,  etc.,  messages — -Official  business. 

All  telegraph,  telephone,  or  radio  messages  of  officers  and  employees  of  a  State, 
on  official  business,  are  exempt  from  tax  imposed  by  section  500  of  act  of  October  3, 
1917,  and  should  not  be  reported  in  monthly  return  of  telegraph,  telephone,  or  radio 
company;  officer  or  employee  sending  telegraph  or  radio  message  should  certify 
thereon  that  it  is  on  account  of  official  biusness  and  not  for  private  purposes;  form 
of  certificate  indicated.     (T.  D.  2551;  Oct.  22,  1917.) 

Under  section  502  of  act  of  October  3,  1917,  radio  messages,  telegraph  messages, 
and  telephone  messages  relating  to  Government  business,  which  originate  in  United 
States,  and  are  a  charge  against  the  Treasury  of  the  United  States,  the  District  nf 
Columbia,  a  State,  Territory,  or  any  political  subdivision  of  a  State  or  Territory, 
and  are  paid  from  funds  thereof,  are  exempt  from  tax  imposed  by  section  500  (o)  of 
such  act;  messages  not  paid  from  such  funds  are  not  exempt  from  tax  even  though 
they  relate  to  Government  business.     (T.  D.  2619;  Dec.  19,  1917.) 

Exemption  from  tax  imposed  by  section  500,  subdivision  (e),  act  October  3.  1917, 
on  telephone,  telegraph,  and  radio  messages,  may  be  claimed  when  amounts  paid 
for  such  messages  are  finally  to  be  paid  by  the  Government  under  cost-plus  con- 
tract; this  does  not  apply  where  contractor  is  doing  work  for  Government  under 
lump-sinn  contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

STATUTES. 
Construction. 

The  legislative  history  of  an  act  may,  when  the  meaning  of  the  words  used  is 
doubtful,  be  resorted  to  as  an  aid  to  construction;  but  no  aid  can  possibly  be  derived 
from  the  legislative  history  of  another  act  passed  nearlv  six  years  after  the  one  in 
question.     (T.  D.  3016;  July  19,  1920.     Ct.  Dec.) 

Where  a  taxing  act  is  ambiguous  the  construction  of  the  administrative  officers 
charged  with  its  execution  is  entitled  to  great  respect.  (T.  D.  3051;  July  27,  1920. 
Ot.  Dec.) 

Inequalities  in  a  valid  taxing  act  arising  in  the  application  to  a  particular  case  can 
not  be  corrected  by  judicial  construction.     (T.  D.  3051;  July  27,  1920.     Ct.  Dec.) 

STATUTE  OF  LIMITATIONS. 
Refunds. 

Under  the  provision  of  section  14,  paragraph  (a),  act  September  8,  1916.  that  upon 
examination  of  any  return  of  income  made  pursuant  to  title  I.  the  act  of  August  5, 
1909,  and  act  of  October  3,  1913,  if  it  shall  appear  that  amounts  of  tax  have  been 
paid  in  excess  of  those  properly  due,  the  taxpayer  shall  be  permitted  to  present  a 
claim  for  refund  thereof  notwithstanding  provisions  of  section  3228  of  the  Revised 
Statutes,  claims  for  refund  which  have  once  been  rejected  by  the  Commissioner 
because  of  the  statute  of  limitation  in  existence  at  that  time  may  be  reopened; 
claims  rejected  can  also  be  reopened  if  the  question  involves  an  examination  of  the 
return.     (T.  D.  2396;  Nov.  1,  1916.) 

STILLS. 

Manufacture,  removal,  and  registry. 
See  ''Distilled  Spirits." 

STOCKS 

See  "Corporations." 

Capital  stock — Issue — Stamp  tax. 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stocli  attaches  to 
issue  of  certificates  representing  stock  never  before  issued,  no  matter  when  author- 
ized.    (T.  D.  2752;  Aug.  14,  1918.) 

WTiere  corporation  issues  preferred  stock  in  place  of  common,  or  one  kind  of  pre- 
ferred stock  in  place  of  another  kind  of  preferred  stock,  or  stock  without  par  value 
in  j:)lace  of  stock  with  par  value,  tax  imposed  by  act  October  3.  1917.  on  issue  of 
capital  stock  applies,  even  though  total  outstanding  stock  is  not  thereby  increased. 
(T.  D.  2752;  Aug.  1-1,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock,  does  not  apply  to 
issue  of  voting-trust  certificates,  rejwesenting  stock  certificates  already  issued,  nor 
to  mere  issue  of  new  certificates  in  ])!ace  of  old  certificates  for  stock  previously  out- 
standing.    (l\  D.  2752;  Aug.  14,  1916.) 


STOCKS.  577 

Capital  stock — Issue — Stamp  tax — Continued. 

Tax  imposed  by  act  October  3.  1917.  on  issue  of  capital  stock  applies  to  issue  of 
certificates  of  shares  in  so-called  Massachusetts  trusts  and  other  unincorporated 
associations.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917.  on  issue  of  capital  stock  attaches  to  issue  of 
stock  of  either  corporation  in  addition  to  already  existing  stock  upon  merger  of 
trust  companies  under  sections  487-496  of  New  York  banking  law.  but  such  tax 
does  not  attach  to  substitution  of  new  certificates  for  certificates  representing  old 
stock  of  merging  corporation.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
preferred  and  common  stock  whether  or  not  exchanged  for  old  stock,  upon  reor- 
ganization of  corporation  under  section  24  of  the  New  York  stock  corporation  law 
for  purpose  of  issuing  stock  without  par  value.  l>ut  tax  on  transfers  of  stock  is  inap- 
plicable to  surrender  of  old  stock  in  exchange  for  new  stock  piu-suant  to  such 
reorganization.     (T.  D.  2752;  Aug.  14,  1918.) 

Issue  of  stock  by  a  consolidated  corporation,  in  exchange  for  stock  of  the  con- 
solidating corporations,  is  a  taxable  original  issue  under  act  October  3,  1917.  (T.  D. 
2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  is  measured,  not 
by  amount  paid  in,  on,  or  for  the  stock,  but  by  the  face  or  par  value  in  the  case  of 
shares  having  a  face  or  par  value,  and  by  the  actual  value  determined  by  the  mar- 
ket price  or  otherwise  in  case  of  shares  having  no  face  or  par  value  but  an  actual 
value  in  excess  of  $100  a  share.     (T.  D.  2752;  Aug.  14,  1918.) 

Transfer — Stazap  tax. 

Tax  imposed  by  act  October  3,  1917.  on  transfer  of  capital  stock,  applies  to  transfer 
of  stock  to  or  from  voting  trustees  or  other  trustees  to  transfer  of  voting  trust  cer- 
tificates, to  transfer  of  shares  in  so-called  Massachusetts  trusts  and  other  unincor- 
porated associations,  to  transfer  of  right  to  receive  a  stock  dividend  akeady  declared, 
and  to  transfer  of  interest  of  a  subscriber  for  stock,  however  such  interest  may  be 
evidenced  or  conditioned  upon  further  payments.     (T.  D.  2752;  Aug.  14.  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  attaches  to  sales 
or  transfers  of  stock,  whether  or  not  represented  by  certificates.  (T.  D.  2752;  Aug. 
14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfers  of  capital  stock  does  not  apply 
to  siurender  of  certificates  in  exchange  for  other  certificates  representin;;  same  or 
new  stock,  provided  they  are  issued  to  th'^  same  holder,  nor  docs  it  apj)ly  to  sur- 
render of  stock  certificates  for  retirement  and  redemption  for  cash;  ii,  however, 
corporation  buys  some  of  its  own  stock  and  transfers  it  to  itself,  whether  or  not  it 
intends  eventually  to  cancel  it,  transfer  is  subject  to  tax.  (T.  D.  2752;  Aug.  14, 
1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  does  not  apply 
to  transfer  of  "rights"  to  subscribe  for  stock,  prior  to  exercise  of  the  right,  and  actual 
subscription.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
preferred  and  common  stock,  whether  or  not  exchanged  for  old  stock,  upon  reorgan- 
ization of  corporation  under  section  24  of  the  New  York  stock  corporation  law  for 
purpose  of  issuing  slock  without  par  value,  but  tax  on  transfers  of  stock  is  inap- 
plicable to  surrender  of  old  stock  in  exchange  for  new  stock  pursuant  to  such  re- 
organization.    (T.  D.  2752;  Aug.  14,  1918.) 

Where,  as  under  section  15  of  the  New  York  stock  corporation  law,  providing 
t'or  merger  of  ordinary  corporations,  acquisition  of  stock  of  corporation  to  be  merged 
is  condition  pr^'cedent  to  merger,  transfer  of  such  stock  to  merging  corporation  prior 
to  actual  niei- t  is  taxable  under  act  October  3,  1917.     (T.  D.^ 2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfers  of  stock,  does  not  attach  to  ex- 
change of  stock  certificates  of  merged  corporation  for  stock  certificates  of  merjjing 
corporation  at  the  time  and  as  part  of  the  merger  of  trust  companies  under  sections 
487-496  of  the  New  York  banking  law,  not  to  substitution  of  new  certificates  for 
certificates  representing  old  stock  of  the  merging  corporation.  (T.  D.  2752;  Aug. 
14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  is  measured,  not 
by  amount  paid  in,  on,  or  for  the  stock,  but  by  the  face  or  par  value,  in  the  case  of 
eliar-^R  haA-ing  a  face  or  par  value,  and  by  the  "actual  value  determined  by  the  mar- 

70J20°— 21 37 


578  STOCKS. 

Capital  stock — Continued. 

Transfer — Stamp  tax — Continued. 

ket  price  or  otherwise  in  case  of  shares  having  no  face  or  par  value  but  an  actual 

value  in  excess  of  $100  a  share.     (T.  D.  2752;  Aug.  14,  1918.) 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the 
consolidated  corporation,  is  not  a  taxable  transfer  under  act  October  3,  1917.  (T. 
D.  2752;  Aug.  14,  1918.) 

Capital  stock  tax. 

See  "Capital  Stock  Tax." 

Dividend — ^Income  tax. 

Stock  di^ddends  declared  from  earnings  or  profits  accrued  prior  to  March  1,  1913, 
or  from  suiplus  created  by  revaluation  of  capital  assets,  or  from  placing  value  upon 
trade-marks,  good  will,  etc.,  do  not  represent  distribution  of  earnings  or  profits  sub- 
ject to  tax  in  hands  of  shareholders;  when  stock  received  in  payment  of  such  divi- 
dend, or  stock  in  respect  of  which  any  such  dividend  was  paid,  is  sold,  cost  of  each 
share  of  stock,  whether  new  or  old,  for  purpose  of  ascertaining  gain  or  loss  from  sale, 
is  quotient  of  cost  of  old  stock,  if  acquired  on  or  after  March  1,  1913,  or  its  fair  mar- 
ket price  or  value  as  of  that  date  if  acquired  prior  thereto,  divided  by  the  number 
of  old  and  new  shares  added  together,  and  profit  so  ascertained  is  income  subject  to 
both  normal  and  additional  tax,  to  be  accounted  for  in  shareholder's  return  for 
year  in  which  sale  is  made.     (T.  D.  2734;  June  17,  1918.) 

Member  of  partnership  need  not  include  as  part  of  net  income  subject  to  normal 
tax,  income  tax  law  of  1913,  such  of  his  income  derived  from  or  through  a  partner- 
ship as  has  been  received  by  partnership  in  shape  of  dividends  on  stocks  owned 
by  it  in  corporations  taxable  upon  their  net  income.  (T.  D.  2858;  June  9,  1919. 
Ct.  Dec.) 

Neither  under  the  sixteenth  amendment  to  the  Constitution  nor  otherwise  has 
Congress  power  to  tax  without  apportionment  a  true  stock  dividend  made  lawfully 
and  in  good  faith,  or  the  accumulated  profits  behind  it,  as  income  of  the  stock- 
holder; act  September  8,  1916,  held  imconstitutional  in  so  far  as  it  imposes  an 
income  tax  upon  true  stock  di\ddends.     (T.  D.  3010;  Apr.  26,  1920.     Ct.  Dec.) 

"^Tiere  a  corporation,  being  authorized  so  to  do  by  the  laws  of  the  State  in  which 
it  is  incorporated,  transfers  a  portion  of  its  surplus  to  capital  account,  issues  new 
stock  representing  the  amount  of  the  surplus  so  transferred,  and  distributes  the 
stock  so  issued  to  its  stockholders,  such  stock  is  not  income  to  the  stockholders  and 
the  stockholders  incur  no  liability  for  income  tax  by  reason  of  its  receipt.  (T.  D. 
3052;  Aug.  4,  1920.     Ct.  Dec.) 

WTiere  a  corporation,  being  thereunto  lawfully  authorized,  increases  its  capital 
stock,  and  simultaneously  declares  a  cash  dividend  equal  in  amount  to  the  increase 
in  its  capital  stock,  and  gives  to  its  stockholders  a  real  option  either  to  keep  the 
money  for  their  own  or  to  reinvest  it  in  the  new  shares,  such  dividend  is  a  cash  div- 
idend and  is  income  to  the  stockholders  whether  they  reinvest  it  in  the  new  shares 
or  not.     (T.  D.  3052;    Aug.  4,  1920.     Ct.  Dec.) 

WTiere  a  corporation,  which  is  not  permitted  under  the  laws  of  the  State  in  which 
it  is  incorporated  to  issue  a  stock  di^ddend,  increases  its  capital  stock  and  at  the 
same  time  declares  a  cash  dividend  under  an  agreement  ■udth  the  stockholders  to 
reinvest  the  money  so  received  in  the  new  issue  of  capital  stock,  such  dividend  is 
subject  to  tax  as  income  to  the  stockholder.     (T.  D.  3052;  Aug.  4,  1920.     Ct.  Dec.) 

WTiere  a  corporation,  having  a  surplus  accumulated  in  part  prior  to  March  1,  1913, 
and  being  thereunto  lawfully  authorized,  transfers  to  its  capital  account  a  portion 
of  its  surplus,  issues  new  stock  representing  the  amount  so  transferred  to  the  capital 
account  and  then  declares  a  dividend  payable  in  part  in  cash  and  in  part  in  shares 
of  the  new  issue  of  stock,  that  portion  of  the  dividend  paid  in  cash  will,  to  the  amount 
of  the  surplus  accumulated  since  March  1,  1913,  be  deemed  to  have  been  paid  out 
of  such  surplus,  and  be  subject  to  tax,  but  the  portion  of  the  di\idend  paid  in  stock 
■will  not  be  subject  to  tax  as  income.     (T.  D.  3052;  Aug.  4,  1920.     Ct.  Dec.) 

A  dividend,  paid  in  stock  of  another  corporation  held  as  a  part  of  the  assets  of 
the  corporation  paying  the  dividend,  is  income  to  the  stockholder  at  the  time  the 
same  is  made  available  for  distribution  to  the  full  amount  of  the  then  market  value 
of  such  stock  (Peabody  v.  Eisner,  T.  D.  2732);  and  if  such  stock  be  subsequently 
sold  by  the  stockholder,  the  difference  between  its  market  value  at  date  of  receipt 
and  the  price  for  which  it  is  sold  is  additional  income  or  loss  to  him,  as  the  ca.so 
may  be.    (T.  D.  3052;  Aug.  4,  1920.    Ct.  Dec.) 


STOCKS.  679 

Dividend — Income  tax — Continued. 

The  profit  derived  by  a  stockholder  upon  the  sale  of  stock  received  as  a  dividend 
is  income  to  the  stockholder  and  taxable  as  such  even  though  the  stock  itself  was 
not  income  at  the  time  of  its  receipt  by  the  stockholder.  For  the  purpose  of  deter- 
mining the  amount  of  gain  or  loss  derived  from  the  sale  of  stock  received  as  a  divi- 
dend or  of  the  stock  with  respect  to  which  such  dividend  was  paid,  the  cost  of  each 
share  of  stock  (provided  both  the  dividend  stock  and  the  stock  with  respect  to  which 
it  is  issued  have  the  same  rights  and  preferences)  is  the  quotient  of  the  cost  of  the 
old  stock  (or  its  fair  market  value  as  of  March  1,  1913,  if  acquired  prior  to  that  date) 
divided  bv  the  total  number  of  shares  of  the  old  and  new  stock.  (T.  D.  3052; 
Aug.  4,  Vm.     Ct.  Dec.) 

Stamp  tax  on  transfer. 

Tax  imposed  by  act  October  3,  1917,  on  transfer  ot  capital  stock  applies  to  trans- 
fer of  right  to  receive  stock  dividend  already  declared.     (T.  D.  2752;  Aug.  14,  1918.) 

Estate  tax. 

Seciu-ities  such  as  shares  of  stock  in  domestic  corporations  which  are  property 
within  the  United  States  within  the  meaning  of  Title  II  of  the  act  of  September 
8,  1916,  deposited  by  an  individual  not  resident  within  the  United  States  with  the 
British  Treasmy,  for  which  certificates  of  deposit  were  issued,  are  at  the  death  of 
such  nonresident,  if  such  certificates  haVe  not  been  transferred,  a  part  of  his  gross 
estate  and  subject  to  estate  tax.     (T.  D.  2772;  Nov.  8,  1918.) 

Sales — Affixing  and  canceling  stamps. 

Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  (o  sell,  where  transfer 
is  effected  by  delivery  of  certificate  of  stock  assigned  in  blank;  in  case  change  of 
of  ownership  is  by  transfer  of  certificate  of  stock,  stamp  shall  be  affixed  to  the  certifi- 
cate; in  case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall  be 
placed  upon  the  books  in  all  other  cases  payment  shall  be  evidenced  by  affixing 
stamp  upon  memorandum  or  agreement  of  sale  to  be  delivered  by  the  seller  to  the 
buyer;  manner  of  canceling  stamps  stated.     (T.  D.  2608;  Nov.  30,  1917.) 

— —  Amount  of  tax. 

Tax  of  5  cents  on  each  $100  of  face  value  or  fraction  thereof  attaches  to  original 
issue  of  each  certificate  of  stock,  and  tax  of  2  cents  on  each  $100  of  face  value  or  frac- 
tion thereof  to  each  transfer  or  sale  of  stock,  whether  transfer  is  made  before  or 
after  issuance  of  original  certificate.     (T.  D.  2599;  Dec.  3,  1917.) 

Exempt  transactions. 

No  tax  is  imposed  upon  agreement  evidencing  deposit  ot  stock  certificates  aa 
collateral  security,  nor  upon  deliveries  or  transfers  to  broker  for  sale,  nor  upon 
deliveries  or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfers 
shall  be  accompanied  by  certificate  setting  forth  the  facts,  nor  upon  transfers  or 
deliveries  to  clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  be- 
tween members;  no  by-law  or  custom  ot  any  exchange  or  similar  institution,  nor 
any  collateral  or  additional  agreement  or  understanding,  inconsistent  or  in  conflict 
with  any  requirement  of  the  act  of  October  3,  1917,  or  of  Regulation  No.  40,  Part  1, 
shall  exempt  any  person  from  the  payment  of  the  tax.     (T.  D.  2608;  Nov.  30, 1917.) 

Memorandum  of  sales. 

Persous  selling  or  agreeing  to  sell  stocks  required  to  deliver  to  buyer  a  numbered 
memorandum  of  sale,  or  agreement  to  sell,  signed  by  principal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  number  and 
price  of  shares.     (T.  D.  2608;  Nov.  30,  1917.) 

State  of  taxation. 

In  the  case  of  shares  or  certificates  of  stock  having  a  face  or  par  value,  amount  of 
tax  shall  be  based  upon  total  face  value  of  shares  involved,  and  shall  be  at  rate  of  2 
cents  l('X  each  $100  of  such  total  face  value  or  fraction  thereof,  whether  such  aggre- 
gate face  value  is  greater  or  less  than  $100.     (T.  D.  2608;  Nov.  30,  1917.) 

Records. 

Persons  engaged  in  business  of  buying,  selling,  or  transferring  shares  of  stock,  re- 
quired to  keep  record  showing  specified  items  of  mformation;  form  of  record  required. 
(T.  D.  2608;  Nov.  30,  1917.) 


580  STOCK   EXCHANGES. 

Sales — Continued. 

Registration. 

Regulation  No.  40,  Part  1,  reqiiires  a  statement  of  registration  by  persons,  cor- 
porations, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock 
and  other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector 
who  must  issue  certificate  of  registration  to  be  posted  in  place  of  business.  (T.  D. 
2608;   Nov.  30,  1917.) 

Returns. 

Clearing  hous<?s  and  persons  engaged  wholly  or  partly  in  buying,  selling,  or  trans- 
ferring shares  of  stock,  required  to  make  returns  shov.ing  specified  data  and  informa- 
tion; substitute  returns.     (T.  D.  2608;   Nov.  30,  1917.) 

Stamp  tax. 

Sale  by  Alien  Property  Custodian  of  shares  or  certificates  of  stock,  under  authority 
of  section  12  of  the  tracing  with  the  enemy  act  of  October  6,  1917,  as  amended, 
his  agreement  so  to  sell,  and  his  transfer  of  legal  title  to  certificates  or  shares  so  sold, 
are  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  the  act  of 
October  3,  1917.     (T.  D.  2786;  Jan  29,  1919.) 

Transfer  to  Alien  Property  Custodian  of  shares  or  certificates  of  stock  in  com- 
pliance with  demand  made  by  him  under  the  trading  with  the  enemy  act  of  October 
6,  1917,  as  amended,  is  not  subject  to  stamp  tax  imposed  bv  Schedule  A  of  Title 
VIII  of  act  of  October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

A  stock  certificate  is  a  document  which  is  evidence  of  the  number  of  shares  of 
stock  which  the  holder  of  it  owns,  and  the  stamp  tax  is  laid  not  on  each  stock  cer- 
tificate that  is  issued  but  on  each  oricinal  issue  of  certificates.  (T.  D.  3002;  Apr. 
20,  1920.     Ct.  Dec.) 

A  corporation  eneaged  in  organization  is  deemed  to  issue  etock  when  it  obtains 
subscription  for  it.'  (T.  D.  3002;  Apr.  20,  1020.     Ct.  Dec.) 

Issue  of  certificates  of  preferred  or  no  par  value  stock  in  lieu  of  outstanding  cer- 
tificates of  common  stock,  or  vice  versa,  is  not  an  original  issue  of  stock.  (T.  D. 
3002;  Apr.  20,  1920.     Ct.  Dec.) 

So-called  business  property  investment  bond,  wherein  it  is  certified  that  the 
holder  thereof  is  the  owner  of  interest  in  certain  specified  real  property,  legal  title 
to  which  was  previously  conveyed  to  a  trustee,  and  whereby  corporation  issuing 
same  agrees  to  manage  the  property  and  distribute  proceeds  in  certain  manner, 
is  not  subject  to  tax  as  a  certificate  of  stock.     (T.  D.  2795;  Feb.  26,  1919.) 

STOCK  EXCHANGES. 

Defiiition. 

The  word  "exchange"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes 
on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  each  and  every 
agent  or  agency,  auction  place,  or  other  meeting  place  at  whic^h  stocks  are  publicly 
bought,  sold,  bid  for,  offered  or  exchanged,  and  includes  all  incorporated  and  ^m- 
incorporated  associations,  individuals,  partnerships,  and  corporations,  engaged 
in  business  of  publicly  selling,  buving,  or  exchanging  shares  of  stock  or  interests 
therein.     (T-  !>•  2608;   Nov.  30,  1917.) 

Documentary  stamps. 

Instructions  as  to  use  of  regular  documentary  stamps  pending  preparation  and  dis- 
tribution of  special  supplv  of  overprinted  stamps,  provided  to  temporarily  take 
place  of  distinctive  colored  stamps;  requisition;  is.suance  and  exchange.     (T.  D. 

2.'')94;   Nov.  28,  1917.) 

Stamp  tax — .ftLtfixing  and  canceling  stamps. 

Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer 
is  effected  by  delivery  of  certificate  of  stock  assigned  in  blank;  in  case  change  of 
ownership  is  by  transfer  of  certificates  of  stock,  stamp  shall  be  affixed  to  the  certifi- 
cate; in  case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall  be 
placed  upon  the  books;  in  all  other  cases  payment  shall  be  evidenced  by  affixing 
stamp  upon  memorandum  or  agreement  of  sale  to  be  delivered  by  the  seller  to  the 
buyer;   manner  of  canceling  stamps  stated.     (T.  D.  2608;   Nov.  30,  1917.) 

Exempt  transactions. 

Xo  tax  is  imposed  upon  agreement  CAddencing  deposit  of  stock  certificates  as  col- 
lateral security,  nor  upon  deliveries  or  transfers  to  broker  for  Sdle,  nor  upon  deliveries 
or  transfers  by  broker  to  customer,  provided  euch  deliveiies  or  transfers  shall  be 


STOCK   FARMS — ^STOKEKEEPER-GAUGEBS.  681 

Stamp  tax — ^Continued. 

— —  Exempt  transactions — Continuod. 
accompanied  by  certificate  setting  forth  the  facte,  nor  upon  transfers  or  deliveries  to 
clearing  house  for  sole  purpose  of  clearing  or  adjusting  accounts  between  members; 
no  by-law  or  custom  of  any  any  exchange  or  similar  institution,  nor  any  collateral  or 
additional  agreement  or  understanding,  inconsistent  or  in  conflict  with  an}'  require- 
ment of  the  act  of  October  3,  1917,  or  of  Regidation  No.  40.  Part  1,  shall  exempt  anv 
person  from  the  pa>Tnent  of  the  tax.     (T.  I).  2608;   Nov.  30,  1917.) 

Memorandum  of  sales. 

Persons  selling  or  a!:r<H>ing  to  sell  stocks  required  to  deliver  to  buyer  a  numbered 
memorandum  of  sale,  or  agreement  to  sell,  signed  by  prbicipal  or  his  agent,  showin" 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  number  and 
price  of  shares,     (t.  D.  2608;   Nov.  30,  1917.) 

Rate  of  taxation. 

In  the  case  of  shares  or  certificates  of  stock  having  a  face  or  par  value,  amount  of 
tax  shall  be  based  upon  total  face  value  of  shares  involved,  and  shall  be  at  rate  of 
2  cents  for  each  $100  of  such  total  face  value  or  fraction  thereof,  whether  such  aggre- 
gate face  value  is  greater  or  less  than  $100.     (T.  D.  2608;   Nov.  30,  1917.) 

Records. 

Persons  engaged  in  business  of  buying,  gelling,  or  transferring  shares  of  stock, 
required  to  keep  record  showing  specified  items  oi  information;  form  of  record 
required.     (T.  D.  2608;   Nov.  30,  1917.) 

Regristration. 

Regulation  No.  40,  Part  1,  requires  a  statement  of  registration  by  persons,  cor- 
porations, etc.,  engaged  in  negotiating,  making,  or  recording  sales  of  shares  of  stock 
and  other  like  securities;  record  of  statement  of  registration  to  be  kept  by  collector 
who  must  issue  certificate  of  registration  to  be  posted  in  place  of  business.  (T.  D. 
2608;   Nov.  30,  1917.) 

Returns. 

Clearing  houses  and  persons  engaged  wholly  or  partly  in  buying,  selling,  or  trans- 
ferring shares  of  stock,  required  to  make  returns  showing  specified  data  and  informa- 
tion; substitute  returns.     (T.  D.  2608;   Nov.  30,  1917.) 

— —  Stamp  sales. 

Stamps  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treasurer,  or 
other  designated  United  States  depositary;  State  agents;  requisitions  for  stamps; 
records;   kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 


Income  tax  returns. 

See  "Farmers." 

Floor  tax. 

See  "Floor  Taxes." 

See  "Warehouses." 


STOCK  FARMS. 
STOCKS   OF   GOODS. 

STORAGE. 


Income  tax — Information  at  source. 

Bills  paid  for  storage  do  not  require  reports  of  information.  (T.  D.  2670;  Mar.  11, 
1918.) 

STOREKEEPER-GAUGERS. 

Assignment — Bonded  wineries. 

Regulations  with  reference  to  assignment  to  bonded  wineries  of  gaugers  and  of 
etorekeeper-gaugers  as  gaugers;  compensation  and  traveling  expenses;  duties; 
proprietors  required  to  furnish  Salleron-Dujardin  ebullioscopes  for  use  of  gaugers, 
and  sweet  wine  sets  may  be  used  by  revenue  agents,  deputy  collectors,  and  others, 
for  verifying  and  testing  alcoholic  content  of  wines.     (T.  D.  2380;   Oct.  10,  1916. ) 

General  storekeeper-gauger  will  be  designated,  assigned,  and  compenaited,  and 
■will  perform  service  as  provided  by  Regulations  Nos.  7  and  2,  and  T.  D.  2408,  with 
the  reservation  that  in  the  discretion  of  the  collector  of  internal  revenue,  or  of  the 


582  BUBSCBIPTIONS — SUBSIDIARY  CORPORATIONS 

Assignment — Continued. 
Distilleries. 

Commissioner,  any  distillery,  general,  or  special  bonded  warehouse  may  be  placed 
in  charge  of  an  officer  thus  designated  whenever  withdrawal  of  spirits  is  inconsider- 
able or  whenever  the  collector  or  the  Commissioner  deems  such  course  to  be  for  the 
best  interest  of  the  Government.     (T.  D.  2444;   Feb.  9,  1917.) 

Instructions  with  reference  to  assignment  to  distilleries  of  storekeeper-gangers  in 
place  of  storekeepers  and  gaugers;  bonds;  hours  of  work;  duties;  compensation. 
(T.  D.  2488;  Jan.  29,  1917.     T.  D.  2456;   Mar.  16,  1917.) 

Compensation. 

On  and  after  January  1,  1917,  compensation  of  storekeeper-gangers  designated 
as  general  storekeeper-gaugers  fixed  at  rate  of  $4  per  day,  together  with  actual  and 
necessary'  traveling  expenses,  except  that  when  aggregate  quantity  of  spirits  re- 
maining in  charge  of  general  storekeeper-ganger  is  reduced  to  5,000  or  less  gallons 
rate  of  compensation  will  be  $3  per  day  for  such  days  only  as  he  may  be  required 
to  visit  warehouses  for  withdrawal  of  spirits  or  other  necessary  purposes.  (T.  D. 
2408;  Dec.  7,  1916.) 

Rate  of  pay  of  officers  assigned  in  dual  capacity  of  storekeeper-gaugers  to  dis- 
tillery warehouses  at  distilleries  having  registered  capacity  of  more  than  20  bushels 
and  to  special  bonded  and  general  bonded  warehouses  fixed  at  $4  per  day,  this 
rate  to  be  applicable  in  case  of  distillery  warehouse  whether  distillery  is  being 
operated  or  is  under  suspension,  and  as  to  all  warehouses  irrespective  of  quantity  of 
spirits  stored  therein;  when,  however,  quantity  of  spirits  in  warehouse  is  5,000 
gallons,  or  less,  rate  of  pay  will  be  fixed  at  $4  per  day  for  such  days  only  as  officer 
is  required  to  visit  warehouse  for  necessary  purposes:  this  rate  of  pay  to  be  effective 
on  and  after  February  1,  1920.     (T.  D.  2980;  I-eb.  11,  1920.) 

SUBSCRIPTIONS. 

Admissions. 

Tax  imposed  by  section  700  of  act  of  October  3,  1917,  is  to  be  collected  upon  price 
paid  and  at  time  of  paj-ing  for  subscriptions;  no  refund  of  any  part  of  tax  ia author- 
ized because  one  or  more  performances  may  be  missed;  in  case  of  subscriptions 
covering  period  before  and  after  November  1,  1917,  tax  is  payable  on  proportion 
of  price  paid  representing  admissions  on  amd  after  November  1,  1917,  and  should 
be  collected  upon  first  exercise  of  the  subscription  right  after  October  31,  1917. 
(T.  D.  2681;  Mar.  26,  1918.) 

Income  taxes — Sale  of  right  to  subscribe  to  stock. 

Where  corporations  desiring  to  secure  additional  capital  propose  to  issue  and  sell 
further  shares  of  stock,  reserving  to  their  stockholders  the  right  to  subscribe  for,  at 
par  or  any  other  stipulated  price,  a  certain  number  of  shares  of  the  new  stock  issue, 
proportioned  to  the  number  previously  held,  and  if  such  stockholders  shall  sell 
their  rights,  it  will  be  held  that  the  proceeds  of  such  sale  are  in  their  entirety  income 
for  the  year  in  which  the  rights  are  sold,  and  should  be  so  returned  by  the  stock- 
holders, whether  they  be  individuals  or  corporations.     (T.  D.  2690;  art.  95.) 

Amounts  realized  from  sale  of  rights  to  subscribe  to  stock  is  held  to  be  income  to 
the  seller.     (T.  D.  2690;  art.  4.) 

Stamp  tax  on  corporate  stock  subscription. 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  applies  to  transfer 
of  interest  of  subscribers  for  stock,  however  such  interest  may  be  evidenced  or  con- 
ditioned upon  further  payments.     (T.  D.  2752;  Aug.  14, 1918'.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  does  not  apply  to 
transfer  of  "rights"  to  subscribe  for  stock  prior  to  exercise  of  the  right  and  actual 
subscription.     (T.  D.  2752;  Aug.  14,  1918.) 

SUBSIDIARY  CORPORATIONS. 

See  "Holding  Companies." 
Capital  stock  tax. 

Holding  companies  and  subsidiary  corporations  are  both  required  to  file  returns 
and  pay  tax,  and  no  deductions  are  allowed  on  return  of  holding  corporation  for 
tax  paid  by  subsidiary.     (T.  D.  2503;  June  25,  1917.) 

So-called  subsidiary  corporations,  all  or  part  of  stock  of  which  is  owned  by  another 
corporation,  must  render  returns  in  same  manner  as  other  corporations;  no  deduction 


SUBSIDIARY  COBPOBATIONS.  583 

Capital  stock  tax — Continued. 
is  allowed  in  return  of  a  holding  corporation  for  tax  paid  by  subsidiary.     (T.  D. 
2750.  art.  24;  Aug.  9,  1918.) 

Consolidated  returns. 

See  "Excess  Profits  Tax." 
Income  taxes — Gross  income. 

Where  holding  company  actually  takes  up  each  month  on  its  books  and  credits 
surplus  and  profit  and  loss  vn\h  its  proportionate  share  of  earnings  of  underlying 
companies,  holding  company  required  to  include  in  gross  income  amounts  thus 
taken  up,  regardless  of  fact  that  same  may  not  have  been  paid  to  or  received  by  it 
in  cash;  fact  that  underlying  companies  credit  holding  company  with  amount  of 
earnings  to  which  it  is  entitled  on  basis  of  stock  it  holds,  together  ^vith  fact  that 
holding  company  takes  up  on  its  books  amount  thus  credited,  renders  it  incumbent 
upon  holding  company  to  return  these  amounts  as  income.     (T.  D.  2690;  art.  115.) 

Where  subsidiary  or  other  corporation  sells  or  transfers  assets  to  parent  or  other 
corporation,  accepting  in  exchange  therefor  stock  or  bonds  of  purchasing  corpora- 
tion, question  of  gain  or  loss  will  be  determined  upon  basis  of  difference  between 
cost  or  market  value  of  assets  sold  and  actual  value  of  stock  or  bonds  given  in  ex- 
change therefor;  any  gain  or  loss  thus  ascertained  as  resulting  from  such  transaction 
will  be  added  to  or  deducted  from  entire  gross  income,  as  case  may  be,  of  selling 
corporation  in  year  in  which  capital  assets  were  sold.     (T.  D.  2690;  art.  119.) 

Where  corporation  is  owner  of  all  stock  in  subsidiary  company  and  the  lessee  of 
all  its  property,  regularly  maintaining  possession,  control  and  management  of  all 
the  subsidiarj^'e  money  and  other  property,  so  that  the  subsidiary  is  a  mere  agent 
of  the  other  corporation  and  is  practically  "merged  therewith,  di\idend8  of  the  sub- 
sidiary declared  out  of  a  surplus  which  accrued  prior  to  March  1,  1913,  are  not  tax- 
able income  of  the  parent  corporation.     (T.  D.  2730;  June  11,  1918.     Ct.  Dec.) 

When  one  corporation  owns  stock  of  another  in  same  or  related  line  of  business, 
and  in  effect  operates  other  corporation,  business  of  such  other  falling  within  general 
scope  of  powers  of  first,  that  business  may  be  in  effect,  although  not  in  legal  form, 
business  of  first  corporation;  income  of  iirst  corporation  may  be  put  into  second 
through  purchase  of  stock  or  otherwise,  and  might,  if  subsidiary  relationship  is 
established,  constitute  employment  of  income  in  its  own  business;  for  such  employ- 
ment to  fall  within  exceptions  provided  in  section  10  (b)  of  the  act  of  September 
8,  1016,  as  amended,  it  would  be  essential  for  coi-poration  to  show  same  facts  -with 
reference  to  actual  utilization  of  funds  so  employed,  or  their  retention  for  its  rea- 
sonable requirements  which  it  would  be  necessary  for  corporation  to  show  with 
reference  to  funds  employed  or  retained  directly  by  it.     (T.  D.  2736;  June  18, 1918.) 

Investment  by  corporation  of  income  in  securities  of  another  corporation  is  not, 
without  more,  to  be  regarded  as  employment  of  the  income  in  "the  business"; 
business  of  one  corporation  may  not  be  regarded  as  including  business  of  another 
within  meaning  of  exception  in  section  10  (b)  of  act  of  September  8,  1916, 
as  amended,  unless  other  corporation  is  mere  instrumentality  of  first;  to  establish 
this  it  is  ordinarily  essential  that  first  corporation  own  all  of  the  stock  of  the  second. 
(T.  D.  2736;  June  18,  1918.) 

Where  a  holding  company  owns  all  of  the  stock  of  its  subsidiary  corporations, 
except  the  qualifying  shares  of  the  directors,  and  the  subsidiary  corporations, 
together  a\  ith  the  holding  company,  constitutes  a  single  enterprise,  the  accumulated 
earnings  and  surplus  of  the  subsidiary  corporations  used  by  them  as  capital  prior 
to  January  1,  1913,  does  not  become  taxable  income  of  the  holding  company  when 
formally  transferred  to  it  as  dividends:  T.  D,  2542  reversed.  (T.  D.  2783;  Jan.  7, 
1919.) 

Returns. 

Where  one  corporation  operating  for  itself  is  controlled  by  another  through  the 
ownership  of  a  majority  or  all  of  its  stock,  controlling  corporation  is  merely  a  stock- 
holder, and  subsidiary  company  must  make  separate  and  distinct  return,  account- 
ing for  all  income  received  during  each  taxable  year,  and  holding  company  will 
return  as  income  any  dividends  or  earnings  received  from  operating  company. 
(T.  D.  2690;  art.  125.) 

Every  corporation  not  specifically  enimierated  as  exempt  shall  make  return  of 
annual  net  income  whether  or  not  it  may  have  for  any  past  year  any  net  income, 
or  whether  or  not  it  shall  be  a  subsidiary  of,  or  controlled  by,  another  corporation. 
(T.  D.  2690;  art.  203.) 


584  SUCCESSION    TAXES — SURETY   BONDS. 

Income  taxes — Conliiniod. 

Retvvms — Continued. 

Fact  that  branch  corporation  is  organized  in  any  State  to  meet  peculiar  condi- 
tions there  existing  and  which  make  it  impracticahle  for  parent  company  as  such 
to  do  business  in  such  State,  although  such  subsidiary  may  be  to  all  intents  and 
purposes  a  mere  branch  of  the  parent  company,  does  not  relieve  it  from  necessity 
of  making  return  for  each  year;  if  such  branch  corporation  actually  transacts  busi- 
ness from  which  income  arises,  accrues,  and  is  received  by  it,  such  corporation 
must  make  detailed  return,  as  if  it  were  in  no  way  related  to  any  other  corporation, 
setting  forth  full  amoimt  of  income  which  it  receives  or  which  accrues  to  it,  together 
with  authorized  deductions  therefrom,  and  upon  any  net  income  thus  disclosed, 
tax  will  be  assessed  and  required  to  be  paid.     (T.  D.  2690;  art.  207.) 

Where  net  income  of  subsidiary  corporation  upon  which  tax  has  been  leAded  and 
payable  is  turned  over  to  parent  company,  holder  of  its  stock,  amount  so  turned 
over  will  be  held  to  be  dividends,  or  amounts  paid  to  it  out  of  net  earnings  and  must 
be  returned  by  parent  company  for  pirrpose  of  2  per  cent  tax  imposed  by  the  act 
of  September  8,  1916,  but  for  purpose  of  war  income  tax  imposed  by  Title  II  of  act 
of  October  3,  1917,  net  income  of  parent  company  may  be  reduced  by  amount  of 
di\idends  so  received.     (T.  D.  2690;  art.  207.) 

Subsidiary  corporations  which  actually  transact  business  iii  their  own  names, 
receive  income  for  their  own  account,  incur  and  pay  expenses  incident  to  produc- 
tion of  income,  keep  separate  books  of  account,  and,  as  separate  entities,  exercise 
all  the  powers  and  functions  authorized  by  their  charters,  will  be  required  to  pay 
income  tax  on  net  income  received  by  them  from  all  sources,  regardless  of  fact  that 
such  net  income  is  paid  or  turned  over  to  a  parent  or  holding  company,  by  whom 
it  must  also  be  returned  for  purpose  of  tax  imposed  by  section  10  of  the  act  of  Sep- 
tember 8,  1916;  in  latter  case  both  parent  and  subsidiary  companies  must  make 
separate  returns.     (T.  D.  2690;  art.  208.) 

Subsidiary  corporations  existing  in  name  only  or  as  mere  agents  or  integral  parts 
of  parent  company  will  be  required  to  make  returns  of  annual  net  income,  and  shall 
indorse  thereon  statement  that  it  is  a  subsidiaiy  or  integral  part  of  the  parent  com- 
pany (naming  it)  and  that  for  its  own  account  it  has  no  income  from  any  source 
whatever,  that  it  makes  no  disbursements,  and  that  all  business  done  in  its  name 
is  done  for  account  of  and  as  business  of  parent  corporation,  and  will  be  accounted 
for  in  return  of  such  parent  corporation.     (T.  D.  2690;  art.  208.) 

Where  subsidiary  corporations  exist  in  name  only,  or  are  mere  agents  or  integral 
parts  of  parent  organization  and  as  such  transact  no  business  and  have  no  income 
of  and  for  their  own  account,  and  incur  no  expenses,  all  business  being  transacted, 
all  income  being  received,  and  all  expenses  being  paid  directly  by  parent  company, 
no  separate  accounts  being  kept  by  or  for  such  subsidiaries,  it  will  be  considered 
that  such  subsidiary  concerns  do  not  have  any  taxable  income  within  meaning  of 
Title  I  of  the  act  of  September  8,  1916,  as  amended  by  the  act  of  October  3,  1917, 
and  so  long  as  they  are  so  operated  no  tax  liabilitv  will  be  asserted  against  them. 
(T.  D.  2690;  art.  208.) 

SUCCESSION  TAXES. 

See  "Inheritance  Taxes." 

SUNDAY. 
Distilleries,  operation  of. 

Distillers  producing  alcohol  exclusively  for  nonbeverage  purposes  may  operate 
on  Sundays  the  same  as  on- week  days,  and  collectors  may  require  storekeeper-gang- 
ers and  storekeeper-gangers  in  capacity  of  gangers  to  remain  on  duty;  notation  to  be 
made  on  vouchers  for  monthly  compensation  to  effect  that  distilleries  were  in  opera- 
tion under  provisions  of  section  302,  act  of  October  3,  1917.  (T.  D.  2636;  Jan.  24, 
1918.) 

Income  tax  returns. 

When  last  due  date  for  filing  return  falls  on  Sunday  or  a  legal  holiday  the  lats  due 
date  will  be  held  to  be  day  following  such  Sunday  or  legal  holiday,  and  return  should 
be  made  not  later  than  such  following  day,  or,  if  placed  in  the  mails,  itshould  be 
posted  in  ample  time  to  reach  collector's  office,  under  ordinary  handling  of  the 
mails,  on  or  before  date  on  which  return  is  required  to  be  filed.  (T.  D.  2690; 
art.  219.) 

SURETY   BONDS. 
See  "Bonds." 


SWIMMING  POOI.S TELEGRAPHS   AND  TELEPHONES.  585 

SWIMMING   POOLS. 


Admissions. 

See  "Admissions." 


SWITCHING  COMPANIES. 


Transportation  charges. 

If  a  terminal  or  yard  for  the  uBe  of  one  or  more  railroads,  jointly  or  severally,  be 
operated  under  the  management  of  a  terminal  or  switching  company,  and  the  user 
cost  therefor  be  based  on  either  gross  or  net  costs  of  operation,  commodities  neces- 
sary in  the  operation  of  such  terminal  or  yard  shall,  as  respects  sections  500  and  501 
of  the  act  of  October  3,  1917,  be  considered  as  commodities  necessary  for  the  use  of 
such  carriers  thereof,  and  tax  does  not  apply  to  charges  for  such  commodities,  if 
transported  over  Uues  of  such  carriers;  if,  however,  a  terminal  or  yard  be  operated 
under  its  own  management  for  profit  or  if  a  fixed  rental  be  charged,  tax  applies  to 
transportation  charge  made  by  tenants  or  users  on  such  commodities.  (T.  D.  2676; 
Mar.  18,  1918.) 

TABLE  WATERS. 
Excise  taxes. 

Artificial  mineral  waters,  not  carbonated,  sold  by  manufacturer,  producer,  or 
importer,  in  bottles  or  other  closed  containers,  carbonated  waters  manufactured 
and  sold  by  the  manufacturer,  producer,  or  importer  of  the  carbonic  acid  gas  used 
in  carbonating  the  same,  and  natural  mineral  waters  and  table  waters  sold  by  the 
producer,  bottler,  or  importer,  in  bottles  or  other  closed  containers  at  over  10  cents 
per  gallon,  all  of  which  are  taxed  under  section  313  of  the  act  of  October  3,  1917, 
are  not  subject  to  tax  under  section  600  (h)  if  intended  for  use  solely  as  beverages. 
(T.  D.  2719;  Art.  XXIII.) 

TARIFF  DUTIES. 
Income  taxes — Deductions. 

Import  or  tariff  duties  levied  by  Congress  and  paid  to  proper  customs  officers 
are  deductible  as  taxes  imposed  under  authority  of  United  States,  provided  they 
are  not  added  to  and  made  a  part  of  the  cost  of  articles  of  merchanduse,  with  respect 
to  which  they  are  paid,  in  which  case  they  will  be  reflected  in  cost  of  merchandise 
and  can  not  be  separately  deducted.     (T.  D.  2690;  art.  195.) 

TAXABLE  YEAR. 

Definition. 

The  term  "taxable  year,"  as  used  in  war  excese-profits  tax  r^^lations,  means 
the  12  months  ending  December  31  of  each  year,  except  in  case  of  corporation  or 
partnership  which  has  fixed  its  own  fiscal  year,  in  which  case  it  means  such  fiscal 
year,  and,  unless  otherwise  indicated  by  the  context,  term  will  be  deemed  to  be 
used  only  with  this  scope  or  meaning;  first  taxable  year  is  year  ending  December 
31,  1917,  except  that  in  case  of  corporation  or  partnership  which  has  fixed  its  own 
fiscal  year,  first  taxable  year  is  fiscal  year  ending  during  calendar  year  1917.  (T.  D. 
2694;  arts.  1,5.) 

TELEGRAPHS  AND  TELEPHONES. 

Capital  stock   tax — Exemption   of   mutual   or   cooperative    companies. 

Farmers'  or  other  mutual  or  ooperative  telephone  company  of  purely  local 
character,  income  of  which  consists  solely  of  assessment,  dues,  and  fees  collected 
from  members  for.  purpose  of  meeting  expenses,  is  exempt  from  tax  imposed  by 
section  407  of  act  of  September  8, 1916.  (T.  D.  2383;  Oct.  19,  1916.  T.  D.  2750,  art. 
12;  Aug.  9,  1918.) 

Foreign  Governments — Transmission  charges. 

Amounts  paid  hy  foreign  (uneininents  for  tranpniis.sion  serA'ices  are  subject  to 
the  taxes  imposed  by  section  500  of  the  act  of  October  3,  1917.  (,T.  D.  2785;  Jan. 
23,  1919.) 


586  TEMPEBANCE   BEER—TEKMIITAL  COMPANIES. 

Income  taxes — Exemption  of  mutual  or  cooperative  companies. 

Mutual  or  cooperative  telephone  company  is  specifically  exempt  from  income 
tax,  provided  that  ita  entire  income  consists  solely  of  assessments,  dues,  and  fees 
collected  from  members  for  sole  purpose  of  meeting  expenses  incurred  in  pursuance 
of  purpose  for  which  organized;  ii  any  such  organization  has  income  from  any  source 
other  than  assessments,  dues,  and  fees  such  income  is  taxable  and  organizationa 
receiving  same  will  be  required  to  make  retiuna.     (T.  D.  2690;  art.  69.) 

Information  at  source. 

Bills  paid  for  telegrams  or  telephone  do  not  require  reports  of  information.     (T.  D. 

2670;  Mar.  11,  1918.) 

Official  biisiness — War  tax. 

Messages  of  officers  and  employees  of  United  States,  or  of  a  State,  Territory,  or  the 
District  of  Columbia,  on  official  business,  are  exempt  from  tax  imposed  by  section 
500  of  act  of  October  3,  1917,  and  should  not  be  reported  in  monthly  return  of  tele- 
phone, telegraph,  or  radio  companies.     (T.  D.  2551;  Oct.  22,  1917.) 

Under  section  502  of  act  of  October  3,  1917,  telegraph  and  telephone  messages 
relating  to  Government  business,  which  originate  in  United  States  and  which  are 
a  charge  against  the  Treasury  of  the  United  States,  the  District  of  Columbia,  a 
State,  Territory,  or  any  political  subdivision  of  a  State  or  Territory,  and  are  paid 
from  funds  thereof,  are  exempt  from  tax  imposed  by  section  500  (e)  of  such  act; 
messages  not  paid  from  such  funds  are  not  exempt  from  tax  even  though  they  relate 
to  Government  business.     (T.  D.  2619;  Dec.  19,  1917.) 

Exemption  from  tax  imposed  by  section  500,  subdivision  (e),  act  October  3,  1917, 
on  telephone,  telegraph,  and  radio  messages,  may  be  claimed  when  amounts  paid 
for  such  messages  are  finally  to  be  paid  by  the  Government  under  cost-plus  contract; 
this  does  not  apply  where  contractor  is  doing  work  for  Government  under  lump-sum 
contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

Transportation  charges. 

Where  a  telegraph  or  telephone  line  or  lines  along  a  railroad  is  necessary  for  the 
use  of  the  railroad  company  in  the  conduct  of  its  business  as  such  and  the  railroad 
company  under  contract  transports  commodities  necessary  to  maintain  or  operate 
such  telephone  or  telegraph  lines,  such  commodities  being  intended  to  be  or  having 
been  so  used,  and  the  railroad  company  makes  no  charge  for  such  transportatifm, 
charges  which  but  for  such  arrangement  would  have  accrued,  are  exempt  from  tax. 
(T.  D.  2676;  Mar.  18,  1918.) 

TEMPERANCE  BEER. 

See  "Fermented  Liquors." 

TENNIS. 
Admissions — Tennis  courts. 

^ATiere  an  admission  charge  in  form  is  made,  but  in  fact  is  merely  payment  for 
l^rivilege  of  using  certain  equipment,  such  as  tennis  courts,  admission  is  incidental 
to  privilege  of  using  such  equipment,  and  tax  imposed  by  section  700  of  act  of 
October  3,  1917,  does  not  apply.     (T.  D.  2681;  Mar.  26,  1918.) 

Dues — Tennis  clubs. 

Tennis  clubs  are  included  within  the  term  "athletic  and  sporting"  clubs,  as  used 
in  section  701  of  the  act  of  October  3,  1917,  imposing  a  tax  on  amounts  paid  as  dues 
or  membership  fees  to  any  athletic  or  sporting  club.     (T.  D.  2681;  Mar.  26,  1918.) 

Excise  taxes — Rackets  and  balls. 

The  tax  imposed  by  section  600  (f)  of  the  act  of  October  3,  1917,  is  3  per  cent  of 
the  price  for  which  tennis  rackets  and  balls  are  sold  by  the  manufacturer.  (T.  D. 
2719;  Art.  XVII.) 

TERMINAL  COMPANIES. 

Excise  taxes. 

\\Tiere  profit  was  one  of  the  substantial,  objects  of  the  organization  of  a  corpora- 
tion, incorporated  to  provide  and  operate  a  terminal  for  certain  railroads,  it  is  organ- 
ized ii>r  profit  within  the  meaning  of  the  act  of  August  5, 1909.  (T.  D.  2671;  Mar.  11, 
1918.     Ct.  Dec.)  s         .  V 


TERRTTOETES.  587 

Excise  taxes — Continued. 

Where  terminal  railway  company,  organized  to  perform  terminal  services  for 
railroad  companies  which  own  its  stock,  and  such  railroad  companies  and  a  trust 
company  enter  into  arrangement  whereby  trust  company  made  a  loan  to  such 
terminal  company,  secured  by  pledge  by  railroad  companies  of  the  stock,  latter 
companies  agreeing  to  pay  annual  interest  and  sinking  fund  requirement  of  loan, 
evidenced  by  bonds  secured  by  mortgage  on  terminal  company's  property,  pay- 
ments of  installments  of  interest  and  sinking  fund  were  but  payments  of  rent  by 
railroad  companies  to  terminal  company  to  be  accounted  for  as  part  of  its  income, 
as  rent  would  be  though  mail  e  direct  to  trust  company.  (T.  D.  2710;  Apr.  22,  1918. 
Ct.  Dec.) 

Transportation  charges. 

If  a  terminal  or  yard  for  the  use  of  one  or  more  railroads,  jointly  or  severally,  bo 
operated  under  the  management  of  a  terminal  or  switching  company,  and  the  user 
cost  therefor  be  based  on  either  gross  or  net  costs  of  operation,  commodities  neces- 
sary in  the  operation  of  such  terminal  or  yard  shall  as  respects  sections  500  and  501 
of  the  act  of  October  3,  1917,  be  considered  as  commodities  necessary  for  the  use  of 
such  carriers  thereof,  and  tax  does  not  apply  to  charges  for  such  commodities  if 
transported  over  lines  of  such  carriers;  if,  however,  a  terminal  or  yard  be  operated 
under  its  own  management  for  profit  or  if  a  fixed  rental  be  charged,  tax  applies  to 
transportation  charge  made  by  tenants ior  users  on  such  commodities.  (T.  D.  2676; 
Mar.  18,  1918.) 

Whenever  a  taxable  charge  in  connection  with  a  terminal  service  is  paid  by  one 
carrier,  acting  for  consignor  or  consignee,  to  another  carrier,  tax  applicable  shall  bo 
paid  by  former  carrier  to  latter  carrier,  who  shall  return  and  remit  same.  (T.  D, 
2676;  Mar.  18,  1918.) 

TERRITORIES. 

Alcoholic  liquors — Act  published. 

Extracts  from  act  of  Feljruaury  14,  1917,  prohibiting  manufacture  and  sale  of 
alcoholic  liquors  in  Alaska,  published  for  information  of  internal-revenue  officers 
and  others  concerned.     (T.  D.  2466;  Mar.  27,  1917.) 

Carriers,  exemption  from  tax  on  facilities  furnished  by. 

See  "Transportation  Tax." 

Definition. 

The  word  '  'territory,"  as  used  in  section  502  of  the  act  of  October  3,  1917,  includea 
political  subdivisions  thereof,  such  as  counties,  cities,  towns  and  other  municipali- 
ties.    (T.  D.  2676;  Mar.  18,  1918.) 

Excise  taxes — ^Exports. 

Taxes  imposed  by  sections  313, 315,  and  600  of  act  of  October  3, 1917,  apply  to  arti- 
cles sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory  or  elsewhere 
in  the  United  States  than  in  a  State,  and  to  articles  sold  in  commerce  between  United 
States  and  anv  of  its  island  or  other  possessions  except  the  West  Indian  Islands 
acquired  from  Denmark.     (T.  D.  2739;  June  24,  1918.) 

Taxes  imposed  by  such  sections  313,  315,  and  600  of  the  act  of  October  3,  1917, 
apply  to  articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory 
elsewhere  in  the  Ignited  States  than  a  State  and  to  articles  going  from  United  .'^tates 
to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone,  except  that  under 
acts  of  Congi-ess  articles  going  from  United  States  into  the  West  Indian  Islands,  or 
into  the  Philippine  Islands  or  Porto  Rico,  are  exempt  to  same  extent  as  articles 
exported  from  a  State  to  a  foreign  country.     (T.  D.  2781;  Dec.  20,  1918.) 

Public  utilities — Income  taxes. 

^^^lere  public  utility  constructed,  operated,  or  maintained  by  corporation  under 
contract  with  any  city,  St^te,  Territory,  or  the  District  of  Columbia,  agrees  that 
portion  of  net  earnings  shall  be  paid  to  such  city.  State.  Territory,  or  the  District  of 
Columbia,  amount  so  paid  may  be  deducted  by  the  public  utility  company  as 
necessary  expense  of  transacting  business.     (T.  D.  2690;  art.  142.) 

Telegraph,  etc.,  messages,  exemption  from  tax. 
See  "Telegraphs  and  Telephones." 


TrMBER. 


5g3  THEATERS  AND  SHOWS TIMBER. 

THEATERS  AND  SHOWS. 
Admissions. 

See  "Admissiona." 
Income  taxes — Depreciation  of  costumes. 

Costumes  purchased  and  used  exclusively  in  production  of  a  play  and  which  ar(> 
not  adapted  for  occasional  personal  use  and  are  not  so  used,  are  part  of  the  equipment 
of  a  business,  and,  as  such,  subject  to  depreciation  in  value  on  account  of  wear  and 
tear  arising  from  their  use  in  the  business;  reasonable  allowance  for  such  deprecia- 
tion may  be  claimed.     (T.  D.  2690;  art.  8.) 

Occupational  taxes. 

See  "Occupational  Taxes." 

TICKETS. 

Admission. 

See  "Admissions." 
Transportation  of  persons. 
See  "Transportation  Tax." 

Excise  taxes — Income. 

The  gain  on  a  sale  of  timber  acquired  by  a  lumber  manufacturing  company  before 
January  1,  1909,  and  converted  into  money  after  that  date,  is  income  within  the 
meaning  of  the  corporation  excise  tax  act  of  1909,  but  only  such  portion  of  the  jjain 
as  accrued  subsequent  to  December  31,  1908,  is  taxable.  (T.  D.  2723;  June  4.  1918. 
Ct.  Dec.) 

Income  taxes — Deduction  for  depletion. 

In  case  of  timber  lands,  fair  market  price  or  value  of  timber  standing  March  1, 
1913,  or  cost  of  timber  when  purchase  was  made  subsequent  to  that  date,  will  be 
basis  for  calculation  of  depletion,  and  this  value  as  of  March  1,  1913,  or  cost  when 
subsequently  purchased,  is  not  to  be  exceeded  for  purposes  of  deduction  in  returns 
of  income;  whole  of  such  value  is  to  be  distributed  over  entire  amount  of  standing 
timber  on  those  respective  dates;  rules  governing  timber-owning  companies.  (T. 
D.  2690;  arts.  8,  173.) 

i  'orporations  owning  timber  land  and  logging  off  the  timber  and  manufacturing  it 
into  lumber,  will,  if  timber  was  acquired  prior  to  March  1,  1913,  be  permitted  to 
exclude  from  gross  income  either  through  deduction  from  gross  receipts  or  through 
charge  into  cost  of  manufacturing  timber  into  lumber,  an  amount  equivalent  to  fair 
market  price  or  value  of  standing  timber  as  of  March  1,  1913;  corporations  must  set 
up  on  their  books  as  of  March  1, 1913,  the  fair  market  price  en  bloc,  of  all  timber  then 
owned  by  them,  and  then,  by  di^■iding  such  value  by  estimated  number  of  feet  in 
entire  holdings,  per  unit  value  or  price  will  be  ascertained,  which  per  unit  price  or 
value  will  be  basis  for  measuring  amount  to  be  added  to  cost  of  manufacture,  or 
deducted  from  gross  income,  until  en  bloc  value  of  entire  holdings  shall  have  been 
extinguished;  same  rule  applies  to  timber  or  timber  lands  purchased  subsequent  to 
March  1,  1913,  only  difference  being  that  actual  cost  shall  be  substituted  for  en 
bloc  price  or  value.     (T.  D.  2690;  art.  173.) 

AMiere  entire  market  price  or  value  for  both  timber  and  lands  as  of  March  1,  1913, 
or  entire  cost,  if  acquired  subsequent  to  that  date,  is  extinguished  through  deduction 
from  gross  income  for  timber  used,  or  through  per  unit  charge  to  cost  of  manufac- 
turing lumber,  entire  amount  realized  from  logged-off  lands  or  other  salvage  will  be 
returned  as  income  of  year  in  Avhich  such  lands  are  sold  or  disposed  of;  if  timber  or 
timber  lands  are  sold  en  bloc,  gain  or  loss  will  be  ascertained  on  basis  of  difference 
between  fair  market  price,  or  cost,  and  selling  price,  accordingly  as  property  was 
acquired  prior  or  subsequent  to  March  1,  1913.     (T.  D.  2690;  art.  173.) 

Fair  market  price  or  value  of  timber  lands  as  of  March  1,  1913,  is  price  at  which 
property  in  its  then  condition,  and  with  circumstances  then  surrounding  it,  could 
ha^  e  been  sold  for  cash  or  its  equivalent;  such  value  must  not  be  speculative,  but 
must  be  deternuned  without  taking  into  account  any  prospective  profits  that  may 
result  by  manufacturing  the  timber  into  lumber;  value,  once  determined,  must  be 
set  up  on  books,  and,  as  measure  of  stumpage  deduction,  must  remain  constant  and 
can  not  be  increased  except  as  new  purchases  are  made  at  hi^er  average  cost; 
value  so  set  up  will  be  subject  to  approval  of  Commissioner.     (T.  D.  2690;  art.  173.) 


TIME — TITLB,  689 

TIME. 

Pee  "Timitation  of  Actions." 
Particular  acts  or  proceedings. 

See  specific  heads. 

TITLE. 

See  "Sales." 

Certificates  of  ownership. 

Where  debtor  corporation  or  its  duly  authorized  withholding  agent  haa  made  no 
payments  of  interest  to  nonresident  alien  individuals  or  foreign  corporations,  having 
no  oflBce  or  place  of  business  in  the  United  States,  or  has  withheld  no  tax  from  citizens 
or  residents  of  United  States,  whether  or  not  bonds  upon  which  such  interest  ac- 
crued contain  tax-free  covenant  clause,  exemption  certificates  filed  in  connection 
with  such  interest  payments  shall  be  transmitted  direct  to  Commissioner  of  Internal 
Kevenue  (Sorting  Division),  Washington,  D.  C,  accompanied  by  return  on  Form 
1096,  which  form  shall  be  filed  monthly,  and  need  not  be  sworn  to;  if  a  corporation 
or  withholding  agent  has  withheld  tax  and  is  therefore  required  to  render  return  on 
Form  1012,  revised,  all  certificates  received  shall  be  accounted  for  on  such  monthly 
return,  as  directed  by  instructions  thereon.     (T.  D.  2687;  Apr.  1,  1918.) 

Original  ownership  certificates  accompanied  by  monthly  list  returns,  in  case  of  in- 
terest on  bonds  of  domestic  or  resident  corporations,  when  filed  with  Commissioner 
of  Internal  Revenue,  shall  constitute  and  be  treated  as  returns  of  information.  (T. 
D.  2690;  art.  35.) 

Form  1000,  revised,  shall  be  used  when  no  personal  exemption  is  claimed  against 
interest  o,n  bonds  containing  tax-free  covenant  by  citizens  or  rssidents  of  the  United 
States;  by  nonresident  alien  indi\'iduals,  foreign  corporations  having  no  office  or 
place  of  business  in  the  United  States,  whether  or  not  such  bonds  contain  a  tax-free 
covenant;  and  in  case  where  coupons  are  received  not  accompanied  by  certificates 
of  ownership.  First  bank  recei\ing  coupons  not  accompanied  by  ownership  cer- 
tificates will  make  certificate,  crossing  out  "owner"  and  inserting  "payee  "  and  will 
enter  amount  of  interest  on  line  4.     (T.  D.  2690;  art.  43.) 

Banks  and  collecting  agents,  debtor  corporations,  and  withholding  agents,  au- 
thorized to  accept,  until  June  1,  1918,  certificates  of  ownership  on  old  forms  when 
properly  executed.     (T.  D.  2702;   Apr.  18,  1918.) 

Foreign  items  shall  not  be  accepted  for  collection  by^  any  bank  or  collecting  agent 
unless  indorsed  as  prescribed  or  accompanied  by  proper  ownership  certificates, 
gi\dng  all  information  called  for  by  such  certificate;  where  first  licensed  bank  or 
collecting  agent  is  source  of  information,  licensee  shall  attach  ownership  certificate 
and  indorse  on  item  the  words  "Certificate  attached  and  information  furnished," 
adding  his  name  and  address;  when  foreign  items  have  been  properly  indorsed, 
certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Internal  Revenue 
(Sorting  Division V  Washington,  D.  C,  on  or  before  20th  day  of  month  following 
that  during  which  items  were  accepted,  accompanied  by  letter  of  transmittal,  show- 
ing numbei-  of  certificates  and  aggregate  amount  of  foreign  items  disclosed  thereon. 
(T.  D    2759;  Oct.  2,  1918.) 

Where  interest  coupon  is  received  for  collection,  ownership  certificate  shall  accom- 
pan>-  coupon  to  paying  agent  in  tliis  country,  or  if  there  is  no  such  agent,  then  to 
last  I  unk  or  collecting  agent  handling  item  in  this  country;  when  more  than  one 
coupon  of  same  maturity  is  received  at  one  time  from  same  owner  and  from  same 
issue  of  bonds,  single  certificate  may  be  used;  when  foreign  items  have  been  prop- 
erly indorsed;  certificates  shall  be  attached  and  forwarded  to  Commissioner  of  Inter- 
nal Revenue  (Sorting  Division),  Washington,  D.  C,  on  or  before  20th  day  of  month 
following  that  during  which  items  were  accepted,  accompanied  by  letter  of  trans- 
mittal, showing  number  of  certificates  and  aggi'egate  amount  of  foreign  items  dis- 
closed thereon.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  paying  agent  or  last  bank  or  collecting  agent  in  this  country  is  source  of 
information,  ownership  certificate  shall  accompany-  coupon  to  such  agent  or  source 
of  information,  who  shall  forward  owTiership  certificate  to  Commissioner  of  Internal 
Revenue,  in  manner  provided  where  dut^  is  placed  upon  licensee,  provided  that 
in  case  ownership  certificate,  P'orm  1000,  is  used,  paying  agent  shall  make  return 
on  Form  1012.     (T.  D.  2759;  Oct.  2,  1918.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  nonresident  alien  individuals,  or  foreign  corporations,  associations,  or  part- 


590  TOBACCO. 

Certificates  of  ownership — Continued, 
nerships,  ownership  certificate,  Form  1071,  revised,  shall  be  sued  for  and  on  behalf 
of  such  owners  by  any  responsible  bank  or  banker,  either  foreign  or  domestic. 
(T.  D.  2759;  Oct.  2,  1918.) 

Where  bonds  of  foreign  countries,  or  bonds  or  stocks  of  foreign  corporations,  are 
owned  by  citizens  or  residents  of  United  States,  individual  or  fiduciary,  or  by  domes- 
tic or  resident  corporations,  joint-stock  companies,  associations,  insurance  compa- 
nies, or  partnerships,  ownership  certificate  lOOlA  shall  be  executed  by  actual  owner, 
or  by  his  duly  authorized  agent,  when  presenting  item  for  collection,  whether  item 
is  dividend  or  interest  payment,  except  in  case  of  foreign  country  or  foreign  corpo- 
ration having  paying  agent  in  this  country  and  issuing  bonds  containing  "tax  free  " 
covenant  clause ;  in  such  cases  paying  agent  will  withhold  normal  tax  upon  interest 
on  such  bonds,  and  ownership  certificates,  Form  1000,  properly  modified  to  show 
that  debtor  has  paying  agent  in  this  country,  should  be  used,  unless  owner  desires 
to  claim  exemption,  when  Form  1001 A  should  be  used.     (T.  D.  2759;  Oct.  2,  1918.) 

Holding  companies. 

See  "Holding  Companies." 
Floor  tax. 

Goods  shipped  and  invoiced  prior  to  October  4, 1917,  are  property  of  consignee  and 
if  shipped  to  wholesaler  are  subject  to  floor  tax;  if,  however,  title  is  reserved  in 
manufacturer  he  is  subject  to  manufacturer's  tax  and  wholesaler  is  relieved  from 
floor  tax.     (T.  D.  2547;   Oct.  22,  1917.) 

Time  when  title  passes  depends  upon  intention  of  parties;  in  absence  of  intention 
to  contrary,  title  is  assumed  to  pass  from  seller  to  buver  upon  delivery  of  goods  to 
carrier.     (T.  D.  2547;   Oct.  22,  1917.) 

Income  taxes — Deduction  of  expense  of  defending  title. 

Cost  of  defending  title  or  perfecting  title  to  property  constitutes  part  of  cost  of 
property  and  is  not  deductible  as  a  business  expense.     (T.  D.  2690;  art.  8.) 

Insurance. 


See  "Insurance." 


TOBACCO. 


See  "Cigars";  "Cigarettes";  "Snuff." 
Floor  tax. 

Tax -paid  manufactured  tobacco  in  excess  of  specified  quantity  held  for  sale  on 
October  4,  1917,  as  well  as  contents  of  broken  packages  and  goods  in  transit  on  such 
date,  required  to  be  inventoried  and  returned  for  assessment  of  tax  provided  for  by 
section  403  of  the  act  of  October  3,  1917;  dealers  and  others  required  to  pay  tax  must 
make  return  on  Form  416C,  in  duplicate,  under  oath,  on  or  before  November  2,  1917; 
payment  of  tax  required  at  time  of  fiUng  return,  but  may,  upon  filing  of  bond,  be 
extended  to  date  not  exceeding  seven  months  from  passage  of  act  of  October  3,  1917; 
principal  office  or  place  of  business  to  make  retiu'n  where  two  or  more  stores  are 
operated  by  same  dealer.     (T.  D.  2556;  Oct.  16,  1917.) 

Stocks  of  cigars,  tobacco,  and  cigarettes  held  for  sale  at  close  of  business,  October 
8, 1917,  at  post  exchanges  at  Axmj  camps  are  not  subject  to  floor-stock  taxes  imposed 
by  section  403  of  act  of  October  3,  1917.     (T.  D.  2584;   Nov.  20,  1917.) 

Manufacturers — Books  and  returns. 

Instructions  with  reference  to  entries  to  be  made  in  books  and  monthly  returns  on 
November  2,  1917,  when  full  increased  taxes  became  effective.  (T.  D.  2569;  Oct 
17,  1917.) 

— —  Inventories. 

Instructions  with  reference  to  making  inventory  required  by  sections  3358,  3390, 
Ile\ised  Statutes;  no  claim  of  failure  to  make  true  inventory — in  which  certain 
tobacco  was  not  included — submitted  in  response  to  notice  to  show  cause  against 
assessment  for  omitted  tax  on  apparent  deficiencies  shown  in  examination  of  manu- 
facturer's account,  will  be  entertained;  verification  of  iuventories  by  deputy  col- 
lectors.    (T.  D.  2390;  Nov.  4,  1916.) 


TOBACCO.  591 

Manufacturers — Continued. 

Inventories — Continued. 

Instructions  with  reference  to  inventoriea  required  to  be  filed  January  1, 1918,  and 
verification  thereof  by  collectors  of  internal  revenue  or  their  deputies;  further  duties 
of  deputy  collectors  stated.     (T.  D.  2583;  Nov.  17,  1917.) 

Manufactiu-ers  of  tobacco  required  to  make  inventoriea  in  accordance  with  sec- 
tions 3358,  3390,  Revised  Statutes,  such  inventory  to  be  made  before  commence- 
ment of  business  on  January  1,  1919;  tobacco  of  each  class,  and  stamped,  as  well  as 
unstamped,  manufactured  plug,  twist,  fine-cut,  and  pmoHng  tobacco  should  be 
weighed  separately;  inventory  must  include  unstemmed  tobacco  stored  off  bonded 
factory  premises  and  also  the  attached  and  unattached  stamps;  tobacco  material  in 
factory  required  to  be  segregated  according  to  classification;  tobacco  dust,  sweep- 
ings, etc.,  must  be  inventoried  as  "waste";  weight  and  marks  of  each  unopened 
package,  etc.,  required  to  be  listed  on  back  of  inventory  form;  record  of  quantity 
of  tobacco  used  fi'om  date  of  inventory  to  date  of  deputy  collector's  visit  reqvdred 
to  be  kept;  inventory  must  be  verified  early  as  practicable  after  January  1,  1919; 
duties  of  deputy  collectors  enumerated.     (T.  D.  2777;  Dec.  11,  1918.) 

Inventories  prepared  in  accordance  with  sections  3358  and  3390,  Re\dsed  Statutes, 
required  to  be  filed  before  commencement  of  business  on  January  1,  1920;  weighing; 
inventory  of  attached  and  unattached  stamps  required;  segregation  of  tobacco 
material  in  factory;  tobacco  dust,  sweepings,  etc.,  to  be  inventoried  as  "waste"; 
listing  of  weight  and  marks  of  unopened  packages,  etc.;  verification;  duties  of 
deputy  collectors.     (T.  D.  2955;  Nov.  29,  1919.) 

A  corporation  carrying  on  business  as  a  manufacturer  of  tobacco,  snuff,  cigars,  or 
cigarettes,  or  as  a  dealer  in  leaf  tobacco,  will  bo  required  to  have  the  monthly 
reports  and  inventories  signed  and  sworn  to  by  a  duly  authorised  officer  or  agent 
of  the  corporation  and  to  file  the  monthly  reports  within  the  prescribed  time  with 
the  collector  of  the  district  in  which  the  factory  or  dealer's  place  of  business  is 
located.     (T.  D.  3073;  t^ept.  27,  1920.) 

An  officer's  authority  to  sign  and  make  oath  to  a  corporation's  monthly  reports 
and  inventories,  unless  specifically  given  in  the  charter  or  by-laws,  must  be  con- 
ferred by  a  resolution  in  due  course  of  the  board  of  directors.  In  case  of  such  resolu- 
tion, a  certificate  thereof  in  duplicate,  executed  by  the  president  and  attested  by  the 
secretary,  should  be  filed  with  the  collector  of  the  district  in  which  the  monthly 
reports  and  inventories  are  to  be  filed;  one  copy  should  be  retained  by  the  collector 
and  one  forwarded  by  him  to  the  Commissioner.     (T.  D.  3073;  Sept.  27,  1920.) 

Whenever  it  is  not  possible  or  convenient  for  an  officer  of  a  corporation  to  sign 
and  swear  to  its  monthly  reports  and  inventories  as  a  manufacturer  of  tolmcco, 
snuff,  cigars,  or  cigarettes"  or  as  a  dealer  in  leaf  tobacco,  an  agent  may  be  authori/.ed 
to  execute  them  and  may  bind  the  corporation  as  fully  at^  an  officer,  under  the 
following  conditions: 

A  resolution  in  due  course  of  the  board  of  directors  should  appoint  and  authorize 
the  superintendent  or  manager  of  the  factory  or  leaf  establishment,  identifying 
both  the  individual  and  the  factory  or  leaf  establishment,  to  execute  the  monthly 
reports  and  inventories  reciuireil  of  the  corporation,  and  provide  further  that  the 
power  of  attorney  so  created  shall  continue  in  full  force  until  written  notice  of  the 
revocation  thereof  is  given  to  the  collector  of  the  district  thereby  affected.  A  cer- 
tificate in  duplicate  of  such  resolution,  executed  by  the  president  and  attested  by 
the  secretary,  should  then  be  filed  with  the  collector  of  the  district  in  which  the 
monthly  reports  and  inventories  are  to  be  filed;  one  copy  should  be  retained  by  the 
collector  and  one  forwarded  by  him  to  the  Commissioner.  Such  certificate  ^\ill 
constitute  authority  for  the  collector,  until  he  has  actual  notice  of  the  recall  of  the 
power,  to  accept  monthly  reports  and  inventories  executed  by  such  agent.  (T.  D. 
3073;  Sept.  27,  1920.) 

Actual  and  accurate  inventories  as  required  by  law  must  be  made  by  manu- 
facturers of  tobacco,  snuff,  cigars,  and  cigarettes  on  January  1,  1921.  Each  manu- 
facturer should  ob.serve  carefully  the  following  instructions: 

(1)  The  inventory  must  be  made  before  the  commencement  of  business  on 
January  1,  1921.  After  it  is  completed  the  correct  totals  should  be  immediately 
entered  on  the  blank  form  which  will  be  fumLshed  to  each  manufacturer  by  the 
collector  of  the  district  in  which  his  factory  is  located. 

(2)  All  stamped,  as  well  as  unstamped,  manufactured  plug,  twist,  fine  cut,  and 
smoking  tobacco,  snuff,  cigars,  and  cigarettes  of  the  several  classes  must  be  sepa- 
rately weighed  or  counted,  as  the  case  may  be.  An  accurate  inventory  of  attached 
and  unattached  stamps  must  also  be  made. 


592  TOBACCO. 

Manufacturers — Continued. 
Inventories — Continued. 

(3)  All  tobacco  material  in  the  factory  should  he  segregated  according  to  the 
classification  pro^dded  in  the  prescribed  inventory  form,  and  weighed  separately. 

(4)  The  weight  and  marks  of  each  unopened  hogshead,  cavse,  or  bale,  or  other 
package  of  tobacco,  and  all  broken  packages  of  tobacco  and  loose  tobacco  within 
the  factory  and  inventoried  by  the  manufacturer,  ?hould  be  li'^ted  and  each  item 
should  be  sufficiently  described  to  aid  the  deputy  colle  tor  in  \erifying  the  inven- 
tory. Such  list  should  !)e  made  on  the  back  of  the  iuvent(jry  form  or  on  separate 
sheets  of  the  same  size  attached  thereto. 

(5)  Tobacco  dust,  sittings,  sweepings,  and  waste  shall  be  inventoried  by  cigar 
manufacturers  under  the  head  of  "waste''  only,  and  by  quasi  manufacturers  of 
tobacco  under  separate  heads,  each  properly  de?cribed. 

(6)  An  accurate  record  of  the  quantity  of  tobacco  of  each  class  used  during  the 
period  from  the  date  of  inventory  to  the  date  of  the  visit  of  the  deputy  should  be 
kept  for  the  purpose  of  enabling  him  to  arrive  at  the  actual  quantity  of  tobacco 
of  each  class  which  was  on  hand  on  the  inventory  date.     (T.  D.  3099;  Dec.  10, 1920.) 

Each  inventory  shall  be  verified  by  a  deputy  collector  at  the  earliest  practicable 
date  after  January  1,  1921.  Each  deputy  should  be  directed,  in  determining  the 
correctness  of  the  figures  shown  in  the  inventory,  to  take  into  a<"count  the  quantity 
ot  tobacco  of  each  different  kind  sold  and  used  on  the  one  hand  and  purchased  on 
the  other  hand  between  the  time  of  his  Adsit  and  the  taking  of  the  inventory.  The 
deputy  should  require  any  necessary  amendment  to  be  made  before  permitting 
oath  to  1)6  taken  and  should  observe  the  instructions  in  Regulations  No.  8  (revised 
July  1, 1910),  page  60,  under  the  head  of "  Deficiencies  found  l>y  examining  officers." 
Any  deficiencies  which  may  be  discovered  should  be  reported  immediately.  (T.  D . 
3099;  Dec.  10,  1920.) 

Every  dealer  in  leaf  tobacco  is  required  to  make  and  deliver  to  the  collector  of 
the  district  in  which  he  is  registered  a  true  inventory,  sho'wing  the  places  where 
his  tobacco  is  stored  and  the  kinds  and  quantity  of  each  kind  of  toliacco  held  by 
him  at  each  place,  on  January  1,  1921.  Such  inventory  shall  include  all  tobacco 
in  his  possession,  but  will  not  include  tobacco  owned  by  him,  but  held  by  another 
dealer,  who  must  include  it  in  his  inventory.  Such  inventory  shall  be  made  under 
oath  on  Form  776,  and  shall  show  also  the  condition  of  the  tobacccj  (whether  green, 
redried,  or  resweated)  on  the  inventory  date.  Actual  weighing  of  t  )!>a(^co  on  the 
inventory  day  will  not  be  required,  but  if  the  toliacco  is  not  weighed,  the  inventory 
should  show  that  the  ' '  marked "'  weights  are  reported.     (T.  D.  3099;  Dec.  10, 1920.) 

■ Permits  to  remove. 

New  form  of  special  permit,  Form  688,  adopted  to  take  place  of  Record  100  for 
issue  to  manufacturers  of  cigars  and  tobacco  applying  therefor,  authorizing  removal 
of  certain  kinds  of  tobacco  from  bonded  factory  premises  for  sale  or  transfer  to  another 
factory  or  for  return  to  leaf  dealer;  instructions  as  to  contents  of  application  for 
permit  filing  of  appUcation,  etc.  (T.  D.  2422;  Dec.  28,  1916.)  See  T.  D.  2957; 
Dec.  16,  1919. 

Printed  Form  712,  application  of  manufacturers  of  cigars  and  tobacco  for  permits 
to  remove  tobacco,  etc.,  from  factories  for  transfer  to  another  manufacturer  or  return 
to  dealer  in  leaf  tobacco,  adopted;  manufacturer  of  tabacco  and  cigars  required  to 
be  instructed  that  applications  for  permits  to  remove,  etc. ,  must  be  made  on  such  forin 
and  that  it  must  be  legibly  and  accurately  filled  in,  and  that  in  case  unstemmed  or 
stemmed  leaf  tobacco  or  stems  are  shipped  or  delivered  to  dealer  in  leaf  tobacco, 
the  abbreviation  "D.  L.  T."  should  be  indicated  in  proper  place  in  the  applica- 
tion.    (T.  D.  2478;  Apr.  9,  1917.)     See  T.  D.  2957;  Dec.  16,  1919. 

— —  Returns  for  registry. 

Instruction  requiring  Fofm  277,  re\ised,  to  be  used  exclusively  for  return  for 
registry  of  manufacturers  of  tobacco,  dealers  in  leaf  tobacco,  and  peddlers  of  tobacco, 
when  such  occupations  are  not  subject  to  special  taxes.     (T.  D.  2485;  Apr.  24, 1917.) 

Withdrawal  for  export. 

Instructions  with  reference  to  supplying  manufacturers  of  tobacco,  snuff,  cigars, 
and  cigarettes  with  revised  Form  550,  application  for  withdrawal  from  export. 
(T.  D.  2521;  Sept.  1,  1917.) 

Peddlers. 

Act  of  September  7,  1916,  amending  subsection  11  of  section  3244,  Revised  Stat- 
utes, defining  "peddler"  of  tobacco,  p  iblished  for  information  of  internal-revenue 
oflScersaiid  others  concerned.     (T.  D.  2376;  Oct.  3,  1916.) 


TOBACCO.  593 

Kates  of  tax. 

Taxes  imposed  by  sections  400  to  403  of  the  act  of  October  8,  1917,  removed  from 
factory  or  customhouse  for  consumption  or  use  on  and  after  October  4,  1917,  and 
November  2,  1917,  according  to  their  several  classifications,  shown  by  table.  (T.  L>. 
2569:  Oct.  17,  1917.) 

Registration  of  dealers. 

Dealers  in  leaf  tobacco  and  retail  dealers  in  leaf  tobacco,  ha\'ing  paid  special 
tax  for  period  ended  D.icember  31,  1910,  required,  on  account  of  expiration  by 
limitation  on  said  date  ui'  the  act  of  October  22,  1914,  to  make  return  for  register  on 
Form  277  and  obtain  certificates  of  registry.  Forms  282  and  641,  respectively,  for 
period  of  fiscal  year  ended  June  30,  1917;  dealers  who  commenced  business  on 
and  after  January  1,  1917,  required  to  file  returns  for  register  and  to  obtsiin  certifi- 
cates of  registration;  certificates  recjuired  to  be  posted  conspicuously  in  dealers' 
places  of  business.     (T.  D.  2420;  Dec.  26,  1916.) 

Soldiers'  kits. 

Instructions  with  reference  to  the  shipment  from  tobacco  and  cigarette  factories 
of  so-called  soldiers'  kits  or  cartons  containing  packages  of  tobacco  and  cigarettes 
to  New  York,  there  to  be  repacked  under  super^^8ion  of  customs  officer  for  exporta- 
tion to  United  States  soldiers  in  Europe.     (T.  D.  2517;  Aug.  17,  1917.) 

Stamps — Cancellation. 

Stamps  for  the  new  sizes  of  packages  for  manufactured  tobacco  provided  for  in 
section  401  of  act  of  October  3,  1917,  shall  be  affixed  and  canceled  in  same  manner 
as  are  other  strip  stamps  for  tobacco  and  snuff  under  the  provisions  of  existing  reg- 
ulations No.  8,  revised  July  1,  1910,  page  41.     (T.  D.  2569;  Oct.  17,  1917.) 

Inventory  and  return. 

All  attached  and  unattached  stamps  for  payment  of  tax  on  tobacco  held  by  manu- 
facturers in  their  factories  on  October  4,  1917,  and  November  2,  1917,  before  com- 
mencement of  business  on  said  days,  required  to  be  inventoried  and  returns  filed 
for  additional  tax,  as  pro\ided  in  section  1006  of  act  of  October  3,  1917;  stamps  in 
transit  on  date  inventory  is  required  purchased  at  old  rates  must  be  included  in 
inventory;  forms  for  returns  and  inventories;  manufacturers  required  to  render 
return  and  inventory  notwithstanding  he  may  have  no  stamps  on  hand  on  dates 
mentioned.     (T.  D.  2569;  Oct.  17,  1917.) 

Orders. 

Forms  of  orders  for  stamps,  revised,  standardized  as  to  size,  printed  in  different 
colors,  required  to  be  used  as  soon  as  supply  is  forwarded  to  collectors  and  distrib- 
uted by  them  to  manufar^turers.     (T.  D.  2411;  Dec.  12,  1916.) 

Instructions  with  referi>'  ce  to  use  by  manufactui'er  of  revised  Form  172,  orders  for 
stamps  for  tobacco.     (T.  D   2004;  Dec.  12,  1917.) 

— —  Sales. 

Stamps  for  tax  payment  on  imported  tobacco,  snuff,  cigars,  and  cigarettes,  to  be 
sold  only  to  owners," consignees,  or  importers,  on  requisition  of  proper  customhouse 
officer;  stamp  order  E'orms  168,  172,  173,  and  485  restricted  to  use  of  manufac- 
turers in  the  United  States;  Regulations  No.  8,  re^ised  July  1,  1910,  page  02, 
amended  to  provide  that  when  cigars,  etc.,  imported  in  the  mails,  are  for  delivery 
at  places  other  than  where  examined  by  customs  officers  and  are  forwarded  to  the 
postmaster  ,who  notifies  the  addressee,  furnishing  him  \\-ith  Customs  Catalogue  Xo. 
3493,  which  is  forwarded  to  postmaster  with  the  package,  necessary  stamps  shall  be 
procured  from  and  sold  by  the  nearest  collector  of  internal  revenue.  (T.  D.  2500; 
June  15,  1917.) 

Time  when  act  effective. 

Section  401  of  the  act  of  October  3,  1917,  levying  a  tax  upon  tobacco,  took  effect 
on  November  2,  1917.     (T.  D.  2547;  Oct.  22.  1917.) 

Withdrawal  for  use  of  United  States — Application. 

Manufacturer  must  file  application  in  duplicate  on  Form  664  for  permit  to  make 
withdrawal  of  product  in  speciiic  lots  from  his  factory,  and  in  addition  to  giving 
number  of  factory,  district  and  State,  the  number  of  original  or  statutory  packages 

70420°— 21- — 38 


594  TOBACCO. 

Withdrawal  for  use  of  TJnited  States — Continued. 

Application — Continued. 

and  contents  of  each  shall  be  set  forth  in  each  application  as  well  as  the  total  quantity 
covered,  rate  of  tax  applicable,  amount  of  tax  to  be  remitted,  and  the  institution  or 
name  of  the  person  or  officer  to  whom,  and  the  address  to  which,  shipment  or  delivery 
is  to  be  made;  these  applications  may  be  forwarded  direct  to  the  Commissioner  of 
Internal  Revenue,  in  which  case  the  duplicate  application  will  be  forwarded  by  the 
Commissioner  to  the  collector,  or  filed  with  the  collector  for  the  district,  in  which 
case  the  collector  must  forward  the  original  application  immediately  to  the  Com- 
missioner; application  should  be  filed  sufiicient  time  in  advance  of  date  upon  which 
withdrawal  is  contemplated  to  be  made  to  allow  of  receipt  and  issuance  of  permit 
by  the  Commissioner  and  receipt  thereof  by  the  manufacturer  prior  to  that  date. 
(T.  D.  2982;  Jan.  22,  1920.) 

■ Bills  of  lading. 

"^Miere  product  withdrawn  is  transported  by  common  carrier,  the  manufacturer 
must  file  with  the  collector  of  the  district  in  which  the  factory  making  withdrawal 
is  located  bills  of  lading  in  duplicate  covering  each  shipment  from  the  factory  to 
the  point  of  final  destination;  one  of  these  bills  of  lading,  which  must  be  filed 
promptly  after  withdrawal  is  made,  will  be  filed  with  the  copy  of  the  application 
and  permit  which  it  covers  in  the  collector's  ofiice,  and  the  other  shall  be  forwarded 
immediately  with  letter  of  transmittal  to  the  Commissioner.  (T.  D.  2982;  Jan.  22, 
1920.) 

. Bond  for  transportation  and  delivery. 

The  manufactm'er  is  required  to  furnish  transportation  and  delivery  bond  in 
duplicate  on  Form  665  with  satisfactory  sureties  and  in  penal  sum  of  not  less  than 
the  tax  on  the  total  quantity  specified  in  the  reqxiisition;  this  bond,  which  shall 
state  quantity  of  product  requisitioned,  number  of  factory,  and  its  location,  in- 
cluding the  district  and  State,  fi'om  which  withdrawal  is  to  be  made,  and  the  insti- 
tution or  name  of  the  person  or  officer  to  whom,  and  address  to  which,  shipment  or 
delivery  is  to  be  made,  may  be  executed  by  corporate  surety  or  individual  sureties, 
in  the  latter  case  each  individual  surety  being  required  to  show  qualification  on 
Form  33  executed  in  duplicate,  and  the  duplicate  form  to  be  attached  to  the  dupli- 
cate bond;  the  original  and  duplicate  bond  must  be  filed  with  the  collector  for  the 
district  in  which  the  factory  is  located,  who  will,  if  the  bond  meets  his  approval, 
enter  an  indorsement  to  that  effect  on  both  the  original  and  duplicate,  and  for- 
ward the  duplicate  immediately  to  the  Commissioner  of  Internal  Revenue.  (T.  D. 
2982;  Jan.  22,  1920.) 

- —  Certificate  of  receipt  by  Government  officer. 

The  Government  receiving  olficer  at  the  place  of  delivery  should  inspect  each 
shipment,  in  order  that  he  may  certify  as  to  the  quantity  received  and  the  date  of 
receipt,  his  certificate  to  be  made  on  Form  667  in  duplicate  and  forwarded  promptly 
to  the  manufacturer,  who  must  file  both  copies  of  the  certificate  of  receipt  with  the 
collector  of  internal  revenue  for  the  district  within  30  days  of  date  of  withdrawal; 
where  there  is  loss  of  goods  in  transit,  the  receipt  should  specify  the  number  of 
statutory  packages,  the  number  of  inner  packages,  if  any,  and  the  total  quantity  so 
lost,  and  the  amount  reported  lost  or  any  difference  between  the  quantity  withdrawn 
under  permit  and  that  certified  to  by  the  receiving  officer  will  remain  as  charged 
against  the  transportation  bond,  and  assessment  of  tax  thereon  will  be  made  against 
the  manufacturer  in  the  absence  of  evidence  showing  that  the  goods  not  covered  by 
the  receiving  oflicer'a  certificate  were  actually  destroyed.  (T.  D.  2982;  Jan.  22, 
1920.) 

Collector's  account;   credit  on  bond. 

The  bond  covering  the  total  quantity  of  product  requisitioned  will  be  credited  in 
the  office  of  the  Commissioner,  to  whom  the  collector  will  forward  the  original 
certificate  of  receipt  immediately  after  it  is  received  by  him.     (T.  D.  2982;  Jan.  22, 

1920.) 

• Departmental  requisition. 

WTienever  tobacco  is  purchased  for  use  of  the  United  States  and  it  is  proposed  to 
make  withdrawals,  tax  free,  from  the  place  of  manufacture,  requisition  in  duplicate 
on  Form  663,  approved  by  head  of  department  or  head  of  bureau,  or  other  organiza- 
tion, if  independent  of  a  department,  must  be  filed  with  the  Commissioner  of  Internal 


TOILET  ARTICLES  AND  SOAPS.  595 

Withdra-wal  for  use  of  TJnited  States — Continued. 

Departmental  requisition — Continued. 

Revenue;  this  requisition  must  specify  the  total  quantity  of  the  product  contracted 
for  at  a  price  not  including  the  tax  thereon,  the  name  of  the  manufacturer,  his 
factory  number,  district,  and  State,  the  location  of  the  factory  and  the  institution 
and  name  of  the  person  or  officer  to  whom,  and  address  to  which,  shipment  or  delivery 
is  to  be  ni'^  :le;  one  copy  of  the  requisition  will  be  forwarded  Ijy  the  Commissioner  to 
the  collector  of  internal  revenue  for  the  district  in  which  is  located  the  factory 
designated  to  fiunish  the  product.     (T.  D.  2982;  Jan.  22,  1920.) 

• Entries  in  manufacturer's  records  and  reports. 

Each  withdrawal  of  a  product  from  the  factory  shall  be  entered  by  the  manufac- 
turer in  his  revenue  book  on  the  day  withdrawal  is  made,  and  shall  be  included  in 
his  monthly  or  annual  report  under  an  appropriate  heading  and  carried  in  the 
recapitulation  as  a  special  credit.     (T.  D.  2982;  Jan.  22,  1920.) 

Labeling'  or  branding. 

Each  individual  package  of  tobacco  manufactures  shall  be  labeled  or  branded 
"For  use  of  U.  S.  Government,"  together  with  number  of  iJenuit  and  the  date  thereof, 
the  letters  and  figures  of  such  printing  to  be  conspicuous,  in  bold-face  type,  of  not 
less  than  one-fouith  of  an  inch  in  height.     (T.  D.  2982;  Jan.  22,  1920.) 

Permit. 

Requisition  and  bond  having  been  filed,  permit  in  duplicate  on  Form  666  for  each 
withdrawal,  for  which  application  is  made  and  approved,  will  be  issued  by  the 
Commissioner  and  forwarded  to  the  collector,  and  the  original  permit  will  be  deliv- 
ered by  the  collector  to  the  manufacturer  to  be  retained  as  authority  for  making  the 
withdrawal;  no  more  than  the  quantity  named  in  the  permit  may  be  withdrawn 
thereunder  and  no  withdrawal  shall  be  made  in  advance  of  the  issue  of  a  permit; 
withdrawals  must  be  made  within  a  reasonable  time  after  receipt  of  permit  or  else 
requests  should  be  made  for  cancellation  of  such  permit;  all  products  withdrawn  in 
advance  of  issue  of  permit  will  be  held  subject  to  tax  and  a  manufacturer  who  violates 
the  law  bv  withdrawing  products  on  which  tax  has  not  been  paid,  without  permit, 
will  be  liable  also  to  statutory  penalties.     (T.  D.  2982;  Jan.  22,  1920.) 

TOILET   ARTICLES   AND    SOAPS. 
Alcohol — Exports. 

Where  alcohol  is  used  in  the  manufacture  of  toilet  preparations  for  export,  draw- 
back thereon  should  include  both  tax  of  $1.10  per  proof  gallon  and  additional  tax 
paid  thereon, -under  act  of  October  3,  1917.     (T.  D.  2572;  Oct.  24,  1917.) 

Formula  3A,  for  special  denaturation  of  alcohol  for  use  in  the  manufacture  of  trans- 
parent soap,  modified.     (T.  D.  2820;  Apr.  10,  1919.) 

Formula  No.  31,  for  special  denatm-ation  of  alcohol  to  be  used  in  the  manufacture 
of  tooth  paste,  stated;  samples  of  finished  product,  together  with  formula  of  ingre- 
dients, labels,  advertising  matter,  etc.,  required  to  be  furnished;  this  data  should  be 
accompanied  by  full  description  of  process  of  manufacture  and  a  blue  print  or  pencil 
drawing  shomng  location  of  room  or  rooms  in  which  denatured  alcohol  is  to  be  used. 
(T.  D.  2819;  Apr.  10,  1919.) 

Formula  31A,  for  the  denaturation  of  alcohol  for  use  in  the  manufacture  of  tooth 
paste,  stated.    (T.  D.  2855;  June  7,  1919.) 

Distilled  spirits. 

ITse  of  distilled  spirits  for  other  than  beverage  purposes  includes  the  manufacture 
of  cosmetics  and  toilet  preparations,  including  bav  rum,  perf  umerv,  and  toilet  waters, 
extract  of  witch  hazel,  and  listerine.     (T.  D.  2559;  Oct.  26,  1917.) 

Excise  taxes. 

The  tax  imposed  by  section  600  (g)  of  the  act  of  October  3,  1917,  upon  toilet  arti- 
cles and  soaps, is  2  per  cent  of  the  price  for  which  they  are  sold  by  the  manufacturer; 
soaps  advertised  or  held  out  as  suitable  for  toilet  purposes  are  taxable;  containers 
of  perfumes,  if  billed  and  shipped  separately,  raw  materials,  and- floor  oils,  floor 
wax,  kitchen  soap  powders  and  other  articles  ordinarily  used  for  household  and 
not  for  toilet  purposes,  are  not  subject  to  the  tax;  concentrated  essences  sold  to 
druggists  and  manufacturers  for  making  toilet  articles,  but  not  for  use  as  such, 
are  not  subject  to  the  tax.    (T.  D.  2719;  Art.  XVIII.) 


596  TOOLS TRADE. 

Excise  taxes — rontinued. 

On  the  sale,  for  a  lump  price,  of  a  fountain  shaving  brush  with  a  filled  shaving 
cream  cartridge  which  is  separate  and  replaceable,  the  excise  tax  is  only  upon  the 
price  of  the  filled  cartridge  as  separately  determined,  namely,  the  established  retail 
price  of  the  filled  cartridges  sold  separately.     (T.  D.  2782;  "Dec.  24,  1918.) 

A  soap  powder  chiefly  designed  for  laundry  purposes  and  sold  by  the  manufacturer 
in  bulk  to  laundries  and  also  sold  for  retail  distribution  to  the  public  in  packages 
bearing  directions  for  use  as  a  hair  shampoo,  for  which  it  is  to  a  small  extent  actually 
lii-ed,  is  subject  to  excise  tax  upon  the  sales  in  packages,  but  not  upon  the  sales  in 
bulk.     (T.  D.  2785;  Jan.  23,  1919.) 

TOOLS. 

Income  taxes — Deduction  of  cost. 

Cost  ol  farm  machinery  is  not  an  allowable  deduction  as  item  of  expense,  but  cost 
of  ordinary  tools  may  be  included  under  this  item.     (T.  D.  2690;  art.  4.) 

*  'ost  of  farm  machinery  is  not  an  allowable  deduction  as  item  of  expense,  but  cost 
of  ordinary  tools  of  short  life  or  insignificant  cost,  such  as  hand  tools,  including 
ehovels,  rakes,  etc.,  may  be  included  under  this  item.     (T.  D.  2690;  art.  123.) 

TORPEDOES. 

See  "Munition  Manufacturers'  Tax." 

Definition. 

The  term  ''torpedoes,"  as  used  in  Title  III  of  the  act  of  September  8,  1916,  com- 
prehends anv  receptacle  to  inclose  an  explosive  charge,  or  the  receptacle  and  charge 
combined.     (T.  D.  2384;  art.  2.) 

TOWNSHIPS. 

Official  bonds — War  tax. 

Bonds  given  by  oflicials  of  a  State,  township,  county,  or  village,  for  faithful  per- 
formance of  duties,  are  free  from  Federal  taxation  on  broad  ground  that  sovereign 
States  and  subdivisions  thereof  are  constitutionally  free  from  taxation  by  Federal 
Government.     (T.  D.  2624;  Dec.  14,  1917.) 

TOYS. 

Excise  taxes. 

Tov  talking  machines  are  subject  to  tax  imposed  by  section  600  (h)  of  the  act  of 
October  3,  1917.      T.  D.  2719;  Art.  XL) 

Tax  imposed  by  section  600  (i)  of  the  act  of  October  3,  1917,  is  3  per  cent  of  the 
price  for  which  the  sporting  goods  and  games  enumerated,  except  children's  toys 
and  games,  are  sold  by  the  manufacturer.     (T.  D.  2719;  Art.  XVII.) 

Tov  cameras  are  taxable  under  section  600  (j)  of  the  act  of  October  3,  1917,  if 
capable  of  taking  a  picture.     (T.  D.  2719;  Art.  XXV.) 

TRADE. 

Definition. 

in  case  of  corporation  or  partnership  all  income  from  whatever  source  derived  is 
deemed  to  be  from  its  trade  or  business,  and  the  terms  "trade,"  "business,"  and 
"trade  or  business,' '  as  used  in  war  excess  profits  tax  regulations,  include  all  sources 
of  income,  and  unless  otherwise  indicated  by  the  context,  the  terms  will  be  deemed 
to  be  used  only  Avith  this  scope  or  meaning.     (T.  D.  2694:  arts.  1,  7.) 

In  case  of  an  individual,  the  terms  "trade,  "  "business, "  and  "trade  or  business, " 
as  used  in  war  excess  profits  tax  regulations,  comprehend  all  his  activities  for  gain, 
profit,  or  livelihood  entered  into  with  sufficient  frequency  or  occupying  such  por- 
tion of  his  time  or  attention  as  to  constitute  a  vocation,  including  occupations  and 
professions;  when  such  activities  constitute  a  vocation  they  shall  be  construed  to 
be  a  trade  or  business  whether  continuously  carried  on  during  taxable  year  or  not; 
unless  otherwise  indicated  b>  the  context,  terms  will  be  deemed  to  be  used  only 
with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  8.) 


TRADE  ACCEPTANCES — ^TBADE-MABKS  AIsD  TRADE  NAMES.       597 

Distilled  spirits. 

Distilled  spirits  for  nonbeverage  purposes  may  be  used  only  in  the  arts,  sciences, 
and  trades,  where  circHimstances  are  such  ihat  there  can  be  no  probability  that  the 
spirits  will  be  sold  or  used  for  beverage  purposes  or  in  the  manufacture  or  produc- 
tion of  any  article  intended  for  use  as  a  beverage.     (T.  D.  2559;  Oct.  26,  1917. ) 

Income  tax — Deduction  of  losses. 

Difference  between  losses  "incurred  in  his  business  or  trade"  and  los.'^es  'in 
transactions  entered  into  for  profit  but  not  connected  with  his  busmess  or  irade" 
is  illustrated  by  difference  between  definitions  of  "avocation"  and  "vocation"; 
losses  under  former  come  under  the  head  of  vocation,  while  those  under  latter  come 
under  head  of  avocation;  losses  under  latter  head  may  be  deducted  to  amount  not 
exceeding  profits  arising  from  transactions  under  that  head.     (T.  D.  2690;  art.  8.) 

TBADE  ACCEPTANCES. 

Stamp  taxes. 

The  rule  that  the  stamp  tax  on  drafts  and  checks  imposed  by  Schedule  A,  of 
Title  VIII,  of  the  act  of  October  3,  1917,  attaches  to  drafts  or  checks  at  the  time  of 
delivery,  if  delivered  within  the  territorial  jurisdiction  of  the  United  States  and 
expressed  to  be  payable  otherwise  than  at  sight  or  on  demand,  but  not  to  drafts  or 
checks  not  yet  delivered  or  delivered  in  a  foreign  country  or  expressed  to  be  payable 
at  sight  or  on  demand,  is  applicable  to  trade  acceptances  as  defined  by  the  regula- 
tions of  the  Federal  Reserve  Board.     (T.  D.  2682;  Mar.  26,  1918.) 


See  "Marks  and  Brands. 


TBADE  BRANDS. 


TBADE  DISCOUNTS. 


Excise  taxes — Deduction. 

A  discount  for  cash  or  other  discount  made  subsequently  to  sale  can  not  be  de- 
ducted in  computing  price  for  purpose  of  tax  imposed  by  section  600  of  the  act  of 
October  3,  1917.     (T.  D.  2719;  Art.  III.) 

TBADE-MABKS  AND  TBADE  NAMES. 

Excess  profits  tax — Invested  capital. 

The  term  'other  intangible  property,' '  as  used  in  section  207  of  the  act  of  Octo- 
ber 3,  1917,  construed  to  mean  property  of  character  similar  to  good  will,  trade- 
marks, and  other  SDecific  kinds  of  property  enumerated  in  same  clause.  (T  D. 
2694;  art.  47.) 

If  good  will,  trade-marks,  trade  brands,  franchises  of  a  corporation  or  partnership, 
ov  other  intangible  property  has  been  purchased  with  stock  or  shares  issued  prior 
to  March  3, 1917,  amount  that  may  be  included  in  invested  capital  must  not  exceed 
20  per  cent  of  par  value  of  total  stock  or  shares  outstanding  on  that  date,  nor  actual 
value  of  asset  at  date  acquired,  nor  par  value  of  stock  issued  in  payment  for  the 
asset.     (T.  D.  2694;  art.  57.) 

Subject  to  limitations  stated  invested  capital  of  individual  is  measured  by  total 
of  actual  c-ash  paid  into  trade  or  business,  tangible  property  paid  into  trade  or  busi- 
ness, patents  and  copyrights,  and  good  \vill,  trade-marks,  trade  brands,  franchises, 
and  other  tangible  property.     'T.  D.  2694;  art.  66.) 

Patents  and  copyrights,  and  good  will,  trade-marks,  trade  brands,  franchises  and 
other  similar  intangible  assets  may  be  included  in  invested  ca])ital  at  value  not  to 
exceed  actual  cash  paid  therefor,  or  actual  cash  value  at  time  of  payment  of  tangi- 
ble property  paid  therefor,  but  only  if  bona  fide  payment  was  made  therefor  spe- 
cifically as  such  in  cash  or  tangible  property.     (T.  D.  2694;  art.  68.) 

Excise  taxes — Medicinal  preparations. 

Tax  imposed  by  section  600  (h)  of  the  act  of  October  3,  1917,  is  2  per  cent  of  the 
price  for  which  all  medicinal  preparations,  compounds,  or  compositions  whatso- 
ever are  sold  by  the  manufacturer;  'provided  that  they  are  prepared,  uttered, 
vended,  or  exposed  for  sale  under  any  letters  patent  or  trade-mark.  (T.  D.  2719: 
Art.  XIX.) 


598  TRADE-MARKS  AND  TRADE  NAMES. 

Excise  taxes — ^Medicinal  preparations — Continued. 

Every  medicinal  preparation,  compound,  or  composition  embraced  within  one 
or  more  of  the  subdivisions  in  Article  XIX  of  Regulations  No.  44  is  subject  to  tax; 
if  article  is  made  or  prepared  by  manufacturer  claiming  to  have  private  formula, 
secret  or  occult  art  for  it,  it  is  taxable  even  though  it  is  not  prepared,  uttered, 
vended,  or  exposed  for  sale  under  any  letters  patent  or  trade-mark,  and  it  is  not 
held  out  or  recommended  to  public  as  proprietary  medicine  or  medicinal  proprie- 
tarv  article  or  preparation  or  as  a  remedy  or  specific  for  any  disease  or  affection  of 
the  human  or  animal  body.     (T.  D.  2719;  Art.  XX.) 

Preparations  made  in  accordance  with  formulas  contained  in  United  States 
Pharmacopoeia  and  National  Formulary  by  pharmaceutical  manufacturers,  when 
not  held  out  or  recommended  as  proprietary  medicines  or  medicinal  proprietary 
articles  or  preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  but  if  so 
held  out  or  recommended  they  are  taxable  although  not  identified  by  any  name, 
trade-mark,  or  otherwise.     (T.  D.  2719;  Art.  XX.) 

Within  the  meaning  of  section  600  (h)  of  the  act  of  October  3,  1917,  a  manufac- 
turer or  producer  is  a  person  who  prepares  an  article  or  has  it  prepared  and  sells  it, 
and  who  identifies  the  article  by  a  commercial  name,  trade-mark,  or  trade  name, 
or  by  other  means,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine 
or  a  medicinal  proprietary  article  or  preparation,  or  as  a  remedy  or  specific.  (T.  D, 
2719;  Art.  XXI.) 

If  article  or  its  container  has  on  it  both  a  trade-mark  or  trade  name  of  one  manufac- 
turer, and  the  individual  or  business  name  of  another,  the  owner  of  the  trade-mai'k 
or  trade  name  will  be  deemed  the  manufacturer;  if  the  article  or  its  container  has 
on  it  both  the  commercial  name  of  the  article  and  an  individual  or  business  name, 
the  latter  will  be  deemed  to  designate  the  manufacturer.     (T.  D.  2719;  Art.  XXI.) 

Taxability  of  medicinal  preparation  under  section  600  (h.)  of  the  act  of  October 
3,  1917,  is  determined  by  the  manner  in  which  it  is  prepared  or  the  way  in  which  it 
is  put  upon  the  market;  if  article  is  advertised  under  name  or  trade-mark  of  manu- 
facturer, or  any  name  in  possessive  case  is  used  on  label  or  on  literature  describiag 
medicinal  preparation,  or  name  of  manufacturer  is  made  part  of  name  or  title,  or  any 
intimation  is  otherwise  given  that  article  is  of  distinctive  origin,  tax  is  imposed; 
where  medicinal  preparations  are  sold  under  what  appears  to  be  or  what  is  intended 
to  be  a  trade-mark  appropriated  to  the  article,  the  tax  attaches.  (T.  D.  2719;  Art. 
XXII.) 

Boric  acid  when  sold  under  a  trade-mark  as  a  medicinal  preparation  is  taxable 
under  section  600  (h)  of  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXII.; 

Licorice  put  up  in  sticks,  lozengers,  or  in  other  forms  suitable  for  medicinal  pur- 
poses and  sold  under  a  trade-mark  is  subject  to  the  tax  imposed  by  section  600  (h) 
of  the  act  of  October  3,  1917.     (T.  D.  2719;  Art.  XXIII.) 

Name,  initials,  or  monogram  of  manufacturer  printed  on  label  of  medicinal 
preparation,  so  as  to  be  practically  a  part  of  the  name  of  the  preparation,  is  not  of 
itself  a  trade-mark  under  section  600  (h)  of  the  act  of  October  3,  1917.  (T.  D. 
2785;  Jan.  23,  1919.) 

Autographic  name  of  manufacturer  of  medicinal  preparation  printed  across  mid- 
dle of  label  is  not  a  'trade-mark"  under  section  600  (h)  of  the  act  of  October  3, 
1917.     (T.  D.  2785;  Jan.  23,  1919.) 

Coined  name  used  for  a  particular  medicinal  preparation,  to  distinguish  it  from 
same  or  like  preparations  of  other  manufacturers,  is  a  "trade-mark"  under  section 
600  (h)  of  the  act  of  October  3,  1917.     (T.  D.  2785;  Jan.  23,  1919.) 

Income  taxes — Deductions  for  depreciation. 

Xo  deduction  ^vill  be  allowed  for  depreciation  of  trade-marks  and  trade  brands; 
if  such  assets  shall  have  been  purchased  at  a  determined  price  and  shall  be  later  sold 
at  a  price  less  than  cost  or  less  than  their  determined  fair  market  value  as  of  March  1, 
1913,  if  acquii'ed  prior  to  that  date,  amount  by  which  selling  price  is  less  than  cost 
or  value,  as  case  may  be,  will  be  loss  deductible  from  gross  income  of  year  in  which 
such  assets  were  sold.     (T.  D.  2690;  art.  168.) 

Gross  incorae. 

Stock  dividends  declared  from  earnings  or  profits  accrued  prior  to  March  1,  1913, 
or  from  surplus  created  by  revaluation  of  capital  assets,  or  from  placing  value  upon 
trade-marks,  good  will,  etc.,  do  not  represent  distribution  of  earnings  or  profits  subject 
to  tax  in  hands  of  shareholders;  when  stock  received  in  pajTnent  of  such  dividend,  or 
stock  in  respect  of  which  any  such  dividend  was  paid,  is  sold,  cost  of  each  share  of 


TRADING  STAMPS — TRANSFEES.  599 

Income  taxes — Continued. 

Gross  income — Continued. 

stock,  whether  new  or  old,  for  purpose  of  ascertaining  gain  or  loss  from  sale,  is  quotient 
ot  cost  of  old  stock,  if  acquired  on  or  after  March  1, 1913,  or  its  fair  market  price  or  value 
as  of  that  date  if  acquired  prior  thereto,  divided  by  the  number  of  old  and  new  share 
added  together,  and  profit  so  ascertained  is  income  subject  to  both  normal  and 
additional  tax,  to  be  accounted  for  in  shareholder's  return  for  year  in  which  sale 
is  made.     (T.  D.  2734;  June  17,  1918.) 

TRADING  STAMPS. 

Income  taxes — Deduction  of  expenses. 

Corporations  which  issue  trading  stamps,  coupons,  etc.,  for  purpose  of  increasing 
business,  which  stamps  or  coupons  are  redeemable  in  merchandise,  may  deduct, 
as  business  expense,  amount  which  such  corporation  actually  expend^  for  such 
stamps  or  coupons,  and  also  actual  cost  of  merchandise  given  in  redeeming  same. 
(T.  D.  2690;  art.  141.) 

TRADING  WITH  ENEMY  ACT. 

Income  tax  returns — ^Extension  of  time. 

Extension  of  time  granted  for  such  period  as  may  be  necessary,  not  exceeding 
90  days  after  proclamation  by  President  of  end  of  war  with  Gennany,  for  filing  re- 
turns of  income  for  1917  and  subsequent  years,  under  sections  6  (c),  8  (b)  (c),  and  13 
(b)  (c),  of  act  of  September  8,  1916,  as  amended,  and  under  war  income  tax  act  of 
October  3,  1917,  by  or  for  enemies  or  allies  of  enemies,  as  defined  by  section  2  of  the 
trading  with  the  enemy  act  of  October  6,  1917,  not  holding  license  granted  under 
such  act;  return  of  information  required;  duties  of  persons  controlling  money  or 
property  for  any  such  enemy  or  ally  of  enemy.     (T.  D.  2673;  Mar.  18,  1918.) 

Stamp  taxes. 

Conveyance  of  realty  to  Alien  Property  Custodian  in  compliance  with  demand 
made  by  him  under  trading  with  the  enemy  act  of  October  6,  1917,  as  amended, 
is  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  act  of  October 
8,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Transfer  to  Alien  Property  Custodian  of  shares  or  certificates  of  stock  in  com- 
pliance with  demand  made  by  him  under  the  trading  with  the  enemy  act  of  Octo- 
ber 6,  1917,  as  amended,  is  not  subject  to  stamp  tax  imposed  by  Schedule  A  of 
Title  VIII  of  act  of  October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Conveyance  by  Alien  Property  Custodian  of  realty  sold  by  him  under  authority 
of  section  12  of  the  trading  with  the  enemy  act  of  October  6,  1917,  as  amended, 
is  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  the  act  of 
October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

Sale  by  Alien  Property  Custodian  of  shares  or  certificates  of  stock,  under  authority 
of  section  12  of  the  trading  with  the  enemy  act  of  October  6,  1917,  as  amended, 
his  agreement  so  to  sell,  and  his  transfer  of  legal  title  to  certificates  or  shares  so 
sold,  are  not  subject  to  stamp  tax  imposed  by  Schedule  A  of  Title  VIII  of  the  act 
of  October  3,  1917.     (T.  D.  2786;  Jan.  29,  1919.) 

TRANSFERS. 

See  "Sales." 

Capital  stock — Stamp  taxes. 

Surrender  of  stock  of  consolidating  corporations,  in  exchange  for  stock  of  the  con- 
solidated corporation,  is  not  a  taxable  transfer  under  act  October  3,  1917.  (T.  D. 
2752;Aug.  14,  1918.) 

Tax  imposed  by  act  October  3, 1917,  on  transfer  of  capital  stock  applies  to  transfer 
of  stock  to  or  from  voting  trustees  or  other  trustees,  to  transfer  of  voting-trust  cer- 
tificates, to  transfer  of  shares  in  so-called  ^lassachusetts  trusts  and  other  unincor- 
porated ass>iciations,  to  transfer  of  right  to  receive  a  stock  dividend  already  de- 
clared, and  to  transfer  of  interest  of  a  subscriber  for  stock,  however  such  interest 
may  be  evidenced  or  conditioned  upon  further  payments.  (T.  D.  2752;  Aug.  14, 
1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  attaches  to  sales 
or  transfers  of  stock,  whether  or  not  represented  by  certificates.  (T.  D.  2752; 
Aug.  14,  1918.) 


600  TRAKSFERS. 

Capital  stock — Stamp  taxes — Continued. 

Tax  imposed  by  act  October  3,  1917.  on  issue  of  capital  etock  attaches  to  issue  of 
preferred  and  common  stock,  whether  or  not  exchanged  for  old  stock,  upon  reorgani- 
zatim  of  corporation  under  section  24  of  the  New  York  stock  corjjoration  law  for 
p\irpose  of  issuing  stock  withi;)ut  par  value,  but  tax  on  transfers  of  stock  is  inappli- 
cable to  surrender  of  old  stock  in  exchange  for  new  stock  pursuant  to  such  reorgani- 
zation.    (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3.  1917,  on  transfers  of  capital  stock  does  not  apply 
to  siuTcnder  of  certificates  in  exchange  for  other  certificates  representing  same  or 
new  stock,  provided  they  are  issued  to  the  same  holder,  nor  does  it  apply  to  sur- 
render of  stock  certificates  for  retirement  and  redemption  for  cash;  if,  however, 
corporation  buys  some  of  its  own  stock  and  transfers  it  to  itself,  whether  or  not  it 
intends  eventually  to  cancel  it,  transfer  is  subject  to  tax.  (T.  D.  2752;  Aug.  14, 
1918.) 

Tax  imposed  by  act  October  3,  1917.  on  transfer  of  capital  stock  does  not  apply  to 
transfer  of  '  'rights"  to  subscribe  for  stock  prior  to  exercise  of  the  right  and  actual 
subscription.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfers  of  stock  does  not  attach  to  ex- 
change of  stock  certificates  of  merged  corporation  for  stock  certificate  of  merging 
corporation  at  the  time  and  as  part  of  the  merger  of  trust  companies  imder  sections 
487^96  of  the  New  York  banking  law,  nor  to  substitution  of  new  certificates  for 
certificates  representing  old  stock  of  the  merging  corporation.  (T.  D.  2752;  Aug.  14, 
1918.) 

Wh^re.  as  under  section  15  of  the  New  York  stock  corporation  ]aw,  providing 
for  merger  of  ordinary  corporations,  acquisition  of  stock  of  corporation  to  be  merged 
is  condition  precedent  to  merger,  transfer  of  such  stock  to  merging  corporation  prior 
to  actual  merger  is  taxable  under  act  October  3,  1917.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  is  measured,  not 
by  amount  paid  in,  on,  or  for  the  stock,  but  by  the  face  or  par  value,  in  the  case  of 
shares  having  a  face  or  par  value,  and  by  the  actual  value  determined  by  the  market 
price  or  otherwise  in  case  of  shares  liaving  no  face  or  par  value  but  an  actual  value 
in  excess  of  $100  a  share.     (T.  D.  2752;  Aug.  14,  1918.) 

Decedent's  estate. 

See  "Estate  Tax";  "Inheritance  Taxes." 

Definition. 

The  word  "transfers"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes 
on  sales  aiid  transfers  of  shares  of  stock  and  like  securities,  includes  all  sales,  agree- 
ments to  sell,  memoranda  of  sales,  and  all  deliveries  or  transfers  of  legal  title,  except 
as  otherwise  specifically  provided  in  such  regulations.    (T.  D.  2608;  Nov.  30,  1917.) 

Shares  of  stock  and  like  securities — AflB.xing  and  canceling  stamps. 

.Stamp  must  be  affixed  to  bill,  memorandum,  or  agreement  to  sell,  where  transfer 
is  effected  by  delivery  of  certificate  of  stock  assigned  in  blank;  in  case  change  of 
ownership  is  by  transfer  of  certificate  of  stock,  stamp  shall  be  affixed  to  the  certificate; 
in  case  evidence  of  transfer  is  shown  only  by  books  of  company,  stamp  shall  be  placed 
upon  the  books;  in  all  other  cases  payment  shall  be  evidenced  by  affixing  stamp 
upon  memorandum  or  agreement  of  sale  to  be  delivered  by  the  seller  to  the  buj-er; 
manner  of  canceling  stamps  stated.     (T.  D.  2608;  Nov.  30,  1917.) 

Exempt  transactions. 

Xo  tax  is  imposed  upon  agreement  evidencing  deposit  of  stock  certificates  as 
collateral  security,  nor  upon  deliveries  or  transfers  to  broker  for  sale,  nor  upon 
deliveries  or  transfers  by  broker  to  customer,  provided  such  deliveries  or  transfers 
shall  be  accompanied  by  certificate  setting  forth  the  facts,  nor  upon  transfers  or 
deliveries  to  clearing  house  for  sole  purpos.^  of  clearing  or  adjusting  accounts  between 
members;  no  by-law  or  custom  of  any  exchange  or  similar  institution,  nor  any  col- 
lateral or  additional  agreement  or  understanding,  inconsistent  or  in  conflict  with  any 
requirement  of  the  act  of  October  3,  1917,  or  of  Regulation  No.  40,  Part  1,  shall 
exempt  any  person  from  the  payment  of  the  tax.     (T."D.  2608;  Nov.  30,  1917.) 

Memorandum  of  sale. 

I'ersons  selling  or  agreeing  to  sell  stocks  required  to  deliver  to  buyer  a  numbered 
memorandum  of  sale,  or  agreement  to  sell,  signed  by  principal  or  his  agent,  showing 
date  of  transaction,  names  of  parties,  shares  of  stock  to  which  it  relates,  number  and 
price  of  shares.     (T.  D.  2608;  Nov.  30,  1917.) 


TRANSPORTATION.  601 

Shares  of  stock  and  like  securities— Coulinued. 

—  Rate  of  taxation. 

In  the  case  of  shares  or  certificates  of  stock  having  a  face  or  par  value,  amount  of 
tax  shall  be  based  upon  total  face  value  of  shares  involved,  and  shall  be  at  rate  of  2 
cents  for  each  $100  of  such  total  face  value  or  friction  thereof,  whether  such  aggregate 
face  value  is  greater  or  less  than  $100.     (T.  D.  2608;  Nov.  30,  1917.) 

Records. 

Persons  engaged  in  business  of  buying,  selling,  or  transferring  shares  of  stock, 
required  to  keep  record  showing  specified  items  of  information;  form  of  record  re- 
quired.    (T.  D.  2608;  Nov.  30,  1917.) 

Registration. 

Regulation  No.  40,  Part  1,  requires  a  statement  of  registration  by  persons,  cor- 
porations, etc.,  engaged  in  negotiating,  making,  or  recording  sales  or  transfers  of 
shares  of  stock  and  other  like  securities;  record  of  statement  of  registration  to  be 
kept  by  collector  who  must  issue  certificate  of  registration  to  be  posted  in  place  of 
business.     (T.  D.  2608;  Nov.  30,  1917.) 

Returns. 

Clearing  houses  and  persons  engaged  wholly  or  partly  in  buying,  selling,  or  trans- 
ferring shares  of  stock,  requii'ed  to  make  returns  showing  specified  data  and  informa- 
tion; substitute  returns.     (T.  D.  2608;  Nov.  30,  1917.) 

- —  Stamp  sales. 

Stamps  shall  be  sold  only  by  collectors,  their  deputies,  an  assistant  treasurer,  or 
other  designated  United  States  depositary;  State  agents  requisitions  for  stamps; 
records;  kind  and  color  of  stamps.     (T.  D.  2741;  June  25,  1918.) 

TRANSPORTATION. 

Alcohol  -Losses  in  transit. 

Tanks  and  tank  cars  used  in  shipment  of  alcohol  to  denaturing  bonded  ware- 
houses required  to  be  secured  with  certain  seal  locks,  and  vents  or  removable  por- 
tions of  car  not  so  locked  must  be  wired  and  sealed  with  "Tyden"  seals,  consecu- 
tively numbered,  etc.;  certificates  and  monthly  reports  of  gangers;  necessary  that 
locks  and  seals-  be  intact  in  order  to  secure  allowance  for  losses  in  transit.  (T.  D. 
2746;  July  10,  1918.) 

Alcoholic  hquors  shipped  into  "dry"  territory. 

Instruction  to  revenue  officers  as  to  duties  in  connection  with  shipments  in  viola- 
tion of  section  240  of  the  Criminal  Code;  description;  baggage;  interstate  shipments; 
seizures;  reports.     (T.  D.  2437;  Jan.  19,  1917.) 

Distilled  spirits — Export. 

Alcohol  or  other  distilled  spirits  of  not  less  than  180°  proof  may  be  drawn  from 
receiving  cisterns  at  any  distillery  or  from  storage  tanks  in  distillery  warehouse  into 
tanks  or  tank  cars  for  export  from  United  States.     (T.  D.  2368;  Sept.  11,  1916.) 

Monthly  report  of  spirits  wthdrawn  from  recei\'ing  cisterns  required  to  be  made 
on  supplemental  Form  94A;  contents.     (T.  D.  2368;  Sept.  11,  1916.) 

Bonded  carriers  to  which  shipments  of  spudts  in  tanks  or  tank  cars  are  deli^■ered 
for  transportation  for  export  required  to  procure  certain  seals  for  securing  cars  for  use 
until  such  time  as  Commissioner  of  Internal  Revenue  may  adopt  a  suitable  seal; 
ordering,  numbering,  and  affixing  of  seals;  duty  of  collector  of  customs  where  seals 
are  found  to  be  intact  at  frontier  point;  duties  of  customs  inspector  where  seals  are 
found  to  be  broken  or  tampered  with.     (T.  D.  2368;  Sept.  11,  1916.) 

Each  tank  or  tank  car  will  be  regarded  as  an  original  package,  and  an  export  stamp, 
to  be  procured  by  the  shipper,  will  be  affixed  to  each  such  tank  or  tank  car.  (T.  D. 
2368;  Sept.  11,1916.) 

Applications  for  withdrawal  of  alcohol  or  other  distilled  spirits  for  exportation  in 
tanks  or  tank  cars  and  bonds  covering  tax  on  spirits  to  be  witihdrawn  will  be  sanie 
as  for  spirits  contained  in  original  packages,  except  that  in  distributing  the  sjurita 
the  serial  number  of  the  storage  tank  will  be  gi\en,  or  if  withdrawal  is  to  be  made 
direct  from  receiving  cistern  application  and  bond  vnll  so  state.  (T.  D.  2368; 
Sept.  11.  1916.) 


602  TRANSPORT  ATION. 

Distilled  spirits — Export — Continued . 

WTien  alcohol  or  other  distilled  spirits  are  to  be  withdrawn  from  distillery  bonded 
warehouse  free  of  tax  for  export  in  tanks  or  tank  cars,  metal  storage  tanks  must  be 
provided  in  such  warehouse  to  be  constructed  and  arranged  with  proper  pipe  con- 
nections and  suitable  weighing  tanks,  as  prescribed  in  Regulations  No.  30;  when 
withdrawals  are  to  be  made  direct  from  receiving  cisterns  into  tanks  or  tank  cars, 
storage  tanks  need  not  be  provided  in  such  warehouse,  in  which  case  the  weighing 
tanks  will  be  located  in  the  distillery  cistern  room.     (T.  D.  2368;  Sept.  11,  1916.) 

Exportation  of  alcohol  or  other  distilled  spirits  in  tanks  or  tank  cars  restricted  to 
shipments  by  railroad  destined  for  points  in  contiguous  foreign  territory.  (T.  D. 
2368;  Sept.  11,  1916.) 

Gangers  required  in  making  up  Form  59,  reporting  spirits  withdrawn  from  ware- 
house for  export  upon  original  gauge  to  enter  in  proper  columns  complete  data  as 
to  each  package  appearing  in  Forms  59  reporting  the  entry  gauge;  when  such  spirits 
are  shipped  for  export  in  cars  sealed  with  "U.  S.  C.  in  bond,"  seals,  gauger  will  pre- 
pare separate  Form  59  for  packages  shipped  in  each  car,  and  serial  numbers  of  seals 
will  also  be  stated  in  Form  206,  together  with  serial  numbers  of  packages;  bills  of 
lading  for  each  car  required  to  have  seal  numbers  noted  thereon.  (T.  D.  2473;  Apr. 
2,  1917.) 

- —  Forfeiture  of  vehicle  used. 

Nonparticipation  of  owner  of  automobile  in  its  use  in  transporting  distilled 
spirits  upon  which  the  tax  had  not  been  paid  is  no  bar  to  proceeding  in  rem  for  ita 
forfeiture.     (T.  D.  2776;  Dec.  11,  1918.) 

- —  Loss. 

Claims  for  remission  of  tax  on  spirits  lost  in  transit  for  export  not  required  where 
spirits  are  shipped  in  sealed  cars  and  the  seals  on  arrival  of  cars  are  found  intact, 
and  where  loss  reported  does  not  exceed  4  wine  gallons  as  to  any  one  package,  pro- 
^^.ded  average  loss  does  not  exceed  2  wine  gallons  per  package  as  to  all  packages 
gauged;  requisites  of  application  for  reUef  where  loss  reported  exceeds  amount 
stated;  certificate  setting  forth  whether  spirits  were  insured  in  excess  of  market 
value  thereof  exclusive  of  tax;  regulations  api^licable  to  spirits  lost  when  shipped 
in  unsealed  cars,  except  that  loss  in  excess  of  1  proof  gallon  per  package  will  be 
regarded  in  such  cases  as  excessive.     (T.  D.  2461;  Mar.  16,  1917.) 

Estate  ta,xes. 

Ruling  that  local  agent,  representative,  etc. ,  may  not  release  to  foreign  administrator 
or  executor  or  foreign  beneficiary  any  property  within  this  country  at  time  of  dece- 
dent's death  until  either  tax  due  has  been  paid  or  ancillary  letters  have  been  taken 
out  or  otherwise  provision  has  been  made  for  satisfaction  of  tax  lien  does  not  apply 
to  carriers  of  property  of  nom-esident  decedent  while  such  property  is  in  their  charge 
for  purpose  of  transit.     (T.  D.  2454;  Feb.  28,  1917.) 

Excise  taxes — Boats. 
See  "Excise  Taxes." 

Freight  charges. 

If  articles  are  sold  at  factory  and  freight  charges  to  point  of  delivery  are  paid  by 
buyer  as  specific  item,  or  if  they  are  sold  delivered  at  sum  less  freight  charges  to 
be  paid  by  purchaser,  such  charges  need  not  be  included  as  part  of  price  of  goods; 
but  if  manufacturer  sells  goods  at  delivered  price  and  himself  pays  the  freight,  he 
may  not  make  any  deduction  on  account  of  inclusion  in  price  of  freight  charges. 
(T.  D.  2719;  Art.  III.) 

Excursion  boats — Admission  charges  to  dances. 

Charges  of  excursion  boats  pro\ading  opportunity  for  dancing  are  subject  to  tax 
imposed  by  section  700  of  act  of  October  3,  1917,  where  such  charges  exceed  the 
usual  or  reasonable  rates  for  transportation  furnished.     (T.  D.  2681;  Mar.  26,  1918.) 

Income  taxes — Information  as  to  freight  bills. 

Bills  paid  for  freight  do  not  requh-e  reports  of  information.  (T.  D.  2670;  Mar.  11, 
1918.) 

Narcotics. 

\\'hen  sale  of  express  or  freight  package  containing  narcotic  drugs  is  to  be  made, 
collector  of  district  should  be  notified  suflncient  length  of  time  in  advance  to  permit 
detail  by  him  of  officer  to  inspect  packages  and  identify  such  as  contain  narcotic 


TEANSPORTATION".  603 

Narcotics — Continued . 

dnigs;  revenue  officer  must  be  present  at  sale  to  see  that  packages  are  sold  to  those 
persons  only  who  are  registered  under  Federal  law  or  to  officers  of  Federal,  State,  or 
municipal  Governments  exempt  from  its  provisions;  purchaser  must  at  time  of 
purchase  make  supplemental  inventory  in  duplicate  of  drugs  coming  into  his  pos- 
session, he  to  retain  original  for  file  ^^dth  his  order  forms  and  forward  duplicate  to 
collector  who  is  required  to  notify  Internal  Revenue  Bureau  when  such  transac- 
tions lake  place  and  furnish  name  and  address  of  purchaser.)  (T.  D,  2712;  May  13, 
1918.) 

Stamp  taxes — Drafts  with  bills  of  lading  attached. 

Ordinary  sight  draft  mth  bill  of  lading  attached  is  not  taxable,  but  draft  expressed 
to  be  payable  at  sight  '  'on  arrival  of  car, ' '  or  containing  memoranduni  to  hold  until 
arrival  of  car  is;  sight  draft  accompanied  by  instructions  outside  the  instrument,  as 
"Do  not  present  until  arrival  of  car, "  or  some  such  memorandum,  is  not  taxable. 
(T.  D.  2G82;  Mar.  26,  1918.) 

Because  of  the  constitutional  restriction  that  no  tax  or  duty  shall  be  laid  on 
articles  exported  from  any  State,  drafts  with  bills  of  lading  attached  covering  goods 
in  course  of  exportation  are  not  subject  to  the  tax.     (T.  D.  2682;  Mar.  26,  1918.) 

Passage  tickets. 

Passage  tickets  sold  in  United  States  from  Hongkong  to  Vancouver,  not  sold  as 
part  of  round-trip  or  through  ticket  from  a  port  in  the  United  States.  Canada,  or 
Mexico,  are  not  subject  to  stamp  tax  imposed  bv  section  807,  Schedule  A,  para- 
graph 10,  act  of  October  3,  1917.     (T.  D.  2795;  Feb.  26,  1919.) 

Passage  tickets  issued  to  United  Statfs  Government  and  foreign  Government 
officials,  emplovees,  and  military  and  naval  forces,  as  well  as  officials  of  States  and 
their  political  "subdivisions,  traveling  in  course  of  duty  on  vessels  operated  pri- 
vately or  by  any  Government,  are  not  subject  to  stamp  tax  imposed  by  subdivision 
10  of"Schedule  A,  section  807,  of  act  of  October  3,  1917;  passage  tickets  issued  to 
private  individuals,  traveling  on  vessels  operated  privately  or  by  any  Government 
are  taxable.     (T.  D.  2676;  Mar.  18,  1918.) 

Stamp  tax  provided  for  by  subdivision  10  of  Schedule  A,  section  807,  of  act  of 
October  3, 1917,  is  imposed  on  cost  of  a  one-way  or  round-trip  ticket  for  each  passen- 
ger sold  or  issued  in  United  States  for  passage  by  any  vessel  from  port  in  United 
States,  Canada,  or  Mexico,  to  port  or  place  not  in  United  States,  Canada,  or  Mexico, 
provided  cost  of  vessel's  proportion  exceeds  $10;  if  passage  be  paid  on  through, 
one-way,  or  round-trip  ticket,  involving  transportation  partly  by  rail  and  partly 
by  water,  tax  applies  to  that  proportion  of  amount  paid  which  accrues  to  vessel; 
table  showing  vessel's  proportion  of  selling  price  of  each  ticket.  (T.  D.  2676; 
Mar.  18,  1918.) 

Passage  tickets  issued  to  United  States  Government  and  foreign  go^•ernment 
ollicials,  employees,  and  military  and  naval  forces,  as  well  as  officials  of  States  and 
their  political  subdivisions,  traveling  in  the  course  of  their  duty  on  vessels  operated 
priA-ately  or  by  any  government  are  not  taxable;  passage  tickets  issued  to  private 
individuals  traveling  on  vessels  operated  privately  or  by  any  government  are  tax- 
able.    (T.  D.  2676;  Mar.  18,  1918.) 

Taxes  on  passage  tickets  must  be  paid  in  adhesive  internal-revenue  stamps,  to  be 
furnished  by  purchasers;  such  stamps  must  be  affixed  to  the  portion  of  the  ticket 
or  on  the  order,  covering  the  vessel  passage,  and  "the  person,  corporation,  partner- 
ship, or  association  using  or  affixing  the  same  shall  write  or  stamp  or  cause  to  be 
written  or  stamped  thereupon  the  initials  of  his  or  its  name  and  the  date  upon  which 
the  same  is  attached  or  used."     (T.  D.  2676;  Mar.  18,  1918.) 

Wines. 

Shipper  required  to  make  bill  of  lading  in  triplicate,  two  copies  to  be  filed  with 
collector  of  district  from  which  wines  are  shipped,  with  uncanceled  stamps  of 
required  denominations  affixed  to  one  of  such  copies;  bill  of  lading  to  which  un- 
canceled stamps  are  attached  will  then  be  checked  mth  maker 's  or  dealer 's  monthly 
statement,  and,  together  with  uncanceled  stamps,  will  be  forwarded  by  collector  by- 
registered  mail  to  Commissioner  of  Internal  RoNenue  at  close  of  each  month;  col- 
lector required  to  mail  one  copy  of  bill  of  lading  to  collector  of  district  to  which 
tank  cars  are  consigned,  noting  thereon  that  appropriate  stamps  have  been  recei\ed 
in  his  office,  and  third  copy  of  bill  will  be  sent  by  shipper  to  consignee  after  noting 
thereon  that  appropriate  stamps  were  forwarded  to  collector's  office;  collector  of 
district  to  which  cars  are  consigned  will  see  that  they  are  not  released  to  consignee 
until  he  has  received  copy  of  bill  of  lading  duly  certified  by  collector  of  district 


604  TEANSPORTATION   TAX. 

Wines — rontintied . 

from  which  shipped,  stating  that  proper  stamps  have  been  receiA'ed  in  his  office; 
label  to  be  affixed  to  car  will,  in  addition  to  prescribed  marks  contain  words  "Tax 
paid' ';  shipments  whether  in  bond  or  tax  paid  -wall  be  reported  as  separate  items  on 
Form  701  or  702,  as  case  may  be;  wine  shipped  to  other  than  bonded  premises  on 
which  tax  has  not  been  paid  by  stamp  will  be  seized  and  shipper  thereof  will  be 
prosecuted  under  provisions  of  paragraph  (f)  of  section  402  of  the  act  of  September 
8,  1916.     (T.  D.  2474;  Apr.  4.  1917.     T.  D.  2555;  Oct.  25,  1917.) 

Untax-paid  wines  can  be  lawfully  shipped  only  from  and  to  bonded  premises. 
(T.  D.  2387;  Oct.  30.  1916.) 

Wines  in  transit  September  8,  1916,  should  be  so  inventoried  by  both  shipper 
and  receiver,  tax  in  such  cases  to  be  assessed  against  shipper,  but  abated  if  paid  by 
receiver.     (T.  D.  2387;  Oct.  30.  1916.) 

In  case  of  shipment  of  wines  free  of  tax  from  bonded  premises  established  under 
section  402  of  act  of  September  8,  1916,  to  bonded  manufacturing  warehouse  to  be 
manufacttired  into  articles  for  export,  proprietor  must  execute  Form  703  in  quad- 
ruplicate; on  arrival  of  wines  at  port  of  entry  manufacturer  will  report  same  to  col- 
lector of  customs,  who  will  cause  wines  to  be  inspected  and  gauged  and  will  certify 
receipt  of  wines  on  blue  Form  703,  returning  one  blue  copy  to  collector  of  internal 
revenue  and  sending  other  to  Commissioner;  separate  transportation  bond  covering 
tax  on  wines  need  not  be  executed;  credit  given  bond  (Form  699  or  699A)  on  receipt 
of  certificate  by  collector  of  internal  rcA'enue  from  collector  of  customs.  (T.  D. 
2738;  June  20,  1918.) 

TRANSPORTATION   TAX. 
Adjustment  of  taxes. 

Officers,  agents,  and  other  employees  of  carriers,  authorized,  in  adjusting  over- 
charge? and  undercharges,  to  adjust  taxed  accordingly;  adjustment  of  tax  where, 
after  collection  of  charge  and  tax,  it  is  claimed  that  charge  is  entitled  to  exemption, 
not  authorized;  all  adjustments  must  be  recorded  and  reported  and  must  be  sup- 
ported by  such  evidences  as  will  substantiate  correctne.«s  thereof,  which  evidences 
must  be  kept  in  respective  offices  through  which  adjustments  are  made.  (T.  D. 
267G;  Mar.  18,  1918.) 

Charges  taxable — Fractional  part  of  cent. 

In  computing  amount  of  tax  to  be  paid  under  section  500  of  the  act  of  October  3, 
1917,  a  fractional  part  of  a  cent  shall  be  disregarded  unless  it  amounts  to  one-half 
cent  or  more,  in  wjiich  case  it  shall  be  increased  to  1  cent;  no  tax  shall  apply  to 
any  consignment  of  freight,  the  charges  for  which  are  16  cents  or  less.  (T.  D.  2676; 
Mar.  18,  1918.) 

• General  rule. 

Charges  in  respect  of  which  taxes,  under  subdivisions  (a),  (b),  (c),  and  (d)  of  sec- 
tion 500  of  the  act  of  October  3,  1917,  must  be  assessed  are  all  charges  fur  transporta- 
tion collected  under  tariffs  filed  or  concurred  in  by  carrier  making  charges  with  a 
Federal  or  State  regulating  authority,  provided,  however,  that  if  a  carrier  has  not 
filed  Of  concurred  in  such  tariffs,  all  charges  collected  by  such  carrier  for  transporta- 
tion are  taxable.     (T.  D.  2876;  Mar.  18,  1918.) 

Collection  of  charges — Records. 

Records  of  carriers  shall  be  so  kept  as  to  show  application  of  tax  imposed  by  sec- 
tion 500  of  the  act  of  October  3,  1917,  to  each  consignment  of  property,  tickets  sold, 
fare  collected,  or  other  individual  transaction;  should  any  payment  be  exempt 
under  section  502  or  should  tax  be  collectible  by  carrier  other  than  one  furnishing 
the  ser\'ices  or  facilities,  notation  shall  be  made  on  records  of  carrier  furnishing 
seryicer;  or  facilitie.?,  indicating  reason  for  not  collecting  such  tax.  (T.  D.  2676; 
Mar.  18,  1918.) 

Collection  of  taxes. 

All  taxes  imposed  by  section  500  of  the  act  of  October  3,  1917,  shall,  as  and  when 
the  charge.?  are  collected,  be  paid  to  and  collected  by  the  officers,  agents,  or  other 
employees  of  the  carrier  who  collect  such  charges.     (T.  D.  2676;  Mar.  18,  1918.) 

Definition — "Carrier." 

The  Word  "carrier,"  as  used  in  Title  V  of  the  act  of  October  3,  1917,  means  every 
person,  corporation,  partnership,  or  association  who  or  which,  for  hire,  furnishes  any 
of  the  transportation  services  or  facilities  described  or  referred  to  in  subdivi.'^ions 
(a),  (b),  (c),  and  (d)  of  section  500;  person,  corporation,  etc.,  engaged  in  logging, 


TEANSPORTATION    TAX.  605 

Definition — "Carrier" — Continued, 
manufacturing,  or  mining,  or  any  other  business,  hirnishing  any  of  the  services 
referred  to  in  such  subdi\'isions,  for  hire,  for  account  of  any  other  person,  corpora- 
tion, etc.,  is  a  carrier  within  the  meaning  of  Title  V.     (T.  D.  2676;  Max.  18,  1918.) 

"Transportation." 

The  word  '  'transportation,"  as  used  in  Title  V  of  the  act  of  October  3,  1917,  means 
tlic  movement  of  persons  and  property  by  a  carrier,  including  all  services  and  facili- 
ties rendered,  furnished,  or  used  in  connection  with  such  movement  by  or  on  behalf 
(if  a  carrier;  it  includes  receipt,  delivery,  elevation,  transfer  in  transit,  ventilation, 
refrigeration,  icing,  storage,  trimming  of  cargo  in  vessels,  wharfage,  handling  of 
property  transported,  feeding  and  watering  live  stock,  and  all  other  incidental 
services  and  facilities,  but  does  not  include  cartage  or  passengers'  meals  or  hotel 
accommodations.     (T.  D.  2676;  Mar.  18,  1918.) 

Excise  tax  on  boats. 

Imposition  of  transportation  tax  for  persons  transported  by  boat  is  not  conclusive 
that  boat  is  used  for  trade  so  as  to  be  exempt  from  tax  imposed  by  section  603  of  act 
October  3,  1917.     (T.  D.  2753;  Aug.  23,  1918.) 

Express  transportation — Application  of  tax. 

Tax  imposed  by  subdivision  (b)  of  section  500  "f  act  of  October  3,  1917,  applies 
whether  package,  parcel,  or  shipment  be  transported  by  rail,  water,  mechanical 
motor  power  or  other  means  of  conveyance;  if  facilities  of  railroad  company  on  line 
of  which  express  company  operates  be  necessary  for  use  of  latter  company,  and  if 
such  latter  company,  under  contract,  transports  commodities  necessary  to  main- 
tain or  operate  such  facilities,  and  express  company  makes  no  charge  for  transpor- 
tation, charges  which,  but  for  such  arrangement,  would  have  accrued  on  such 
tiansporation,  are  exempt  from  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

Corpses. 

AMiere  corpse  is  transported  by  express,  express  tax.  and  not  tax  imposed  bvsub- 
(li\  ision  (c)  of  section  500  of  act  of  October  3,  1917,  applies.  (T.  D.  2676;  Mar.  18, 
1918.) 

— —  Freight  service  combined. 

When  projierty  is  transported  partly  by  freight  and  partly  by  express,  the  3  per 
cent  tax  applies  on  amount  paid  for  freight  movement,  and  tax  of  1  cent  for 
each  20  cents  or  fraction  thereof  applies  on  amount  paid  for  express  movement; 
carrier  collecting  total  transportation  charges  shall  collect,  report,  and  pay  total 
tax  due.     (T.  D.  2676;  Mar.  18,  1918.) 

• Refund  of  tax. 

Procedure  to  be  observed  in  filing  claims  for  refund  of  transportation  tax  based  on 
ground  that  tax  was  collected  on  property  in  process  or  exportation,  stated. 
(T.  D.  2727;  June  5,  1918.) 

Foreign  Governments. 

Amounts  paid  bv  foreign  Governments  for  transportation  services  are  subject  to 
the  taxes  imposed  "bv  section  500  of  the  act  of  October  3,  1917.  (T.  D.  2785;  Jan. 
23,  1919.) 

Freight  transportation — Accrual  of  tax. 

All  amounts  paid  for  transportation  completed  on  or  after  November  1,  1917,  are 
subject  to  tax,  but  where  shippers  had  credit  arrangements  with  carriers  prior  to 
November  1,  1917,  under  which  property  was  shipped  prepaid  prior  to  that  date, 
charges  not  being  actually  paid  until  after  such  date,  tax  does  not  apply  to  amounts 
so  piiid,  nor  does  tax  applv  to  amounts  paid  on  or  after  November  1,  1917,  or  trans- 
portation completed  prior  to  that  date.     (T.  D.  2676;  Mar.  18,  1918.) 

Amount  of  charges  taxable. 

Where  any  taxable  charge  is  collected  in  addition  to  road  haul,  water  haul,  or 
road-and-water  haul  charge,  tax  imposed  under  section  500  of  act  of  October  3,  1917, 
applies  on  total  amount  collected  by  earner,  consisting  of  the  road  haul,  water  haul; 
or  road-and-water  haul,  charge  plus  all  taxable  charges  collected  in  addition  thereto. 
(T.  D.  2676;  Mar.  18,  1918.) 

No  tax  imposed  by  section  500  of  the  act  of  October  3,  1917,  shall  apply  to  any 
consignment  ol  freight  the  charges  for  which  are  16  cents  or  less.  (T.  D.  2676, 
Mar.  18,  1918.) 


606  TEANSPORTATION   TAX. 

Freight  transportation — Continued. 

Basis  of  computation  of  tax. 

In  cases  falling  within  section  501  of  act  of  October  3,  1917,  basis  of  computation 
of  tax  is  current  lawful  rates  of  carrier,  and,  in  absence  thereof,  current  lawlul  rates 
of  carriers  for  like  service;  if  basis  of  tax  can  not  be  readily  determined  in  manner 
stated,  facts  should  be  forthwith  reported  to  Commissioner  of  Internal  Revenue  for 
determination  of  basis.     (T.  D.  2676;  Mar.  18,  1918.) 

Circus  trains. 

Where  a  lump-sum  charge  is  made  for  transportation  of  circus  train,  which  carries 
both  property  and  persons,  3  per  cent  tax  applies  to  such  charge;  if  advance  pas- 
senger transportation  is  included  in  such  lump-sum  charge,  the  8  per  cent  tax  applies 
to  such  portion  of  charge  as  represents  charge  for  advance  passenger  transportation, 
and  3  per  cent  tax  applies  to  balance  of  such  charge.     (T.  D.  2676;  Mar.  18,  1918.) 

Collection  charges. 

When  a  charge  is  made  by  a  transportation  company  for  collecting  from  a  con- 
signee the  amount  due  on  a  C.  0.  D.  shipment,  the  collection  service  is  not  a  trans- 
portation service  and  is  not  subject  to  the  transportation  tax.  (T.  D.  2782;  Dec. 
24,  1918.) 

Collection  of  tax. 

Whenever  one  carrier  collects  charges  for  freight  transportation  performed  in 
part  by  or  on  behalf  of  another  carrier  or  carriers,  such  carrier  shall  collect  tax 
applicable  to  such  taxable  charge  or  charges  and  return  and  remit  to  proper  collector 
of  internal  revenue  the  total  tax  collected;  whenever  a  charge,  in  connection  with 
a  terminal  or  water  service,  is  paid  by  one  carrier,  acting  for  the  consignor  or  con- 
signee, to  another  carrier,  tax  applicable  shall  be  paid  by  former  carrier  to  latter 
carrier,  who  shall  return  and  remit  the  same.     (T.  D.  2676;  Mar.  18,  1918.) 

■ Commodities  for  use  of  carrier  as  carrier. 

Effect  of  subdi\dsion  (a)  of  section  501,  act  of  October  3,  1917,  is  to  exempt  from 
tax  all  transportation  charges  made  by,  or  which  would  accrue  to,  a  carrier,  were 
such  charges  made  by  that  carrier  on  all  materials,  supplies,  or  other  commodities 
transported,  which  are  necessary  for  the  carrier's  use  in  the  conduct  of  its  business 
as  such  carrier  and  intended  to  be  or  ha\ing  been  so  used;  fact  that  all  or  part  of 
capital  stock  of  corporation  is  owned  by  another  corporation  does  not  affect  appli- 
cation of  sections  500  and  501  to  each  corporation  as  an  entity;  tax  applies  to  charges 
made  by  or  which  would  accrue  to  a  carrier  were  such  charges  made  on  all  com- 
modities transported  for  another  carrier,  even  though  they  may  be  necessary  for  use 
of  such  other  carrier  in  conduct  of  its  business  as  such,  subject,  however,  to  certain 
qualifications.     (T.  D.  2676;  Mar.  18,  1918.) 

When  a  company  charters  boats  for  a  stated  period  of  time  and  transports  its  own 
commodities  for  its  own  use  and  furnishes  no  transportation  facilities  to  others,  the 
amounts  paid  for  chartering  such  boats  are  not  subject  to  the  transportation  tax. 
(T.  D.  2782;  Dec.  24,  1918.) 

■ Corpses. 

Where  corpse  is  transported  by  freight,  freight  tax  and  not  tax  imposed  by  eub- 
di\dsion  (c)  of  section  500  of  act  of  October  3,  1917,  applies.  (T.  D.  2676;  Mar.  18, 
1918.) 

• Credentials. 

Credentials  referred  to  on  margin  of  exemption  certificates  are  such  papers,  docu- 
ments, or  other  evidences  as  will  reasonably  show  oSicer,  agent,  or  other  employee 
collecting  transportation  charge;  that  ofiicer  or  employee  issuing  such  certificate  ia 
an  officer  or  employee  of  the  Government  on  whose  behalf  certificate  is  issued. 
(T.  D.  2676;  Mar.  18,  1918.) 

— ■ —  Domestic  shipment  passing  through  foreign  country. 

^\Tiere  consignment  having  both  origin  and  destination  within  United  States 
pa,sses  out  of  United  States  on  its  journey,  gross  transportation  charges  from  point  of 
origin  to  final  destination  are  subject  to  tax  imposed  by  section  500  of  act  of  October 
3,  1917.    (T.  D.  2676;  Mar.  18,  1918.) 


TRANSPORTATION    TAX.  607 

Freight  transportation — Continued. 

Duplication  of  tax. 

Where  any  taxable  charge  is  included  in  the  road  haul,  water  haul,  or  road-and- 
water  haul  charge  applying  to  any  consignment,  tax  applies  to,  and  shall  be  col- 
lected on,  total  amount  collected,  and  no  separate  or  additional  tax  shall  be  col- 
lected on  taxable  amounts  included  therein.     (T.  D.  2676;  Mar.  18,  1918.) 

Evidences  of  right  to  exemption. 

Ways  in  which  right  to  exemption,  under  section  502  of  the  act  of  October  3, 
1917,  from  tax  on  amounts  paid  for  transportation  of  property  shall  be  evidenced, 
stated.     (T.  D.  2676;  Mar.  18,  1918.) 

— ■ —  Exemption  certificates. 

Standard  form  of  exemption  certificate  for  use  of  ofl&cers  or  employees  of  Federal 
Government,  stated;  forms  will,  on  request,  be  furnished  by  Treasury  Department 
to  officers  and  employees  of  Federal  Government  entitled  thereto;  certificate  must 
be  delivered  to  carrier  by  person  paying  charges  when  charges  are  paid;  carriers 
required  to  record  and  file  certificates.     (T.  D.  2676;  Mar.  18,  1918.) 

• Exports. 

Amounts  paid  for  transportation  of  property  in  course  of  exportation  to  foreign 
ports  or  places  are  exempt  from  tax  imposed  under  section  500  of  act  of  October  3, 
1917;  conditions  under  which  property  may  be  deemed  to  be  in  course  of  exporta- 
tion, stated;  if,  when  property  is  deliverd  to  carrier,  it  appears  that  goods  are  in 
course  of  exportation,  no  tax  shall  be  collected  on  amounts  of  any  otherwise  taxable 
charges  prepaid  upon  such  property;  tax  must  be  collected  as  and  when  transpor- 
tation charges  are  collected,  if  transportation  charges  be  billed  collect,  or  upon 
delivery  of  consignment  if  charges  be  prepaid.     (T.  I).  2676;  Mar.  18,  1918.) 

Adjustment  of  tax  by  carrier  on  ground  that  charge  is  exempted  by  reason  of 
exportation  is  not  authorized  after  collection  of  charge  and  tax.  (T.  D.  2676;  Mar. 
18,  1918.) 

Procedure  to  be  observed  in  filing  claims  for  refund  of  transportation  tax  based 
on  ground  that  tax  was  collected  on  property  in  process  of  exportation,  stated. 
(T.  D.  2727;  June  5,  1918.) 

Express  companies. 

When  property  is  transported  partly  by  freight  and  partly  by  express,  the  3  per 
cent  tax  applies  on  amount  paid  for  freight  movement,  and  tax  of  1  cent  for  each 
20  cents  or  fraction  thereof  applies  on  amount  paid  for  express  movement;  carrier 
collecting  total  transportation  charges  shall  collect,  report,  and  pay  total  tax  due. 
(T.  D.  2676;  Mar.  18,  1918.) 

If  facilities  of  express  company  operating  on  Hne  of  railroad  company  be  neces- 
sarj^  for  use  of  latter  in  conduct  of  its  business  as  such,  and  if  latter,  under  contract, 
transports  commodities  necessary  to  maintain  or  operate  such  facilities,  such  com- 
modities being  intended  to  be  or  ha\ing  been  so  used,  charges  which,  but  for  such 
arrangement,  would  have  accrued  on  such  transportation,  are  exempt  from  tax- 
(T.  D.  2676;  Mar.  18,  1918.) 

Where  express  company  pays  a  switching  charge  to  a  rail  carrier  for  switching 
express  cars,  and  amount  so  paid  is  not  passed  on  to  the  shipper,  but  is  absorbed  by 
the  express  company  in  its  express  rate,  amount  so  paid  is  not  subject  to  tax  imposed 
by  section  500  (a)  of  the  act  of  October  3,  1917.     (T.  D.  2782;  Dec.  24,  1918.) 

Foreign  shipment  passing  through  United  States. 

Tax  imposed  under  section  500  of  the  act  of  October  3,  1917,  does  not  apply  to 

Eroperty  passing  through  United  States  from  one  foreign  port  or  place  to  another, 
ut  if  such  property,  while  so  passing  through  United  States,  be  reconsigned  to  a 
destination  within  United  States,  tax  applies  to  transportation  charges  thereon  fi'om 
point  or  place  of  entry  to  such  destination.     (T.  D.  2676;  Mar.  18,  1918.) 

Free  transportation. 

Tax  imposed  by  sections  500  and  501  of  act  of  October  3, 1917,  applies  to  transpor- 
tation by  carrier  of  property  belonging  to  or  for  personal  use  of  any  of  its  officers, 
agents,  or  employees,  even  though  such  property  be  transported  free  of  charge. 
(T.  D.  2676;  Mar.  18,  1918.) 


503  TRANSPORTATION    TAX. 

Freight  transportation — Continued. 

• Imports. 

Tax  imposed  under  section  500  of  act  of  October  3,  1917,  applies  to  charges  which 
accrue  on  property  imported  into  United  States  from  port  of  entry  to  destination 
within  Unitecf  States,  but  tax  does  not  apply  to  any  payment  of  charges  on  property 
mo^dng  on  a  through  bill  of  lading  from  a  point  in  Canada  or  Mexico  to  a  point  in 
the  United  States;  such  tax  shall  be  collected  as  and  when  transportation  charges 
are  collected,  if  such  charges  be  collected  within  United  States,  and  upon  delivery 
of  consignment,  if  charges  be  prepaid  outside  the  United  States,  and  not  paid  at 
port  of  entry.     (T.  D.  2676;  Mar.  18,  1918.) 

• In-transit  privileges. 

Tax  on  charges  in  connection  with  in-transit  privileges  must  be  collected  on 
charges  to  transit  point  at  time  charges  are  collected,  and  whatever  basis  of  read- 
justing charges  is  used  at  time  of  reshipment  or  at  destination  such  tax  must  be 
collected  by  carrier  adjusting  charges  as  remains  due  upon  net  taxable  charges 
assessed  on  shipment  from  point  of  origin  to  destination,  including  charges  for  in- 
transit  privileges.     (T.  D.  2676;  Mar.  18,  1918.) 

Logging  companies  transporting  for  hire. 

Where  a  person,  corporation,  partnership,  or  association  is  engaged  in  logging, 
and,  for  account  of  himself  or  itself,  furnishes  any  of  the  services  or  facilities  de- 
cribed  or  referred  to  in  subdivisions  (a),  (b),  (c),  or  (d)  of  section  500  of  the  aci  of 
October  3,  1917,  and,  at  times,  for  hire,  furnishe?  any  of  such  facilities  for  the  ac- 
count of  any  other  person,  corporation,  partuership,  or  association,  the  one  furnish- 
ing such  facility  is  a  carrier,  and  tax  applies  as  respects  all  commodities  so  trans- 
ported, whether  for  his  or  its  account  or  for  the  account  of  others.  (T.  D.  2676:  Mar. 
18,  1918.) 

Lump-smn  Government  contracts. 

Where  contractor  does  work  for  the  Government,  contract  price  of  which  is  a  lump 
sum,  exemption  proA-idetl  for  l)y  section  502  of  act  of  October  3,  1917,  does  not  apply 
to  amounts  paid  for  transportation  of  property  used  or  to  be  used  by  the  contractor 
in  connection  with  the  work.     (T.  D.  2676;   Mar.  18,  1918.) 

• Manufacturing  companies  transporting  for  hire. 

Where  a  person,  corporation,  partuership,  or  association,  is  engaged  in  manufac- 
turing, and,  for  account  of  himself  or  itsglf,  furnishes  any  of  the  services  or  facilities 
described  or  referred  to  in  subdiAisions  (a),  (b),  (c),  or  (d)  of  section  500  of  the  act 
of  October  3,  1917,  and,  at  times,  for  hire,  furnishes  any  of  such  facilities  for  i  he 
account  of  any  other  person,  corporation,  partnership,  or  association,  the  one  furnish- 
ing such  laciiity  is  a  carrier,  and  tax  applies  as  respects  all  commodities  so  trans- 
ported, whether  for  his  or  its  account  or  for  the  account  of  others.  (T.  D.  2676 ;  Mar. 
18,  1918.) 

Milk. 

Amounts  paid  for  transportation,  other  than  by  express  of  milk,  are  subject  to  tax 
of  3  per  cent;  whenexer  two  or  more  tickets  for  transportation  of  commodities  are 
s :>kl  in  book  foim  or  in  bulk  tax  applies  to  aggregate  amount  paid  for  such  tickets. 
(T.  D.  2676;   Mar.  18,  1918.) 

— ^ —  Miaing  companies  transporting  for  hire. 

Where  a  person,  corporation,  partnership,  or  association  is  engaged  in  mining, 
and,  for  account  of  himself  or  itself,  furnishes  any  of  the  services  or  facilities  de- 
scribed or  referred  to  in  subdivisions  (a),  (b  i,  {c),  or  (d)  of  section  500  of  the  act  of 
Octobers,  1917,  and,  at  times,  for  hire,  furnishes  any  of  such  facilities  for  the  account 
of  any  other  person,  corporation,  partnership,  or  association,  the  one  furnishing  snch 
facility  is  a  carrier,  and  tax  applies  as  respects  all  commodities  bo  transported, 
whether  for  his  or  its  account  or  for  the  account  of  others.  (T.  D.  2676;  Mar.  18, 
1918.) 

^ —  Newspapers. 

Amounts  paid  for  transportation,  other  than  by  express,  of  newspapers,  are  subject 
to  tax  of  3  per  cent;  whenever  two  or  more  tickets  for  transportation  of  commodities 
are  sold  in  book  form  or  in  bulk  tax  applies  to  aggregate  amount  paid  for  such  tickets. 
(T.  D.  2676;  Mar.  18,  1918.) 


TKA^:SPORTATION    TAX.  609 

Freight  transportation — Contimiod. 

Perishable  property. 

If  perishable  consignment  be  sold  under  emergency  conditions  for  benefit  of  whom 
it  may  concern,  net  amount  realized  therefrom  shall  be  considered  transportation 
charge,  and  3  per  cent  tax  shall  apply  to  such  amount  and  be  paid  by  the  purcliaser; 
provided,  however,  that  if  such  amount  be  in  excess  of  actual  ti-ansportation  charges, 
tax  shall  not  apply  to  such  excess.     (T.  D.  2676;  Mar.  18,  1918.) 

• Porto  Rico,  Philippines,  etc. 

Transportation  of  property  by  water  from  port  of  the  United  States  to  Porto  Rico, 
Philippine  Islands,  the  Virgin  Islands,  and  the  Canal  Zone  is  not  subject  to  trans- 
portation tax  imposed  by  section  oOO  of  act  of  October  3,  1917;  rail  transportation 
of  property  from  interior  point  in  United  States  for  transshipment  to  Philippine 
Islands,  Porto  Rico,  and  Virgin  Islands  is  transportation  of  property  "consigned 
from  one  pointin  the  United  States  to  another,"  but  is  exempt  from  internal  revenue 
taxes  bv  reason  of  special  acts  of  Congress:  such  trani^portation  of  property  destined 
to  the  Canal  Zone  is  not  exempt.     (T.  D.  2795;  Feb.  26,  1919.) 

Records  of  taxes  collected. 

Records  of  carriers  shall  be  so  kept  as  to  show  application  of  tax  imposed  by  section 
500  of  the  act  of  October  3,  1917,  to  each  consignment  of  property;  should  any  pay- 
ment be  exempt  under  section  502,  or  should  tax  be  collectible  by  any  carrier  other 
than  one  furnishing  ser^ices  or  facilities,  notation  shall  be  made  on  records  of  car- 
rier furnishing  such  services  or  facilities,  indicating  reason  for  not  collecting  tax. 
(T.  D.  2676;   Mar.  18,  1918.) 

Refund  of  tax. 

Procedure  to  be  observed  in  filing  claims  for  refund  of  transportation  tax  based  on 
ground  that  tax  was  collected  on  property  in  process  of  exportation,  stated.  (T.  D. 
2727;  June  5,  1918.) 

— —  Sales  of  consignments. 

Net  amount  realized  from  sale  of  consignment,  refused  or  unclaimed,  or  if  carload 
of  property  or  a  perishable  consignment  sold  rmder  emergency  conditions,  for  benefit 
of  whom  it  may  concern,  shall  be  considered  transportation  charge,  and  3  per  cent 
tax  shall  apply" to  such  amount  and  be  paid  by  purchaser:  provided,  however,  that  if 
such  amount  be  in  excess  of  actual  transportation  charges  accruing  on  such  consign- 
ment, tax  shall  not  apply  to  such  excess.     (T.  D.  2676;  Mar.  18,  1918.) 

Services  taxable. 

Tax  imposed  under  section  500  of  act  of  October  3,  1917,  applies  to  each  and  every 
service  and  facility  rendered  by  or  on  behalf  of  carriers  in  connection  with  trans- 
portation of  property  bv  freight  from  one  point  in  the  United  States  to  another. 
(T.  D.  2676;   Mar.  18,  1918.) 

■ Telegraph  or  telephone  lines. 

If  telegraph  or  telephone  line  along  railroad  be  necessary  for  use  of  railroad  com- 
pany in  conduct  of  its  business  as  such,  and  if  it,  under  contract,  transports  com- 
modities necessary  to  maintain  or  operate  such  telegi-aph  or  telephone  lines,  such 
commodities  being  intended  to  be  or  having  been  so  used,  charges  which,  but  for 
such  arrangement,  would  have  accrued  on  such  transportation,  are  exempt  from  tax. 
(T.  D.  2676;  Mar.  18,  1918.) 

— —  Terminals  or  yards. 

If  terminal  or  yard  for  use  of  one  or  more  railroads  be  operated  tinder  management 
of  terminal  or  switching  company,  or  of  such  railroad  or  railroads,  and  user  cost 
therefor  to  them  be  based  on  either  gross  or  net  costs  of  operation,  commodities  neces- 
sary in  operation  thereof  shall  be  considered  as  commodities  necessary  for  use  of  such 
carriers  thereof,  and  tax  does  not  apply;  if  terminal  or  yard  be  operated  under  its 
own  management  for  profit,  or  if  fixed  rental  be  charged  for  8er\ices  rendered  by 
terminal  or  switching  company,  tax  applies  to  transportation  charges  made  by 
tenants  or  users  on  such  commodities.     (T.  D.  2676;   Mar.  18,  1918.) 

Whenever  a  taxable  charge,  in  connection  with  a  terminal  ser\-ice,  is  paid  by  one 
carrier,  acting  for  consignor  or  consignee,  to  another  carrier,  tax  applicable  shall  be 
paid  by  former  carrier  to  latter  carrier,  who  shall  return  and  remit  same.  ^T.  D. 
2676;   Mar.  18,  1918.) 

70420°— 21 39 


610  TEANSPORTATIOISr    TAX. 

Freight  transp  ortation — Continued . 

Water  service. 

Whenever  a  taxable  charge,  in  connection  with  a  water  ser\dce,  is  paid  by  one 
carrier,  acting  for  consignor  or  consignee,  to  another  carrier,  tax  applicable  shall  l^e 
paid  by  former  carrier  to  latter  carrier,  who  shall  return  and  remit  same.  (T.  D. 
2676;  Mar.  18,  1918.) 

Governmental  exemption — Adjustment  of  tax. 

Adjustment  of  tax  by  carrier  on  ground  that  charge  is  exempted  by  reason  of  govern- 
mental use  is  not  authorized  after  collection  of  charge  and  tax.  (T.  D.  2676;  Mar. 
18,  1918.) 

Certificates. 

Standard  form  of  exemption  certificate  for  use  of  Federal  Government  stated; 
delivery  to  conductor  of  train;  credentials  referred  to  on  margin  are  such  papers, 
documents,  or  other  evidences  as  will  reasonably  show  employee  collecting  charge 
that  officer  or  employee  issuing  certificate  is  officer  or  employee  of  Government:  cer- 
tificates will,  on  request,  be  furnished  by  Treasury  Department;  certificate  must 
be  delivered  to  carrier  by  person  paying  charges  when  charges  are  paid;  carriers  to 
record  and  file  certificate.     (T.  D.  2676;  Mar.  18,  1918.) 

Cost-plus  contracts. 

Where  contract  price  of  work  for  the  Government  is  cost  plus  certain  percentage, 
amount  received  by  carrier  for  transportatic/U  of  property  used  or  to  be  used  by 
contractor  in  such  work  falls  within  exemption  from  tax  imposed  by  section  50O  of 
act  October  3,  1917;  certificate  specified  in  Regulations  No.  42,  article  15,  must 
be  used  and  must  be  signed  by  a  Government  officer  or  employee,  certificate  signed 
by  contractor  not  being  sufficient.     (T.  D.  2742;  July  1,  1918.) 

Exemption  may  be  claimed  under  section  500  of  act  October  3,  1917,  on  amounts 
paid  for  transportation  of  persons  employed  by  contractor  working  for  Government 
under  cost-plus  contract,  where  transportation  charge  of  an  employee  is  an  item 
in  the  cost  of  the  work,  and  hence  will  be  finally  paid  by  the  Government;  form  of 
exemption  certificate.    ^T.  D.  2742;  July  1,  1918.) 

Evidences  of  right  to  exemption. 

Ways  in  which  right  to  exemption  under  section  502  of  the  act  of  October  3,  1&17» 
from  tax  on  amounts  paid  for  transportation  of  propertv  or  persons  shall  be  evi 
danced,  stated.     (T.  D.  2676;  Mar.  18,  1918.) 

Lump-sum.  Government  contracts. 

Where  contractor  does  work  for  Government,  contract  price  of  which  is  a  lump 
sum,  exemption  does  not  apply  to  amounts  j)aid  for  transportation  of  property  used 
or  to  be  used  by  contractor  in  connection  with  work.     (T.  D.  2676;  Mar.  18, 1918.) 

■ Parlor  or  sleeping  cars. 

Exemption  provided  for  by  section  502  of  act  oi  October  3,  1917,  applies  to 
amounts  paid  for  accommodations  in  parlor  or  sleeping  cars.  (T.  D.  2676;  Mar.  18, 
1918.) 

Persons  exempt. 

Exemption  may  be  claimed  only  where  person  transported  is  incurring  charge 
in  performance  oif  official  duties;  thus,  charges  paid  by  soldiers  traveling  on  fur- 
loughs at  their  own  expense,  are  not  exempt;  fact  that  amount  of  mileage  or  other 
allowance  paid  or  made  by  Government  for  transportation  of  officer  or  employee  in 
performance  of  official  duties  may  be  more  than  sufficient  to  reimburse  him  does 
not  prevent  application  of  exemption  provision.     (T.  D.  2676;  Mar.  18,  1918.) 

Refund  of  tax. 

Procedure  to  be  observed  in  filing  claims  for  refund  of  transportation  tax  based 
on  ground  that  transportation  service  was  rendered  an  exempt  governmental  agency, 
stated.     (T.  D.  2727;  June  5,  1918.) 

Requests  for  transportation. 

Right  to  exemption  under  section  502  of  the  act  of  October  3,  1917,  from  tax  on 
amounts  paid  for  transportation  of  persons  required  to  be  evidenced  by  a  standard 
form  of  transportation  request  as  prescribed  and  used  by  the  Federal  and  State 
Governments,  and  carriers  shall,  in  accepting  such  request,  see  that  it  is  duly  filled 
out;  this  evidence  to  be  subject  to  inspection  by  accredited  representatives  of  the 
Commissioner  of  Internal  Revenue.     (T.  D.  2676;  Mar.  18,  1918.) 


TRANSPORTATION   TAX.  611 

Goveriimental  exemption — Continued, 
Soldiers. 

Transportation  charges  paid  bv  soldiers  tra\'pling  on  furloughs  at  their  own  ex- 
pense are  not  exempt  from  taxation,  under  section  502  of  act  of  October  3,  1917. 
(T.  D.  2676;  Mar.  18,  1918.) 

Vessel  accoromodations. 

Exemption  provided  for  by  section  502  of  act  of  October  3,  1917,  applies  to 
amounts  paid  for  accommodations  on  vessels.     (T.  D.  2676;  Mar.  18,  1918.) 

War  Loan  Organization. 

Amounts  paid  for  transportation  by  the  War  Loan  Organization,  an  agency  of 
the  United  States  Government,  out  of  Government  funds,  are  not  subject  to  the 
transportation  tax.     (T.  D.  2782;  Dec.  24,  1918.) 

Oil  transportation — Application  of  act. 

Where  a  person,  corporation,  partnership,  or  association,  engaged  in  business, 
for  the  account  of  himself  or  itself,  transports  oil  by  pipe  line,  and,  at  times,  for  hire, 
furnishes  such  facility  for  the  account  of  any  other  poison,  corporation,  partnership, 
or  association ,  the  one  furnishing  such  facility  is  a  carrier  within  the  meaning  of  the 
word  as  used  in  Title  V  of  the  act  of  October  3,  1917,  and  tax  imposed  by  section  .501 
applies,  whether  for  his  or  its  account  or  for  the  account  of  others;  when  facility  is 
used  exclusively  for  transporting  property  of  proprietor,  and  not  for  hire,  propri- 
etor, is  not  a  carrier.     (T.  D.  2676;  Mar.  18,  1918.) 

Computation  of  tax. 

WTiere  proprietor  or  pipe  line,  at  times,  for  hire,  transports  oil  of  another,  basis 
of  computation  of  tax  shall  be  current  lawful  rates  of  carrier  and,  in  absence  thereof, 
current  lawful  rates  of  carriers  for  like  service;  if  basis  of  tax  can  not  be  readily 
determined  in  manner  stated,  facts  should  be  forthwith  reported  by  carrier  to  Com- 
missioner of  Internal  Revenue  for  his  determination.     (T.  D.  2676;  Mar.  18,  1918.) 

Definition. 

The  word  'oil,"  as  used  in  subdivision  (d)  of  section  500  of  the  act  of  October  3, 
1917,  means  crude  petroleum  and  such  of  its  products  as  may  be  transported  by 
pipe  line.     (T.  D.  2676;  Mar.  18,  1918.) 

Passenger  transportation — Adjustment  of  taxes. 

All  redemptions  or  other  adjustments,  whether  by  way  of  refund  on  mileage  book 
covers  or  otherwise,  are  to  be  treated  as  adjustments  of  overcharges,  or  undercharges, 
as  case  may  be.     (T.  D.  2676;  Mar.  18,  1918.) 

— —  Amount  of  charge. 

The  8  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  oi  October  3, 
1917,  does  not  applv  where  amount  paid  for  transportation  is  35  cents  or  less. 
(T.  D.  2676;  Mar.  18,'  1918.) 

Application  of  tax. 

The  8  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3, 
1917,  applies  to  amounts  paid  for  transportation  of  persons  from  point  in  United 
States  to  another  point  therein,  even  though  persons  pass  out  of  United  States  in 
course  of  transportation,  from  point  in  United  States  to  point  in  Canada  or  Mexico, 
where  ticket  is  sold  or  issued  in  United  States,  from  point  in  United  States  to  another 
point  therein,  or — where  ticket  is  sold  or  issued  in  United  States— from  point  in 
United  States  to  point  in  Canada  or  Mexico  when  transportation  is  part  of  through 
traiisportiition  to  or  from  foreign  country  other  than  Canaiia  or  Mexico;  tax  applies 
to  each  and  every  service  anri  facility  except  passengers'  meals  and  hotel  accom.- 
modations,  where  transportation  in  connection  with  which  ser\'ice  or  facilitv  is 
rendered  is  subject  to  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

The  8  per  cent  tax  does  not  apply  to  amounts  paid  for  transoprtation  of  persons 
by  carriers  from  last  port  touched  in  United  States  to  foreign  pojt  other  than  Cana- 
dian or  Mexican  port;  from  point  in  Canada  or  Mexico  to  point  in  United  SUites; 
from  point  in  Canada  to  another  point  therein,  and  provided  that  such  transporta- 
tion be  covered  by  tickets  issued  in  Canada  and  be  part  of  through  transportation, 
even  though  person  pass  through  United  States  in  course  of  transpotration;  from 
point  in  Mexico  to  another  point  therein,  and  provided  transportation  be  covered 


g]i2  TRANSPORTATION    TAX. 

Passenger  transportation— Continued. 

Application  of  tax— Continued. 

by  tickets  issued  in  Mexico  and  be  part  of  throvigh  transportation,  even  thoueh 
persons  pass  through  United  States  in  course  of  transportation;  from  point  in  Canada 
to  point  in  Mexico  or  vice  versa,  provided  transportation  be  covered  by  tickets 
issued  in  Canada  or  Mexico,  and  be  part  of  through  transportation;  where  amount 
paid  for  transportation  is  35  cents  or  less;  where  commutation  or  season  tickets  are 
for  trips  less  than  30  miles;  and  where  persons  are  carried  free  under  Federal  or 
State  laws.     (T.  D.  2676;  Mar.  18,  1918.) 

. Cash  fares. 

Where  continuous  transportation  is  secured  by  iise  of  tickets  in  connection  with 
cash  fare,  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3,  1917, 
applies  provided  lawful  fare  for  such  transportation  exceeds  35  cents;  tax  applies  to 
all  cash  fares  paid  on  trains  from  point  in  United  States  to  point  in  United  States, 
Canada,  or  Mexico  provided  total  cash  fare  for  continuous  journey  exceeds  35  cents. 
(T.  D.  2676;  Mar.  18,  1918.) 

— —  Chartered  cars  or  trains. 

The  8  per  cent  tax  imposed  by  subdivLsion  (c)  of  section  500  of  act  of  October  3, 
1917,  applies  to  charge  for  chaitered  or  special  car  or  train,  excluding  sleeping, 
parlor,  and  private  cars,  for  purpose  of  transporting  persons,  if  such  charge  be  a 
lump  sum  or  on  a  per  capita  basis.     (T.  D.  2676;  Mar.  18,  1918.) 

In  case  of  a  chartered  sleeping,  parlor,  or  private  car,  the  amount  paid  for  the  haul 
is  subject  to  the  8  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of 
October  3,  1917,  and  balance  of  charges,  exclusive  of  meals,  is  subject  to  the  10  per 
cent  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

— —  Circus  tratns. 

Where  a  lump-sum  charge  is  made  for  transportation  of  circus  train,  which  carries 
both  property  and  persons,  3  per  cent  tax  applies  to  such  charge;  if  advance  pas- 
senger transportation  is  included  in  such  lump-sum  charge,  the  8  per  cent  tax 
applies  to  such  portion  of  charge  as  represents  charge  for  advance  passenger  trans- 
portation, and  3  per  cent  tax  applies  to  balance  of  such  charge.  (T.  D.  2676;  Mar. 
18,  1918.) 

Combination  fares. 

Where  continuous  transportation  is  secured  either  by  use  of  same  or  different 
kinds  or  classes  of  tickets  or  by  use  of  such  tickets  in  connection  with  cash  fare, 
tax  imposed  by  subdivision  (c  )"of  section  500  of  act  of  October  3, 1917,  applies,  pro- 
Added  lawful  fare  for  such  transportation  exceeds  35  cents.  (T.  D.  2676;  Mar.  18, 
1918.) 

Commutation  tickets. 

The  term  "commutation  or  season  tickets,"  as  used  in  section  500,  subdivision 
((•),  of  the  act  of  October  3,  1917,  includes  all  forms  of  tickets  issued  and  intended 
for  use  for  a  certain  number  of  trips  between  two  given  termini,  whether  limited  or 
unlimited  as  to  the  time  in  which  they  are  to  be  used.     (T.  D.  2676;  Mar.  18,  1918.) 

The  10  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3, 
1917,  applies  to  amounts  paid  for  commutation  books  purchased  in  United  States, 
calling  for  accommodations  in  parlor  or  sleeping  cars  or  on  vessels,  in  which  event 
tax  shall  be  paid  as  and  when  collections  are  made  or  amount  paid  for  such  books; 
if  books  be  purchased  outside  the  United  States,  tax  applies  to  amount  paid  for 
coupons  lifted,  calling  for  accommodations  between  or  from  points  in  United  States, 
and  tax  shall  be  collected  as  and  when  coupons  are  lifted.  (T.  D.  2676;  Mar.  18, 
1918.) 

The  8  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3, 
1917,  does  not  applv  to  amounts  paid  for  transportation  of  persons  in  case  of  com- 
m-itation  tickets  for'trips  less  than  30  miles.     (T.  D.  2676;  Mar.  18,  1918.) 

<'ommutation  tickets  sold  and  partially  used  before  November  1,  1917,  are  not 
taxable  if  presented  after  that  date  for  remainder  of  journey  or  journeys  called  for. 
(T.D.  2676;  Mar.  18,  1918.) 

• Corpses. 

Arnount  paid  foi  transportation  of  corpse  is  subject  to  tax  imposed  by  subdivision 
(c)  of  section  500  of  act  of  October  3,  1917,  if  corpse  be  transported  on  passenger 
ticket  or  on  excess-baggie  check.     (T.  D.  2676;  Mar.  18, 1918.) 


TE  AX  SPORT  ATION    TAX.  613 

Passenger  transportation — ("on t inuod . 

Credentials. 

Credpntials  referred  to  on  margin  of  exemption  certificates  are  such  papers,  docu- 
ments, or  other  evidences  as  ^\'ill  reasonaVily  show  officer,  agent,  or  other  employee 
collecting  transportation  charge,  that  officer  or  employee  is.suing  euch  certificate 
is  an  officer  or  employee  of  tlie  Government  on  whose  behalf  certificate  is  issued. 
(T.  D.  2676;  Mar.  18.  1918.) 

Evidences  of  payment  of  tax. 

Payment  of  8  per  cent  tax  upon  tickets  bought  but  not  used  prior  to  November  1, 
1917.  shall  be  evidenced  by  indorsement  thereon  by  and  over  signature  and  title  of 
employee  collecting  ticket,'  showing  payment  of  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

Evidences  of  right  to  exemption. 

Ways  in  which  right  to  exemption  under  section  502  of  the  act  of  October  3,  1917, 
from  tax  on  amounts  paid  for  transportation  of  persons  shall  be  evidenced  stated, 
(T.  D.  2676;  Mar.  18,  1918.) 

Excess  baggage. 

Tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  applies 
to  amount  paid  for  transporting  baggage  in  excess  of  free  allowance,  provided  amount 
so  paid  exceeds  35  cents.     (T.  D.  2676;  Mar.  18,  1918.) 

Exchange  orders. 

Ticket  for  which  exchange  order  issued  in  United  States,  Canada,  or  Mexico,  is 
exchanged,  deemed  to  be  ticket  sold  and  issued  at  point  where  exchange  order 
was  issued,  but  where  order  is  issued  outside  United  States,  Canada,  or  Mexico, 
ticket  for  which  exchange  order  is  exchanged  deemed  to  be  ticket  sold  and  is.sued 
at  point  where  exchange  is  made;  exchange  order  sold  in  United  States  for  through 
transportation  to  point  in  United  States,  Canada,  or  Mexico,  is  subject  to  tax  upon 
total  amount  of  charges  paid,  even  though  order  calls  for  exchange  for  another  ticket 
iu  Canada  or  Mexico;  tax  applies  to  any  additional  amount  paid  in  United  States 
in  connection  with  ticket  or  exchange  order  issued  in  Canada,  Mexico,  or  anv  other 
foreign  country.     (T.  D.  2676;  Mar.  18,  1918.) 

Exempt  persons. 

Exemption  may  be  claimed  only  where  person  transported  is  incurring  charge  in 
performance  of  official  duties  as  officer  or  employee  of  Uhited  States;  thus,  charges 
paid  by  soldiers  traveling  on  furloughs  at  tlieir  own  expense  are  not  exempt;  fact 
that  amount  of  mileage  or  other  allowance  paid  or  made  for  transportation  in  ])er- 
formance  of  official  duties  may  be  more  than  sufficient  to  reimburse  ofiicer  or 
employee  for  transportation  payment  does  not  prevent  application  of  exemption 
provision  of  section  502  of  act  of  October  3,  1917,  to  such  payment;  exemption 
applies  to  amounts  paid  as  fares  and  to  amounts  paid  for  accommodations  in  parlor 
or  sleeping  cars  or  on  vessels.     (T.  D.  2676;  Mar.  18,  1918.) 

Exemption  certificates. 

Standard  form  of  exemption  certificate  for  use  of  officers  or  employees  of  Federal 
Government  stated;  forms  will  on  request  be  furnished  by  Treasury  Department  to 
officers  and  employees  of  Federal  Government  entitled  thereto;  certificate  must 
be  delivered  to  carrier  by  person  paying  charges  when  charges  are  paid;  carriers 
required  to  record  and  file  certificates".     (T.  D.  2676;  Mar.  18,  1918.) 

Extra  fares. 

Where  extra  fare  for  special  services  is  charged  in  addition  to  transportation  rate, 
8  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3,  1917, 
applies  and  shall  be  collected  thereon;  this  provision  applies  to  amounts  paid  for 
additional  tickets  purchased  or  fares  paid  tor  exclusive  occupancy  of  drawing 
rooms,  compartments,  or  sections  in  sleeping  or  parlor  cara,  or  accommodations 
furnished  on  steamers.     (T.  D.  2676;  Mar.  18,1918.) 

Free  transportation. 

The  8  per  cent  tax  imposed  by  section  500  of  the  act  of  October  3,  1917,  does  not 
apply  to  amounts  paid  for  transportation  of  persons  by  can-iers  Avhere  they  are  can-ied 
free  under  the  provisions  of  Federal  or  State  laws;  the  10  per  cent  tax  imposed  by 
such  section  does  not  apply  where  accommodations  in  parlor  or  sleeping  cars  or  oq 
vessels  are  furnished  free  under  the  provisions  of  Federal  or  State  laws.  (T.  D. 
2676;  Mar.  18,  1918.) 


614  TEANSPORTATION    TAX. 

Passenger  transportation — Continued. 

• Hotel  acconunodations. 

The  word  "transportation,"  as  used  in  Title  V  of  the  act  of  October  3, 1917,  does 
not  include  passengers '  meals  or  hotel  accommodations.  (T.  D.  2676;  Mar.  18, 1918.) 
Tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  applies  to 
each  and  every  ser^dce  and  facility,  except  passengers '  meals  and  hotel  accommo- 
dations, rendered  by  or  on  behalf  of  carriers  in  connection  with  transportation  of 
persons,  where  transportation  in  connection  with  which  service  or  facility  is  rendered 
is  subject  to  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

Meals. 

The  word  "transportation,"  as  used  in  Title  V  of  the  act  of  October  3,  1917,  does 
not  include  passengers'  meals  or  hotel  accommodations.  (T.  D.  2676;  Mar.  18, 
1918.) 

Tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  applies 
to  each  and  every  service  and  facility,  except  passengers'  meals  and  hotel  accom- 
modations, rendered  by  or  on  behalf  of  carriers  in  connection  with  transportation  of 
persons,  where  transportation  in  connection  with  which  service  or  facility  is  ren- 
dered is  subject  to  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

— —  Mileage  books. 

Provision  of  subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  relating  to 
mileage  books,  applies  whether  book  was  purchsed  in  United  States,  Canada,  or 
Mexico;  manner  of  reporting  and  returning  amounts  collected;  if  book  sold  in 
United  States  prior  to  November  1,  1917,  be  presented  for  exchange  ticket  or  on 
train  for  transportation,  tax  applies  on  sale  value  of  coupons  or  scrip  remaining  in 
book,  and  shall  be  collected  by  employee  to  whom  book  is  presented;  8  per  cent 
tax  applies  to  gross  amount  paid  for  book  purchased  on  or  after  November  1,  1917, 
as  and  when  collection  is  made  therefor,  and  if  e\ddence  of  right  to  exemption  be 
delivered  to  carrier  at  time  of  purchase,  book  shall  be  stamped  "Tax  not  paid"; 
when  tax  applies,  and  when  it  does  not  apply,  to  amount  paid  for  coupons  lifted 
from  mileage  books  purchased  in  Canada  or  Mexico,  stated.  (T.  D.  2676;  Mar.  18, 
1918.) 

Observation  or  composite  cars. 

The  10  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3, 
1917,  applies  to  amount  paid  for  seats  in  observation  or  composite  cars.  (T.  D. 
2676;  Mar.  18,  1918.) 

Parlor  or  sleeping  cars. 

The  8  per  cent  tax  imposed  by  subdi^dsion  (c)  of  section  500  of  act  of  October  3, 
1917,  applies  to  amounts  paid  for  additional  passenger  tickets  purchased  or  fares 
paid  for  exclusive  occupancy  of  drawing  rooms,  compartments,  or  sections  in  sleeping 
or  parlor  cars.     (T.  D.  2676;  Mar.  18,  1918.) 

The  10  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3, 
1917,  applies  to  amount  paid  for  each  drawing  room  or  compartment  in  parlor  or 
sleeping  cars;  in  case  of  chartered  car,  the  amount  paid  for  the  haul  is  subject  to 
the  8  per  cent  tax,  and  balance  of  charges,  exclusive  of  meals,  is  subject  to  10  per 
cent  tax;  the  10  per  cent  tax  applies  to  amounts  paid  for  accommodations  for  use  in 
connection  with  transportation  between  points  in  United  States,  or  from  point  in 
United  States  to  point  in  Canada  or  Mexico,  whether  payment  be  made  in  United 
States  or  elsewhere,  and  even  though  transportation  be  part  of  through  transporta- 
tion to  or  from  foreign  country  other  than  Canada  or  Mexico;  applicability  of  tax  to 
amounts  paid  for  commutation  books,  and  to  accommodations  furnished  free  imder 
Federal  or  State  laws;  where  agent  of  one  carrier  in  collecting  amounts  paid  acts  on 
behalf  of  any  or  all  of  several  carriers,  such  agent  shall  collect  taxes  on  total  charges 
and  remit  to  other  carriers  respective  amounts,  charges  and  taxes,  collected  on  their 
behalf,  such  other  carriers  to  return  and  pay  such  taxes.     (T.  D.  2676;  Mar.  18, 1918.) 

Partial  use  of  tickets. 

Employees  collecting  tickets  must  require  payment  of  taxes  on  every  ticket, 
excluding  commutation  and  season  tickets,  sale  date  of  which  is  prior  to  November 
1,  1917,  unless  ticket  and  conditions  under  which  it  is  presented  show  ticket  has 
been  used  prior  to  November  1,  1917,  for  part  of  journey  called  for  by  it;  return 
portion  of  round-trip  ticket  not  subject  to  tax;  tax  does  not  apply  to  ticket  with 
stop-over  privileges  presented  for  continuation  of  journey;  commutation  or  season 
tickets  not  taxable  if  presented  after  November  1, 1917.     (T.  D.2676;  Mar.  18, 1918.) 


TEANSPORTATIOlSr    TAX.  615 

Passenger  transportation — Conlinued. 
Party  tickets. 

Eight  per  cent  tax  imposed  by  subdivision  (c^  of  section  500  of  the  act  of  October 
3,  1917,  applies  to  total  amount  paid  for  party  ticket.     (T.  D.  2676;  Mar.  18,  1918.) 

Penalties  for  failure  to  pay  or  collect  tax. 

Failure  to  pay  tax  by  passenger,  aa  well  as  failure  to  collect,  report,  and  pay  by 
carrier,  subjects  passenger  and  carrier  to  penalties.     (T.  D.  2G76;  Mar,  18,  1918.) 

Prepaid  orders. 

When  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  is 
applicable  to  amounts  paid  for  prepaid  orders,  calling  for  transportation  and  accom- 
modations in  sleeping  and  parlor  cars  and  on  vessels,  or  either  of  them,  stated; 
ticket  for  transportation  covered  by  prepaid  order  deemed  sold  and  issued  at  point 
where  initial  carrier's  transportation  begins;  where  carrier  or  agency,  in  collecting 
amount  paid  for  prepaid  order,  acts  on  behalf  of  either  or  all  of  several  carriers, 
carrier  or  agency  first  referred  to  shall  collect  taxes  on  total  charges  as  and  when 
charges  are  collected,  and  remit  charges  and  taxes  to  initial  carrier  issuing  ticket, 
and  initial  carrier  shall  return  and  pay  taxes.     (T.  D.  2676;  Mar.  18,  1918.) 

"Begular  established  line." 

"Regular  established  line,"  as  used  in  act  of  October  3,  1917,  construed  to  mean 
a  regularity  of  operation  of  transportation  facilities  by  motor  power  between  definite 
points;  casual  or  intermittent  transportation  of  passengers  by  automobile  between 
two  points  would  not  constitute  a  regular  established  line;  automobile  that  is  merely 
for  hire  and  which  takes  passenger  to  any  point  he  directs  does  not  constitute  regular 
established  line.     (T.  D.  2795;  Feb.  26,  1919.) 

■ Round-trip  tickets. 

Tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3,  1917,  applies  to 
amount  paid  for,  or  applicable  to,  charge  paid  for  round-trip  ticket,  pro^'/iding  such 
amount  is  in  excess  of  35  cents.     (T.  D.  2676;  Mar.  18,  1918.) 

If  return  portion  of  round-trip  ticket  sold  before  November  1,  1917,  be  presented 
for  return  journey,  such  return  portion  is  not  subject  to  tax.  (T.  D.  2676;  Mar.  18, 
1918.) 

Sales  of  baggage. 

Where  baggage  is  refused  or  unclaimed  and  sold  by  carrier,  net  amount  realized 
from  sale  shall  be  considered  transportation  charge,  and  3  per  cent  tax  shall  apply 
to  such  amount  and  be  paid  by  purchaser;  provided,  however,  that  if  such  amount 
be  in  excess  of  the  actual  transportation  charges,  tax  shall  not  apply  to  such  excess. 
(T.  D.  2676;  Mar.  18,  1918.) 

Season  tickets. 

The  term  "commutation  or  season  tickets,"  as  used  in  section  500,  subdivision 
(c),  of  the  act  of  October  3,  1917,  includes  all  forms  of  tickets  issued  and  intended 
for  use  for  a  certain  number  of  trips  between  two  given  termini,  whether  limited  or 
unlimited  as  to  the  time  in  which  they  are  to  be  used.     (T.  D.  2676;  Mar.  18,  1918.) 

The  8  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October  3, 
1917,  does  not  apply  to  amounts  paid  for  transportation  of  persons  in  case  of  season 
tickets  for  trips  less' than  30  miles.     (T.  D.  2676;  Mar.  18,  1918.) 

Season  tickets  sold  and  partially  used  before  November  1,  1917,  are  not  taxable 
if  presented  after  that  date  for  remainder  of  journey  or  journeys  called  for.  (T.  'D. 
2676;  Mar.  18,  1918.)    , 

Stop-over  privileges. 

If  ticket  with  stop-over  privileges  sold  before  November  1,  1917,  be  presented 
for  continuation  of  journev,  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of 
October  3,  1917,  does  not  apply.     (T.  D.  2676;  Mar.  18,  1918.) 

"Trips  less  than  30  miles." 

The  phrase  "for  trips  less  than  30  miles,"  as  used  in  subdi^'ision  (c)  of  section  500 
of  the  act  of  October  3,  1917,  in  connection  with  commutation  and  season  tickets, 
means  for  less  than  30  constructive  miles  in  instances  where  the  rate  for  transporta- 
tion is  fixed  on  the  constructive  mileage.     (T.  D.  2676;  Mar.  18,  1918.) 


QIQ  TEAXSPORTATION   TAX. 

Passenger  transportation— Continued. 
Vessels. 

The  8  per  cent  tax  imposed  by  subdi\-ision  (c)  of  section  500  of  act  of  October  3, 
1917  applies  to  amounts  paid  for  accommodations  furnished  on  steamers.  (T.  D. 
2676;  Mar.  18,  1918.) 

The  10  per  cent  tax  imposed  by  subdivision  (c)  of  section  500  of  act  of  October 
3  1917,  includes  amounts  paid  for  compartments  on  vessels;  where  amount  paid 
for  transportation  of  persons  to,  through,  or  from  United  States,  or  for  round-trip 
ticket,  includes  accommodations  on  vessels,  entire  amount  paid  is  subject  to  the  8 
per  cent  tax  imposed  by  subdiA-ision  (c)  of  section  500  of  the  act  of  October  3,  1917; 
but  where  separate  charge  is  made  for  seat,  berth,  or  stateroom  on  vessel  the  10  per 
cent  tax  shall  be  collected  on  such  separate  berth  or  stateroom  charges,  in  addition 
to  the  8  per  cent  tax  on  transportation;  where  agent  of  one  carrier  in  collecting 
amounts  paid  for  seats,  berths,  or  staterooms  on  vessels  acts  on  behalf  of  another  or 
all  of  several  carriers,  such  agent  shall  collect  taxes  on  total  charges  and  remit  to 
other  carriers  respective  amounts,  charges,  and  taxes  collected  on  their  behalf, 
such  other  carriers  to  return  and  pay  such  taxes.     (T.  D.  2676;  Mar.  18,  1918.) 

When  amounts  paid  in  connection  with  steamship  orders  and  tickets  issued  in 
exchange  therefor  are  taxable,  stated.     (T.  D.  2676;  Mar.  18,  1918.) 

. Zone  system. 

If  person  pays  or  carrier  collects  fare  for  continuous  journey  at  intervals  in 
amounts  of  less  "than  36  cents,  as  in  zone  system,  tax  imposed  by  subdivision  (c)  of 
Bection  500  of  act  of  October  3,  1917,  must  be  collected  on  total  charges  from  starting 
point  to  final  destination  of  such  person,  if  charges  aggregate  36  cents  or  more. 
(T.  D.  2676;  Mar.  18,  1918.) 

PajTinent  of  taxes. 

All  taxes  imposed  by  section  500  of  the  act  of  October  3,  1917,  shall  be  paid  by  the 
person,  corporation,  partnership,  or  association  from  whom  or  from  which  the  carrier 
collects  the  charges  for  the  services  or  facilities  rendered.     (T.  D.  2676;  Mar.  18, 

1918.) 

Penalties  for  failure  to  collect,  pay,  or  report  tax. 

Penalties  provided  for  by  section  1004  of  the  act  of  October  3,  1917,  for  failure  to 
collect,  pay,  or  report  the  tax,  etc.,  apply  to  each  offense.      T.  D.  2676;  Mar.  18, 

1018.) 

"Railroad  system" — Definition. 

The  term  "railroad  system"  as  used  in  subdivision  (b)  of  section  501  of  the  act  of 
October  3,  1917,  means  two  or  more  railroads  and  such  other  carriers  as  may  be 
operated  in  conjunction  therewith,  all  such  railroads  and  other  earners  being  under 
one  general  operating  management,  and  even  though  each  such  railroad  or  other 
carrier  maintains  its  corporate  identity.     (T.  D.  2676;  Mar.  18,  1918.) 

Records — Adjustment  of  taxes. 

Officers,  agents,  and  other  employees  of  carriers  authorized,  in  adjusting  over- 
charges and  undercharges,  to  adjust  taxes  accordingly;  adjustment  of  tax  where, 
after  collection  of  charge  and  tax,  it  is  claimed  that  charge  is  entitled  to  exemption, 
not  authorized;  all  adjustments  must  be  recorded  and  reported,  and  must  be  sup- 
ported by  such  evidences  as  will  substantiate  correctness  thereof,  which  evidence 
must  be  kept  in  respective  offices  through  which  adjustments  are  made.  (T.  D. 
2676;  Mar.  18,  1918.) 

- —  Summaries  of  transactions. 

Officers,  agents,  and  other  employees  of  carriers  shall  cause  to  be  assembled  for 
each  calendar  month,  at  general  offices  of  carriers,  summaries  showing  aggregate 
taxes  collected  as  well  as  summaries  of  all  tax  adjustments;  such  summaries  snail 
Bhow  aggregate  taxes  of  each  class  collected,  as  called  for  by  Form  727,  and  total 
amount  deducted  for  adjustments  on  account  of  overcharges  as  called  for  by  such 
form,  and  difference  between  the  two  items  shall  be  amount  to  be  reported  to  col- 
lector.    (T.  D.  2676;  Mar.  18,  1918.) 

Taxes  collected. 

Records  of  carriers  shall  be  so  kept  as  to  show  application  of  tax  imposed  by 
section  500  of  act  of  October  3,  1917,  to  each  consignment  of  property,  tickets  sold, 
fare  collected,  or  other  individual  transactions;  should  any  payment  for  services  or 


TEEASURY   DECISIONS — TEEASUEY   STOCK.  617 

Recoi'ds — Continued . 

— —  Taxes  collected — Continued. 

facilities  of  carriers  be  exempted,  under  section  502,  from  tax,  or  should  tax  be 
collectible  by  carrier  other  than  one  I'lu^nishing  services  or  facilities,  notation  shall 
be  made  on  records  of  carrier  furnishing  services  or  facilities  indicating  reason  for 
not  collecting  such  tax.     (T.  D.  2676;  Mar.  18,  1918.) 

Return  and  remittance  of  taxes. 

On  or  before  March  31,  1918,  rettuns  must  be  made  and  taxes  remitted  for  month 
of  No^■ember,  1917,  and  on  or  before  March  31,  1918,  and  on  or  before  last  day  of 
each  succeeding  month  returns  re(]uired  by  section  503  of  act  of  October  3,  1917, 
mtist  be  made  under  oath,  in  duplicate,  for  third  preceding  month  to  collector  of 
district  in  which  principal  ollice  or  place  of  business  of  carrier  making  return  is 
located,  and  taxes  collected  during  month  covered  by  each  such  return,  less  tax 
adjustments  during  such  month  on  account  of  overcharges  must  be  remitted  at  time 
return  is  made.     (T.  D.  2676;  Mar.  18,  1918.) 

"State" — Definition. 

The  word  "State,"  as  used  in  section  502  of  the  act  of  October  3,  1917,  includes 
political  subdivisions  thereof,  such  as  coimties,  cities,  towns,  and  other  munici- 
palities.    (T.  D.  2676;  Mar.  18,  1918.) 

Svunmaries  of  tax  collections,  adjustments,  etc. 

Officers,  agents,  and  other  employees  of  carriers  shall  cause  to  be  assembled  for 
each  calendar  month,  at  general  offices  of  carriers,  sumuiaries  showing  aggregate 
taxes  collected  as  well  as  summaries  of  all  tax  adjustments;  such  summaries  shall 
show  aggregate  taxes  of  each  class  collected,  as  called  for  by  Form  727,  and  total 
amoimt  deducted  for  adjustments,  on  account  of  overcharges,  as  called  for  by 
Form  727,  and  difference  between  the  two  items  shall  be  amount  to  be  reported  to 
collector.     (T.  D.  2676;  Mar.  18,  1918.) 

"Tenitory" — Definition. 

The  word  "Territory,"  as  used  in  section  502  of  the  act  of  October  3, 1917,  includes 
political  subdivisions  thereof,  such  as  counties,  cities,  towns,  and  other  municipal- 
ities.    (T.  D.  2676;  Mar.  18,  1918.) 

"Transportation  " — Definition. 

The  word  "transportation,"  as  used  in  Title  V  of  the  act  of  October  3,  1917,  means 
the  movement  of  persons  and  property  by  a  carrier,  including  all  services  and  facili- 
ties rendered,  furnished,  or  used  in  connection  with  such  movement  by  or  on 
behalf  of  a  carrier;  it  includes  receipt,  delivery,  elevation,  transfer  in  transit,  venti- 
lation, refrigeration,  icing,  storage,  trimming  of  cargo  in  vessels,  w^harfage,  handling 
of  property  transported,  feeding  and  watering  live  stock,  and  all  other  incidental 
services  and  facilities,  but  does  not  include  cartage  or  passengers'  meals  or  hotel 
accommodations.     (T.  D.  2676;  Mar.  IS,  1918.) 

♦'United  States"— Definition. 

The  term  "  United  States,"  as  used  in  Title  V  of  the  act  of  October  3,  1917,  means 
only  the  States,  Alaska,  Hawaii,  and  the  District  of  Columbia.  (T.  D.  2676;  Mar. 
18,    1918.) 

TREASURY  DECISIONS. 
Income  taxes. 

Treasury  decisions  promulgating  rulings  of  internal  revenue  bureau  become 
eft'ective  upon  date  of  approval,  unless  otherwise  stated  therein;  cases  pre^'iou6ly 
adju.sted  in  contravention  of  law  as  pronounced  in  such  decisions  are  subject  to 
readjustment  in  accordance  vnih  the  decision.     (T.  D.  2690;  art.  38.) 

TREASURY  STOCK. 
Definition. 

Where  treasury  stock,  defined  to  mean  stock  which  had  been  pre\dou8ly  issued 
by  corporation,  and  which  had  been  repossessed  by  it  through  purchase  or  other- 
wise, and  then  carried  on  its  books  as  an  asset,  is  resold  at  a  price  in  excess  of  its 
cost  upon  repossession,  such  excess  shall  be  returned  as  income  for  year  in  which 
resold;  unissued  stock  retained  by  corporation  for  future  sale  will  not  be  considered 
treasury  stock,  and  when  sold,  no  part  of  proceeds  will  be  considered  taxable  income. 
(T.  D.  2690;  art.  98.) 


gj^g  TREATING    MONEY TRUST    COMPANIES. 

TREATING  MONEY. 

Income  taxes — Deduction. 

So-called  "spending  or  treating  money"  actually  advanced  by  corporations  to 
their  traveling  salesmen  to  be  used  by  them  as  part  of  expense  incident  to  selling 
product  is  allowable  deduction,  but  deduction  is  conditioned  upon  satisfactory 
showing  that  all  allowance  claimed  was  actually  expended  for  and  was  an  ordinary 
and  usual  expense  incurred  in  selling  the  product  or  merchandise  of  the  corporation. 
(T.  D.  2690;  art.  133.) 

TRIPS  LESS  THAN  30  MILES. 
Definition. 

The  phrase  "for  trips  less  than  30  miles,"  as  used  in  subdivision  (c)  of  section  500 
01  the  act  of  October  3,  1917,  in  connection  with  commutation  and  season  tickets, 
means  for  less  than  30  constructive  miles  in  instances  where  the  rate  for  transporta- 
tion is  fixed  on  the  constructive  mileage.     (T.  D.  2676;  Mar.  18,  1918.) 

TRUCK  FARMS.  ' 

Income-tax  returns. 

See  "Farmers." 

TRUSTS. 

Massachusetts  trusts — Capital  stock  tax. 

So-called  Massachusetts  trusts  are  subject  to  tax  imposed  by  act  September  8, 
1916.     (T.  D.  2750,  art.  2,  Appendix  A;  Aug.  9,  1918.) 

— —  Income  taxes. 

Organization  under  constitution  of  which  individuals  who  are  beneficially  inter- 
ested in  various  proportions  in  same  property  and  hold  assignable  certificates  repre- 
senting their  different  interests  therein,  but  who  can  claim  no  part  of  income  of 
property  as  their  income  as  distinguished  from  income  of  organization,  commit  con- 
trol and  management  of  such  property,  for  profit,  to  trustees,  free  from  their  own 
immediate  control  or  interference,  except  that  they  may  act  by  majority  in  amount 
and  interest  for  purpose  of  allowing  extra  compensation  to  trustees,  fiying  vacancies 
in  office  of  trustees  or  modifying  terms  of  declaration  of  trust,  is  an  "association  "  and 
taxable  as  such  under  Section  II,  G  (a),  of  the  act  of  October  3,  1913.  (T.  D.  2720; 
June  4,  1918,  Ct.  De^.; 

Where  trustees  hold  shares  of  stock  of  corporation  and  real  estate  subject  to  lease, 
collecting  dividends  and  rents,  but  ptherudse  doing  no  business,  and  distribute 
the  income  less  taxes  and  similar  expenses  to  holders  of  their*  receipt  certificates, 
who  have  no  control  except  right  of  filling  vacancies  among  trustees  and  of  consent- 
ing to  modification  of  terms  of  trust,  such  trust  is  not  su1)ject  to  income  tax  as  joint- 
stock  association,  under  act  of  October  3,  1913,  and  trustees  and  cestui  que  trust 
are  to  be  treated  as  fiduciaries  and  beneficiaries  for  purposes  of  taxation.  (T.  D. 
2816;  Apr.  2,  1919.     Ct.  Dec.) 

— —  Stamp  tax  on  certificates  of  shares. 

Tax  imposed  by  act  Oct.  3,  1917,  on  issue  or  transfer  of  capital  stock  applies  to 
issue  or  transfer  of  certificates  of  shares  in  so-called  Massachusetts  trusts  and  other 
imincorporated  associations.     (T.  D.  2752;  Aug.  14,  1918.) 

Voting-trust  certificates — Stamp  taxes. 

Tax  imposed  by  act  October  ;'>,  1917,  on  issue  of  capital  stock  does  not  apply  to 
issue  of  voting-trust  certificates,  representing  stock  certificates  already  issued, 
nor  to  mere  issue  of  new  certificates  in  place  of  old  certificates  for  stock  previously 
outstanding.     (T.  D.  2752;  Aug.  14,  1918.) 

Tax  imposed  by  act  October  3,  1917,  on  transfer  of  capital  stock  applies  to  transfer 
of  stock  to  or  from  voting  trustees  and  to  transfer  of  voting-trust  certificates.  (T.  D. 
2752;  Aug.  14,  1918.) 

TRUST  COMPANIES. 

Capital  stock — Issue — Stamp  taxes. 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock  attaches  to  issue  of 
stock  of  either  corporation  in  addition  to  alreadv  existing  stock  upon  merger  of 
trust  companies  under  sections  487-496  of  New  York  banking  law,  but  such  tax 
does  not  attach  to  substitution  of  new  certificates  for  certificates  representing  old 
stock  of  merging  corporation.     (T.  D,  2752:  Aug.  14,  1918.) 


TRUST   DEEDS — TRUST    ESTATES.  619 

Income  taxes— Net  income. 

In  case  of  banks  and  banking  associations,  loan  or  trust  companies,  interest  paid 
within  year  on  deposits  or  on  moneys  received  for  investment  and  secured  by 
interest-bearing  certificates  of  indebtedness  issued  by  such  bank,  banking  associa- 
tion, loan  or  trust  company,  may  be  allowably  deducted  from  gross  income  of  such 
corporation.     (T.  D.  2690;  art.  190.) 

Special  tax  on  bankers. 

Capital,  surplus,  and  undivided  profits  of  trust  company  doing  business  as  banker, 
invested  in  stocks,  bonds,  and  securities,  are  treated  as  used  and  being  in  bankin  ,' 
within  the  meaning  of  section  3  of  the  act  of  October  22,  1914,  and  the  tax  imposel 
is  upon  so  much  thereof  as  are  used  in  the  banking  business.  (T.  D.  2460;  Mar. 
17,  1917.     Ct.  Dec.) 

TRUST  DEEDS. 

Income  taxes — Information  at  source. 

Returns  of  information  required,  regardless  of  amount,  in  case  of  payments  of 
interest  upon  bonds,  mortgages,  or  deeds  of  trust,  or  other  similar  obligations  of 
domestic  or  resident  corporations,  joint-stock  companies,  associations,  and  insurance 
companies,  and  in  the  case  of  foreign  items;  original  ownership  certificates,  when 
duly  filed,  shall  constitute  and  be  treated  as  returns  of  information.  (T.  D.  2758; 
Oct.  2,  1918.) 

■ Returns. 

A  deed  of  trust  must  be  absolute  so  far  as  the  conveyance  of  title  is  concerned  and 
irrevocable  by  the  donor,  otherwise  income  from  property  in  question  will  accrue 
to  donor  and  must  be  accounted  for  by  him.     (T.  D.  2690;  art.  29.) 

Witliholding. 

Withholding  provisions  of  sections  9  (b)  and  (c)  of  the  income  tax  law  apply  to 
normal  income  tax  of  citizens  and  resident  aliens,  only  when  derived  from  interest 
on  bonds  and  mortgages,  deeds  of  trust,  or  other  similar  obligations  of  corporations, 
associations,  etc.,  which  have  a  "tax-frefe  covenant  clause,"  regardless  of  amount 
and  period  of  payment;  on  and  after  January  1,  1918,  normal  tax  of  2  per  cent  im- 
posed by  the  act  of  October  3,  1917,  is  the  tax  to  be  deducted  and  withheld  from 
citizens  or  residents  of  the  United  States  in  accordance  with  section  9  (c).  (T.  D. 
2690;  art.  43.) 

TRUST  ESTATES. 

Estate  taxes. 

Thirty-day  notice  (Form  705)  must  be  filed,  Avithin  30  days  after  death  of  decedent 
whose  estate  is  taxable,  by  trustees  holding  property  conveyed  during  lifetime 
by  decedent  in  contemplation  of  death  or  with  intent  to  provide  for  others  than 
decedent  at  or  after  decedent's  death,  regardless  of  date  of  instrument  making 
conveyance,  or  date  of  possession  by  trustee,  or  date  of  vesting  of  right  of  survivors  to 
possession  or  enjoyment  at  or  after  decedent's  death.     (T.  D.  2454;  Feb.  28,  1917.) 

Income  taxes — ^Exemptions. 

When  income  is  taxable  to  trustee,  as  in  case,  under  present  income  tax  law,  of  a 
trust  income  of  which  is  accumulated  for  benefit  of  unborn  or  unascertained  persons, 
trustee  is  regarded  as  owner  of  all  bonds  held  in  trust  and  the  trust  is  entitled  to 
exemption  on  account  of  such  ownership;  in  such  case  subscription  by  trustee  for 
bonds  of  Fourth  Liberty  Loan  constitutes  trustee  as  such  the  original  subscriber 
and  entitles  the  trust,  on  account  of  such  subscription,  to  collateral  exemption  of 
interest  on  bonds  of  previous  issues.     (T.  D.  2762;   Oct.  18,  1918.) 

When  income  as  such  is  taxable  to  beneficiaiies,  as  in  case,  under  present  income 
tax  law,  of  trust  income  of  which  is  to  be  distributed  annually  or  regularly  between 
existing  beneficiaries,  each  beneficiary  is  regarded  as  owner  of  proportionate  part  of 
bonds  held  in  trust,  and  subscription  by  trustee  for  bonds  of  Fourth  Liberty  Loan 
constitutes  each  beneficiary  an  original  subscriber  for  his  proportionate  part  and 
entitles  him  to  collateral  exemption  of  interest  on  bonds  of  pre^^ous  issues,  whether 
owned  by  beneficiary  or  by  trustee,  and  subscription  by  such  beneficiary  for  bonds 
of  Fourth  Liberty  Loan  entitles  him  to  collateral  exemption  of  interest  on  bonds  of 
previous  issues  held  by  trustee.     (T.  D.  2762;  Oct.  18,  1918.) 


(J20  TRUST   ESTATES. 

Income  taxes — Continued. 

Gross  income. 

All  amounts  paid  by  fiduciaries  to  beneficiaries  of  trust  estates  from  income  of  such 
estates,  whether  from  receipts  or  otherwise,  are  held  to  be  distributions  of  income 
and  will  be  treated  for  income-tax  purposes  in  accordance  with  pro\T.8ion3  of  law  and 
regulations  applica'ole  to  income  of  such  beneficiaries.     (T.  D.  2690;  art.  29.) 

Beneficiary  will  be  required  in  case  of  trust  estate  to  account  for  actual  amounts 
distributed  or  credited  to  him.     (T.  D.  2690;  art.  29.) 

Net  income. 

For  purpose  of  normal  tax  only,  income  embraced  in  personal  return  shall  be 
credited  with  amount  received  as  dividends  upon  stock  or  from  net  earnings  of  any 
corporation,  joint-stock  company  or  association,  trustee,  or  insurance  company, 
which  is  taxable  upon  its  net  income;  applicable  to  nonresident  aliens.  (T.  D.  2690; 
arts.  9,  11.) 

Where  trustees  of  sinking  fund  have  invested  amount  of  sinking  iund  reserve  or 
any  portion  of  it  in  bonds  of  corporation,  and  such  corporation  pays  to  trustees  interest 
thereon,  the  corporation  will  be  permitted  to  deduct  such  interest,  provided  amount 
thus  paid,  plus  interest  on  any  other  outstanding  indebtedness,  does  not  exceed  legal 
limit;  interest  paid  to  trustees,  together  with  all  other  earnings  on  investments  made 
by  trustees  of  the  sinking  fund,  must  be  included  in  gross  income  of  corporation. 
(T.  D.  2690:   art.  189.) 

— —  Refunds. 

Claim  for  refund  filed  by  the  attorney  for  trust  company,  trustee  under  will,  and 
claim  filed  for  and  in  behalf  of  administrator  de  bonis  non  of  decedent,  can  not  be 
ascri])ed  t-o  ce.^stni  que  triist  on  whose  beh,alf  the  original  executrix  paid  the  tax 
without  protest,  and  hence  did  not  satisfy  proA'ision  of  act  of  July  27.  1912,  that 
repi\Tnent  shall  be  made  to  "such  claimants  as  have  presented  or  shall  hereafter  so 
present  their  claims."     (T.  D.  2886;  July  10.  1919.     Ot.  Dec.) 

Inutility  of  filing  claim  by  the  cestui  que  trust,  based  on  fact  that  she  knew 
precise  facts  of  demands  that  had  been  made,  and  that  she  knew  also  that  claims 
of  thG  class  to  which  hers  belonged  had  been  uniformly  rejected,  can  not  be  urged 
as  an  excuse  for  failure  to  file  another  claim  in  her  own  name.  (T.  D.  2886; 
July  10,  1919.     Ct.  Dec.) 

Returns. 

Where  terms  of  will  or  trust  or  decree  of  court  pro\dde  for  keeping  corpus  of  trust 
estate  intact  and  where  physical  property  has  suffered  depreciation  through  its  em- 
ployment in  business,  deduction  from  gross  income  to  care  for  this  depreciation, 
where  deduction  is  applied  or  held  by  fiduciary  for  making  good  such  depreciation, 
may  be  claimed  by  fiduciary  in  his  return ;  contents  of  return,     (T.  D.  2690;  art.  29.) 

Where,  in  case  of  more  than  one  trust,  creator  in  each  instance  is  same  person,  and 
trustee  in  each  instance  is  the  same,  trustee  should  make  single  return  on  Form  1041 
for  all  trusts  in  his  hands,  notwithstanding  fact  that  they  arise  from  different  instru- 
ments; when  trustees  are  created  by  different  persons  for  benefit  of  same  beneficiary, 
trustee  should  make  return  for  each  trust  separately  on  Form  1041.  (T.  D.  2690; 
art.  29.) 

Where  income  under  the  provisions  of  section  2  (b)  of  the  act  of  September  8,  1916, 
is  accounted  for  in  return  by  the  executor,  administrator,  or  trustee,  and  the  tax  shall 
have  been  assessed  and  paid,  income  is  therefore  freed  of  all  tax  liablity;  return  on 
Form  1040  or  1040A,  subject  to  all  deductions  and  exemptions,  shall  be  made  by 
executor  or  administrator  for  estate  during  period  of  administration,  and  entire  tax 
paid  thereon.     (T.  D.  2690;   art.  29.) 

Income  accumulated  in  trust  for  unascertained  persons  or  persons  with  contingent 
interests  is  income  accruing  to  the  estate  and  is  taxable  to  the  estate.  (T.  D.  2690; 
art.  29.) 

Fiduciary  acting  for  beneficiary  in  more  than  one  estate  or  trust  is  required  to 
account  for  each  estate  separately  when  amounts  are  such  as  to  require  filing  of  a 
return,  and  also  a  return  of  information;  fiduciai'v  acting  for  minor  or  insane  person 
having  net  income  of  .$1,000  or  $2,000,  according  to  marital  status  of  such  person, 
required  also  to  file  return  for  such  incompetent  on  Form  1040 and  1040 A,  and  pay 
tax  found  to  be  due,  when  there  is  more  than  one  beneficiary  of  the  income  of  the 
same  trust.     (T.  D.  2690;  art.  29.) 


TRUSTEES   IN   BANKKLPICY — TUKKIbH   BATHS.  621 

Income  taxes — Continued. 
Retiirns — Continued. 

Income  held  for  future  distribution  under  terms  of  will  or  trust  is  taxable  to  the 
estate  except  when  returned  by  the  beneficiary  for  the  purpose  of  the  tax.  (T.  D. 
2690;   art.  29.) 

Where  fiduciary  in  I'nited  States  is  recipient  of  trxist  income  for  which  a  non- 
resident alien  is  the  sole  beneficiary,  fiduciary  required  to  make  full  and  complete 
return  on  Form  1040  or  1040A,  as  case  may  be,  for  such  income  on  behalf  of  non- 
resident alien,  and  pay  any  and  all  normal  tax  found  by  such  return  to  be  due, 
and  any  and  all  surtax,  provided  the  income  is  not  returned  for  the  purpose  of  the 
tax  by  the  beneficiary;  where  there  are  two  or  .r  ore  beneficiaries,  one  or  all  of 
whom  are  nonresident  aliens,  fiduciary  shall  render  return  on  Form  1041,  and  per- 
sonal retiun  on  Form  1040  or  1040A,  for  each  nonresident  alien  beneficiary.  (T.  D. 
2»)90,  art.  29,  as  amended  by  T.  D.  2988;  Mar.  3,  1920.) 

Return  of  individual  is  open  to  inspection  by  trustee  of  taxpayer's  estate,  or  by 
duly  constituted  attorney  in  fact  of  such  trustee,  where  maker  of  return  has  died; 
and,  in  discretion  of  Commissioner,  by  one  of  the  heirs  at  law  or  next  of  kin  of 
deceased  person  upon  showiue;  that  he  has  a  material  interest  which  will  be  affected 
by  information  contained  in  the  return.     (T.  I).  2961;  Jan.  7,  1920.) 

Copy  of  income  return  may  be  furnished  by  Commissioner  to  person  who  made 
return  or  to  his  duly  constituted  attorney,  or  if  entity  is  in  hands  of  trustee  in 
bankruptcy,  to  such  trustee  upon  written  application  for  sarne.  accompanied  by 
satisfactorv  e-sddence  that  applicant  comes  within  this  pro\'ision.  (T.  D.  2962; 
Jan.  7,  1920.) 

Inheritance  taxes. 

Remote  possibiUty  that  fimds  turned  over  to  legatees  before  July  1,  1902,  by  an 
executor  might  have  to  be  returned  does  not  prevent  their  being  vested  and  taxable 
under  the  war-revenue  act  of  1898;  for  purposes  of  that  act  the  interest  transferred 
before  July  1,  19  ).l.  from  an  estate  to  a  trustee  for  ascertained  persons  is  vested  in 
possession  no  less  than  when  it  is  conveyed  directly  to  them.  (T.  D.  3008;  Apr.  22, 
1920.     Ct.  Dec.) 

TRUSTEES   IN   BANKRUPTCY. 

Bonds — Stamp  taxes. 

Indemnity  or  surety  bonds  gi\  en  by  trustees  in  bankruptcy  for  purpose  of  qualify- 
ing as  such  are  bonds  required  in  legal  proceedings,  and  therefore  exempt  from  taxa- 
tion under  Schedule  A,  act  of  October  3,  1917.     (T.  D.  2647;   Feb.  2,  1918.) 

Distilled  spirits — Floor  tax. 

Under  section  1003  of  act  October  3,  1917,  tax  on  spirits  in  hands  of  bankruptcy 
court  June  1,  1917,  shall  be  collected  from  purchaser  thereof  by  trustees  in  bank- 
ruptcy or  their  agent,  and  quantity  sold  and  amount  of  tax  collected  during  any 
calendar  month  shall  be  reported  to  collector  of  district  in  which  sales  are  inade  not 
later  than  10th  day  of  month  succeeding,  which  report  shall  be  transmitted  to 
Commissioner's  oflice,  whereupon  assessment  will  be  made  and  tax  collected  in 
or<linar>'  course;  person  collecting  tax,  whether  it  is  specifically  charged  as  such  to 
person  to  whom  spirits  are  delivered  or  not,  will  be  held  liable  for  same.  (T.  D. 
2749;  July  29,  1918.) 

Income  taxes — Returns. 

Under  section  13,  paragraph  (C),  receivers,  trustees  in  bankruptcy,  or  assignees  in 
charge  of  and  operating  property  and  business  of  coi-porations,  must  make  returns  of 
annual  net  income  and  pay  tax  regardless  of  what  disposition,  subject  to  orders  of 
court,  may  be  made  of  such  income;  such  receiver,  etc.,  stands  in  place  of  corporate 
oilicers  and  must  perform  all  duties  and  assume  all  liabilities  which  would  devolve 
upon  such  officers  were  they  in  control;  income  which  he  receives  is  income  of  c(>r- 
poration  and  is  subject  to  tax  imposed  in  so  far  as  it  exceeds  deductions  or  allowances 
authorized  by  law,  and  such  receiver,  etc.,  must  make  tme  return  of  annual  net  in- 
come covering  each  year  or  part  of  each  year,  during  which  he  is  in  custody  and  con- 
trol of  business  or  properties,  and  will  be  liable  to  all  penalties  for  failure  to  meet 
any  of  its  requirements.     (T.  D.  2690;  art.  209.) 

TURKISH  BATHS. 

Admissions. 

See  "Admissions." 


622  UNDISTRIBUTED    NET    INCOME UNITED   STATES. 

UNDISTRIBUTED   NET   INCOME. 

See  "Excess  Profits  Tax";  "Income  Taxes  (Corporations)";  "Income  Taxes 
(Individuals)." 

UNITED    STATES. 

Annuities — Information  at  source  for  income-tax  purposes. 

Every  person,  corporation,  etc.,  paying  annuities  of  $800  or  more  in  any  taxable 
year,  or,  in  case  of  such  payment  made  1  ly  the  L  nited  States,  the  otficers  or  employees 
of  the  United  States  having  information  as  to  such  payments,  authorized  and  required 
to  render  due  and  accurate  return,  setting  forth  the  amount  of  such  annuities  and  the 
name  and  address  of  the  recipients  thereof.     (T.  D.  2690;  art.  34.) 

Bonds  or  obligations^Additional  taxes. 

See  "Liberty  Bonds." 

Taxpayer  may  give  personal  bond  with  one  or  more  personal  siireties,  as  required 
by  statute,  supported  by  deposit  of  registered  bonds  of  United  States,  at  face  value 
equal  to  penal  sum  of  bond,  assigned  to  "the  Commissioner  of  Internal  Revenue." 
(T.  D.  2606;   Dec.  13,  1917.) 

■ Capital  stock  tax. 

Any  surplus  or  undivided  profits  of  a  foreign  corporation  that  are  invested  in 
United  States  bonds  or  other  securities  having  no  connection  witli  actual  business 
of  corporation  transacted  in  this  country  may  be  stated  on  return.  Form  708,  under 
item  3,  but  should  not  be  included  under  item  1  as  "capital  invested  in  the  United 
States."     (T.  D.  2467;  Mar.  27,  1917.) 

Estate  tax. 

United  States  Government  bonds  must  be  added  to  value  of  estates  for  purpose 
of  taxation.     (T.  D.  2449;  Feb.  13,  1917.) 

— —  Excess  profits  tax. 

See  "Liberty  Bonds." 

Interest  received  on  all  United  States  bonds  and  certificates  exempt  from  normal 
income  tax  neel  not  be  included  in  gross  income  in  return  made  for  purpose  of  the 
2  per  cent  tax  or  the  4  per  cent  tax,  but  interest  on  bonds  and  certificates  issued 
under  the  act  of  September  24,  1917,  in  excels  of  interest  on  $5,000  aggregate  prin- 
cipal amount  of  such  bonds  and  certificates  must  be  included  in  net  income  upon 
which  war  excess-profits  tax  is  computed.     (T.  D.  2690;  art.  100.) 

— —  Income  taxes. 

See  "Liberty  Bonds." 

Interest  on  State,  municipal,  and  United  States  bonds  received  by  corporations 
is  not  taxable  to  the  corporation;  upon  amalgamation  with  other  funds  of  corpora- 
tion such  income  loses  its  identity;  when  distributed  to  stockholders  as  a  dividend, 
entire  amount  of  dividend  is  subject  to  inclusion  in  returns  of  income  for  purposes 
of  tax;  foregoing  holds  true  for  scrip  payment  of  interest.     (T.  D.  2690;  art.  4.) 

There  shall  not  be  included  as  income  interest  on  obligations  of  the  United  States 
(|but,  in  case  of  obligations  of  the  United  States  issued  after  September  1,  1917,  only 
if  and  to  extend  provided  in  act  authorizing  issue  thereof),  or  its  possessions.  (T. 
D.  2690;  art.  5.) 

Section  1200  of  the  act  of  October  3,  1917,  so  amends  section  4  of  the  act  of  Sep- 
tember 8,  1916,  as  to  exempt  interest  on  obligations  of  United  States  issued  after 
September  1,  1917,  only  if  and  to  extent  provided  in  act  authorizing  their  issue; 
income  from  bonds  and  certificates  issued  under  the  act  of  September  24,  1917,  is 
exempt  from  war  income  tax  of  4  per  cent  imposed  upon  net  income  of  corporations 
by  section  4  of  Title  I  of  the  act  of  October  3,  1917,  and  the  2  per  cent  tax  imposed 
by  section  10  of  Title  I  of  the  act  of  September  8,  1916,  as  amended.  (T.  D.  2690; 
art.  85.) 

Interest  received  on  all  United  States  bonds  and  certificates  exempt  from  normal 
income  tax  need  not  be  included  in  gross  income  in  return  made  for  purpose  of  the 
2  per  cent  tax  or  the  4  per  cent  tax,  but  interest  on  bonds  and  certificates  issued 
under  the  act  of  September  24,  1917,  in  excess  of  interest  on  $5,000  aggregate  prin- 
cipal amount  of  such  bonds  and  certificates  must  be  included  in  net  income  upon 
which  war  excess-profits  tax  is  computed.     (T.  D.  2690;  art.  100.) 


UNITED   STATES.  623 

Bonds  or  obligations — Con  tinned. 
Income  taxes — Continued. 

All  interest  received  on  obligations  of  United  States  or  its  possessions  or  on  obli- 
gations of  a  State,  or  any  political  subdivision  thereof,  should  be  eliminated  in 
ascertaining  gross  income;  accrued  interest  on  bonds  purchased  must  not  be  in- 
cluded in  amount  eliminated  from  gross  income;  in  case  of  obligations  of  United 
States  issued  after  September  1,  1917,  income  therefrom  is  exempt  from  tax  only 
to  extent  provided  in  the  act  authorizing  their  issue,  and  income  from  such  obliga- 
tions received  by  insurance  companies  is  exempt  from  2  per  cent  and  4  per  cent 
tax.     (T.  D.  2690;  art.  239.) 

Restrictions  as  to  distribution  of  earnings  of  previous  taxable  j'ears  resulting  from 
presumption  that  all  current  distributions  are  from  current  earnings  do  not  apply 
to  use  of  earnings  for  investments  by  corporations;  the  acts  of  September  8,  1916, 
and  October  3,  1917,  contain  no  limitations  or  restrictions  as  to  source  from  which 
may  be  taken  eainings  used  for  this  purpose;  amounts  invested  in  obligations  of 
United  States  issued  after  September  1,  1917,  may  thus  be  treated  as  made  from 
such  earnings  as  the  corporation  may  designate.     (T.  D.  2700;  Apr.  16,  1918.) 

Amount  of  income  subject  to  10  per  cent  tax  imposed  by  section  10  (b)  of  act  of 
September  8,  1916  as  amended,  is  to  be  ascertained  by  deducting  from  total  net 
income  received  during  taxable  year  as  determined  for  purposes  of  annual  tax 
imposed  by  section  10  (a),  which  remains  undistributed  six  months  after  end  of 
such  taxable  year,  (1)  amount  of  any  income  taxes  imp'ised  by  authority  of  United 
States  paid  by  corporation  within  such  taxable  year  for  income  of  that  year,  (2) 
such  payment  of  undistributed  income  as  is  actually  invested  and  employed  in  the 
business,  or  ^3)  is  retained  for  employment  in  the  reasonable  requirements  of  the 
business,  or  (4)  is  invested  in  obligations  of  United  States  issued  after  September 
1,  1917;  if  taxable  year  began  on  or  after  January  1,  1917,  remainder  is  amount 
upon  which  tax  is  assessed,  but  if  taxable  year  began  before  January  1,  1917,  pro- 
portion of  such  remainder  which  period  between  January  1,  1917,  and  end  of  such 
taxable  year  bears  to  whole  of  such  taxable  year,  is  amount  upon  which  tax  ia 
assessed;  income  received  before  beginning  of  taxable  year  ending  in  1917,  is  not 
subject  to  tax  even  though  remaining  undistributed  six  months  after  end  of  such. 
taxable  year.     (T.  D.  27o6;  June  18,  1918.) 

Designation  of  in^  estment  of  earnings  in  obligations  of  the  United  States  issued 
subsequent  to  September  1,  1917 ,_  may  serve  to  prevent  application  of  additional 
tax  of  10  per  cent  to  amount  so  invested,  but  does  not  warrant  disregarding  the 
amount  of  net  income  for  taxable  year  so  invested  in  determining  profits  or  surplus 
from  which  any  dividends  may  be  distributed.     (T.  D.  2763;  Oct.  21,  1918.) 

Stamp  tax  on  notes  secured  by. 

Promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
pledge  of  any  bonds  or  obligations  of  United  States,  issued  after  April  24,  1917,  and 
all  promissory  notes  issued  and  delivered  on  or  after  April  6,  1918,  and  secured  by 
pledge  of  promissory  note  which  itself  is  secured  by  pledge  of  United  States  bonds 
or  obligations  issued  after  April  24,  1917,  are  exempt  from  stamp  tax  imposed  by 
section  301  of  the  act  of  April  5,  1918;  bonds  herein  mentioned  include  Liberty 
bonds;  exemption  applies  only  where  par  value  of  bonds  or  obligations  pledged 
shall  equal  amount  of  promissory  note.     (T.  D.  2701;  Apr.  16,  1918.) 

Carriers'  facilities,  exemption  from  tax  on  use  of. 

See  "Transportation  Tax." 
Certificates  of  indebtedness — Income  and  excess  profits  taxes. 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  matur- 
ing June  25,  1918,  at  par  and  accrued  interest,  in  payment  of  income  and  excess- 
profits  taxes,  when  payable  at  or  before  maturity  of  certificates;  amount  of  such 
certificates  must  not  exceed  amount  of  taxes  due;  deposits  of  such  certificates  to 
be  made  in  Federal  reserve  banks  of  districts  in  which  collectors'  offices  are  located; 
insurance,  where  amounts  are  transmitted  by  registered  mail;  until  certificates  of 
deposits  are  received  from  banks  amounts  must  be  carried  as  "cash  on  hand"; 
schedule  showing  amount  of  accrued  interest  payable  per  certificate  of  each  issue 
on  any  date  from  January  2,  to  June  25,  1918.     (T.  D.  2639;  Jan.  28,  1918.) 

Schedule  showing  exact  amount  of  accrued  interest  payable  on  any  day  from  Feb- 
ruary 15,  1918,  to  June  25,  1918.     (T.  D.  2656;  Feb.  16,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
March  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  excess-profits  taxes  when  payable  at  or  before  maturity  of  certificates; 


624  UNITED    STATES. 

Certificates  of  indebtedness — Income  and  excess  profits  taxes — Continuod. 
schedule  showing  exact  amount  of  accrued  interest  payable  on  any  day  from  March 
15,  to  June  25,  1918.     (T.  D.  2680;  Mar.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness,  dated 
April  15,  1918,  maturing  June  25,  1918,  at  par  and  accrued  interest,  in  payment  of 
income  and  exces^s-profits  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  exact  amount  of  accrued  interest  on  any  day  from  April  15  to 
June  25,  1918.     (T.  D.  2703;  Apr.  23,  1918.) 

Collectors  directed  to  receive  United  States  certificates  of  indebtedness  dated 
May  15,  1918,  and  maturing  June  25,  1918,  at  per  and  accrued  interest  in  payment 
of  income  and  excess-profit  taxes  when  payable  at  or  before  maturity  of  certificates; 
schedule  showing  the  exact  amount  of  accrued  interest  payable  on  any  day  from 
May  15  to  June  25,  1918.     (T.  D.  2718;  May  28,  1918.) 

Collectors  directed  to  receive  at  par  United  States  Treasury  certificates  of  indebt- 
edness of  Tax  Series  of  1919,  dated  August  20,  1918,  and  maturing  July  15,  1919,  and 
of  Series  T,  dated  November  7,  1918,  and  maturing  March  15,  1919,  in  payment  of 
income  and  profits  taxes  when  payable  at  or  before  maturity  of  certificates ;  deposits  of 
certificates  must  be  made  with  Federal  reserve  banks  of  districts  in  wliich  respective 
collectors'  offices  are  located  and  must  be  forwarded  by  registered  mail;  until  certifi- 
cates of  deposit  are  received  from  banks,  amounts  must  be  carried  as  cash  on  hand; 
schedules  of  certificates  required  to  be  kept  by  collectors;  deposit  of  certificates  in 
banks  by  taxpayers  permitted  under  stated  conditions.     (T.  D.2778;   Dec.  11,  1918.) 

Unmatured  coupons  attached  to  certificates  of  indebtedness  of  Tax  Series  of  1919, 
dated  August  20,  1918,  and  maturing  July  15,  1919,  and  of  Series  T,  dated  November 
7,  1918,  and  maturing  March  15,  1919,  must  be  stamped  "Paid";  coupons  maturing 
on  or  before  date  tax  is  due  nust  be  detached  by  taxpayer  and  collected,  but  all 
other  coupons  must  be  attached  to  certificate  and  forwarded  to  Federal  reserve 
banks;  accrued  interest  to  date  income  or  profits  taxes  are  due  not  covered  by 
coupons  attached  will  be  remitted  to  taxpayer;  collectors  must  not  pay  interest  on 
such  certificates  nor  accept  them  for  an  amoimt  other  or  greater  than  their  face 
value.     (T.  D.  2778;  Dec.  11,  1918.) 

Compensation  payments — Information  at  source  for  income-tax  purposes. 

Every  person,  corporation,  etc.,  paying  compensation,  wages,  etc.,  of  $800  or 
more  in  any  taxable  year,  or,  in  case  of  such  payment  made  by  the  United  States, 
the  officers  or  employees  of  the  United  States  having  information  as  to  such  pay- 
ments, authorized  and  required  to  render  due  and  accurate  return,  setting  forth 
lie  amount  of  such  coinpensation,  wages,  etc.,  and  the  name  and  address  of  the 
recipients  thereof.     (T.  D.  2690;  art.  34.) 

Definition. 

The  term  "United  States,' '  as  used  in  Title  V  of  the  act  of  October  3,  1917,  means 
onlv  the  States,  Alaska,  Hawaii,  and  the  District  of  Columbia.  (T.  D.  2676;  Mar. 
18,  "1918.) 

The  term  "United  States,"  as  used  in  war  excess-profits  tax  regulations  (when 
used  in  a  geographical  sense)  means  only  the  States  thereof,  Alaska,  Hawaii,  and 
the  District  of  Columbia,  and  unless  otherwise  indicated  by  the  contex,  term  will 
be  deemed  to  be  used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  4.) 

"United  States,"  as  used  in  Regulations  No.  38  (revised),  includes  the  States, 
the  Territories  of  Alaska  and  Hawaii,  and  the  District  of  Columbia.  (T.  D.  2750; 
art.  24;  Aug.  9,  1918.) 

Destruction  of  property — Income  taxes. 

Prr.perty  de.stroyed  by  order  of  authorities  of  State  or  of  United  States  may  be 
claimed  as  a  loss;  if  reimbursement  is  made,  amount  received  shall  be  reported  as 
income  for  year  in  which  reimbursement  is  made.     (T.  D.  2690;  art.  4.) 

Actual  cost  of  property  destroyed  by  order  of  authorities  of  a  State  or  of  the  United 
States  maj'  be  claimed  as  a  loss;  but  if  reimbursement  is  made  by  a  State  or  United 
States,  amount  received  shall  be  reported  as  income  for  year  in  which  reimburse- 
ment is  made.     (T.  D.  2690;  art.  123.) 

Distilled  spirits  withdrawn  for  use  of. 

Regulations  of  October  26,  1917,  relative  to  sale  and  use  of  distilled  spirits  for 
other  than  beverage  purposes  under  acts  of  August  10,  1917,  and  October  3,  1917, 
do  not  apply  to  distilled  spirits  withdrawn  for  use  of  United  States  free  of  tax  under 
eection  3464,  Revised  Statutes.     (T.  D.  2559;  Oct.  26,  1917.) 


UNITED   STATES.  625 

Excise  taxes — Articles  sold  to  Government. 

Articlet^  .^cld  to  the  Governni(-nt  in  the  ordinary  course  of  business  are  taxable, 
but  where  Government  supplies  manufacturer  with  all  materials  and  parts  except 
email  portion  furnished  by  manufacturer,  under  contract  stipulating  lliat  manu- 
facturer shall  be  guaranteed  a  certain  profit,  no  tax  is  payable  because  manufac- 
turer does  not  sell  the  articles;  articles  manufactured  in  plants  taken  over  and 
operated  by  Government  are  not  subject  to  tax.     (T.  D.  2719;  Art.  VII.) 

Under  authority  of  section  3464  of  the  Revised  Statutes  tax  on  articles  sold  the 
Government  mav'  be  remitted  in  cases  within  the  scope  of  Regulations  No.  34. 
(T.  D.  2719;  Art".  VII.) 

Insurance  premiums — Information  at  source  for  income-tax  purposes. 

Every  person,  corporation,  etc.,  paying  insurance  premiums  of  $800  or  more  in 
any  taxable  year,  or,  in  case  of  such  pajmcnt  made  by  the  United  States,  the  offi- 
cers or  employees  of  the  United  States  ha\ing  information  as  to  such  payments, 
authorized  and  required  to  render  due  and  accurate  return,  setting  f()rth  the  amount 
of  such  insurance  premiums,  and  the  name  and  address  of  the  recipients  thereof. 
(T.  D.  2690;  art.  34.) 

Interest — Information  at  source  for  income-tax  purposes. 

Every  person,  corporation,  etc.,  paying  interest  of  $800  or  more  in  any  taxable 
year,  or,in  caseof  su(/h  payment  made  by  the  United  States,  the  officers  or  employees 
of  the  United  States  having  information  as  to  such  payments  authorized  and  re- 
quired to  render  due  and  accurate  return,  setting  forth  the  amount  of  such  interest 
and  the  name  and  address  of  the  recipients  thereof.     iT.  D.  2690;  art.  34.) 

Requirements  for  information  at  source  do  not  apply  to  payment  of  interest  on 
obligations  of  the  United  States.     (T.  D.  2690;  art.  37.) 

Liberty  bonds. 

See  '  Liberty  Bonds." 

Officers  or  employees — Income  taxes. 

Amountfi  expended  by  corporations,  partnerships,  or  individuals  engaged  in  busi- 
ness, in  paying  all  or  portions  of  regular  couipcnsaiion  of  officers  or  employees,  who 
have  for  all  or  part  of  the  period  of  the  war  joined  the  naval  or  military  forces  of  the 
United  States,  or  have  undertaken  ser\ices  for  the  Government  at  reduced  or  nom- 
inal compensation,  constitute,  during  the  continuance  of  the  war,  ordinary  and 
necessary  expenses  of  doing  business  and  are  allowable  as  deductions  in  computing 
net  income.     (T.  D.  2660;  Mar.  1,  1918.) 

Returns  of  information  will  not  be  required  from  disbursing  officers  of  payments 
made  to  sailors,  soldiers,  or  civilian  employees  of  the  United  States  Government. 
(T.  D.  2670;  Mar.  11,  1918.) 

■ Inspection  of  returns. 

See  'Inspection." 

Pensions — Income  taxes. 

Pensions  paid  by  United  States,  private  institutions,  or  individuals,  are  to  be 
accounted  for  in  all  cases  where  income  of  pensioner  is  liable  for  income  tas.  (T. 
D.  2690;  art.  4.) 

President — Income  tax. 

Compensation  of  President  of  United  States  for  term  for  which  he  is  elected, 
beginning  March  4,  1917.  shall  not  be  included  as  income  for  purposes  of  income  tax 
under  act  of  October  3.  1917.  such  compensation  being  subject  to  tax  under  the  act 
of  September  8,  1916.     (T.  D.  2690;  art.  5;  see  T.  D.  8037.) 

Bent — Information  at  source  for  income-tax  purposes. 

Every  person,  corporation,  etc.,  paying  rent  of  $800  or  more  in  any  taxable  year, 
or,  in  case  of  such  payment  made  by  the  United  States,  the  officers  or  employees  of 
the  United  States  having  information  as  to  such  payments,  authorized  and  required 
to  render  due  and  accurate  return,  setting  forth  the  amount  of  such  rent  and  the 
name  and  address  of  the  recipients  thereof.     (T.  D.  2690;  art.  34.) 

70420^—21 40 


626  UNITED  STATES. 

Taxes — ^Deductions  for  income-tax  purposes. 

Taxes  imposed  against  corporation  by  authority  of  United  States  (except  income 
and  excess  profits  taxes)  or  its  territories  and  paid  within  year  for  which  return  is 
made  are  deductible  from  gross  income  of  domestic  corporation;  similar  taxes  with 
like  exceptions  assessed  against  and  paid  by  foreign  coi-poration  recei\dng  income 
from  any  source  within  United  States  are  deductible  from  gross  income  received 
from  such  source,  except  that  taxes  imposed  by  foreign  Government  and  paid  by 
foreign  corporation  are  not  deductible  from  gross  income  received  from  sources 
within  United  States.     (T.  D.  2690;  art.  191.) 

Telegraph,  etc.,  messages — Official  business. 

All  telegraph,  telephone,  or  radio  messages  of  officers  and  employees  of  United 
States,  on  official  business,  are  exempt  from  tax  imposed  by  section  500  of  act  of 
October  3,  1917,  and  should  not  be  reported  in  monthly  return  of  telegraph,  tele- 
phone or  radio  company;  officer  or  employee  sending  telegraph  or  radio  message 
should  certify  thereon  that  it  is  on  account  of  official  business  and  not  for  private 
purposes;  form  of  certificate  indicated.     (T.  D.  2551;  Oct.  22, 1917.) 

Under  section  502  of  act  of  October  3,  1917,  radio  messages,  telegraph  messages, 
and  telephone  messages  relating  to  Government  business,  which  originate  in  United 
States,  and  which  are  a  charge  against  the  Treasury  of  the  United  States,  the  Dis- 
trict of  Columbia,  a  State,  Territory,  or  any  political  subdi^dsion  of  a  State  or  Ter- 
ritory, and  are  paid  from  funds  thereof,  are  exempt  from  tax  imposed  by  section 
500  (e)  of  such  act;  messages  not  paid  from  such  funds  are  not  exempt  from  tax 
even  though  they  relate  to  Government  busiue«s.     (T.  D.  2619;  Dec.  19,  1917.) 

Exemption  from  tax  imposed  by  section  500,  subdivision  (e),  act  October  3,  1917, 
on  telephone,  telegraph,  and  radio  messages  may  be  claimed  when  amounts  paid 
for  such  messages  are  finally  to  be  paid  by  the  Government  under  cost-plus  contract; 
this  does  not  apply  where  contractor  is  doing  work  for  Government  lump-sum 
contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

Transportation  tax  liability. 
See  "Transportation  Tax." 

War  risk  insurance. 

Tax  imposed  by  section  504  of  the  act  of  October  3,  1917,  does  not  apply  to  sol- 
diers' and  sailors'  insurance  written  by  the  War  Risk  Insurance  Bureau;  the  act 
clearly  contemplates  that  the  tax  shall  be  paid  by  the  insurer  and  not  by  the  in- 
sured; not  only  is  it  impossible  in  absence  of  express  proAision  to  contrary  to  infer 
that  the  United  States  intended  to  tax  itself,  but  section  505  of  the  act  obviously 
limits  the  application  of  the  tax  to  persons,  corporations,  partnerships,  and  associa- 
tions, in  none  of  which  classes  is  the  United  States  included.  (T.  D.  2563;  Oct.  23, 
1917.) 

Wines  for  use  of — Taxability. 

Wines  purchased  for  use  of  United  States  or  for  Panama  Canal  Commission  may 
be  delivered  free  of  tax,  applications  for  necessary  withdrawal  permit  in  such 
cases,  should  be  made  under  section  3464,  Revised  Statutes.  (T.  D.  2387;  Oct. 
30,  1916.) 

Withdrawal  of  tobacco,  manufactures  thereof,  and  oleomargarine — Applica- 
tion. 

Manufacturer  must  file  appUcation  in  duplicate  on  Form  664  for  permit  to  make 
withdrawal  of  product  in  specific  lots  from  his  factory,  and  in  addition  to  giving 
BTimber  of  factory,  district  and  State,  the  number  of  original  or  statutory  packages 
and  contents  of  each,  and  in  the  case  of  oleomargarine,  the  number  of  inner  packages, 
if  any.  and  weight  of  each,  shall  be  set  forth  in  each  application  as  well  as  the  total 
quantity  covered,  rate  of  tax  applicable,  amount  of  tax  to  be  remitted,  and  the 
institution  or  name  of  the  person  or  officer  to  whom,  and  the  address  to  which,  ship- 
ment or  delivery  is  to  be  made;  these  applications  maybe  forwarded  direct  to  the 
Commissioner  of  Internal  Revenue,  in  which  case  the  duplicate  application  will 
be  forwarded  by  the  Commissioner  to  the  collector,  or  filed  with  the  collector  for 
the  district,  in  which  case  the  collector  must  forward  the  original  appUcation 
immediately  to  the  Commissioner;  application  should  be  filed  sufficient  time  in 
advance  of  date  upon  which  withdrawal  is  contemplated  to  be  made  to  allow  of 
receipt  and  issuance  of  permit  by  the  Commissioner  and  receipt  thereof  by  the 
manufacturer  prior  to  that  date.     (T.  D.  2982;  Jan.  22,  1920.) 


UNITED   STATES.  627 

Withdra-wal  of  tobacco,  manufactures  thereof,  and  oleomargarine — Contd. 

Bills  of  lading. 

Where  product  withdrawn  is  transported  by  common  carrier,  the  manufacturer 
must  file  with  the  collector  of  the  district  in  which  the  factory  making  withdrawal 
is  located  bills  of  lading  in  duplicate  covering  each  shipment  from  the  factory  to 
the  point  of  final  destination;  one  of  these  bills  of  lading,  which  must  be  filed 
promptly  after  withdrawal  ia  made,  will  be  filed  ^vith  the  copy  of  the  application 
and  permit  which  it  covera  in  the  collector's  office,  and  the  other,  in  case  of  tobacco 
manufactures  only,  shall  be  forwarded  immediately  with  letter  of  transmittal  to  the 
Commissioner,  but  in  the  case  of  oleomargarine  the  collector  will  forward  original 
certificate  of  receipt,  wath  one  copy  of  bill  of  lading,  to  the  Commissioner  with  his 
monthly  statement  of  account  as  a  voucher  for  credit  taken  therein.  (T.  D.  2982; 
Jan.  22,  1920.) 

Bond  for  transportation  and  delivery. 

The  manufacturer  is  re.quired  to  furnish  transportation  and  delivery  bond  in 
duplicate  on  Form  605  with  satisfactory  sureties  and  in  penal  sum  of  not  less  than 
the  tax  on  the  total  (juantity  specified  in  the  requisition;  this  bond,  which  shall 
state  quantity  of  product  requisitioned,  number  of  factory,  and  its  location,  includ- 
ing the  district  and  State,  from  which  withdrawal  ia  to  be  made,  and  the  institution 
or  name  of  the  person  or  oflicer  to  whom,  and  address  to  which,  shipment  or  delivery 
is  to  be  made,  may  be  executed  by  corporate  surety  or  indi\idual  sureties,  in  the 
latter  case  each  individual  surety  being  required  to  show  qualification  on  Form  33 
executed  in  duplicate,  and  the  duplicate  form  to  be  attached  to  the  duplicate  bond; 
the  original  and  duplicate  bond  must  be  filed  with  the  collector  for  the  district  in 
which  the  factory  is  located,  who  will,  if  the  bond  meets  his  approval,  enter  an 
indorsement  to  that  effect  on  both  the  original  and  duplicate,  and  forward  the 
dupUcate  immediately  to  the  Commissioner  of  Internal  Revenue.  (T.  D,  2982; 
Jan.  22,  1920.^ 

• Certificate  of  receipt  by  Government  officer. 

The  Government  receiAing  officer  at  the  place  of  delivery  should  inspect  each 
shipment,  in  order  that  he  may  certify  as  to  the  quantity  received  and  the  date  of 
receipt,  his  certificate  to  be  made  on  Form  667  in  duplicate  and  forwarded  promptly 
to  the  manufacturer,  who  must  file  both  '^opies  of  the  certificate  of  receipt  with  the 
collector  of  internal  revenue  for  thfi  district  within  30  days  of  date  of  withdrawal; 
where  there  is  loss  of  goods  in  transit,  the  receipt  should  specify  the  nimiber  of 
statutory  packages,  the  number  of  inner  packages,  if  any,  and  the  total  quantity 
so  lost,  and  the  amount  reported  lost  or  any  difference  between  the  quantity  with- 
drawn under  permit  and  that  certified  to  by  the  receiving  officer  will  remain  as 
charged  against  the  transportation  bond,  and  assessment  of  tax  thereon  will  be 
made  against  the  manufacturer  in  the  absence  of  evidence  showing  that  the  goods 
not  covered  by  the  receiving  officer's  certificate  were  actually  destroyed.  (T.  D. 
2982;  Jan.  22,  1920.) 

Collector's  account;  credit  on  bond. 

The  bond  covering  the  total  quantity  of  product  requisitioned  will  be  credited 
by  the  collector,  in  the  case  of  oleomargarine,  upon  receipt  by  him  of  certificate  on 
Form  667,  and  the  collector  will,  in  case  of  oleomargarine,  forward  the  original 
certificate  of  receipt  to  the  Commissioner  with  his  monthly  statement  of  account 
as  a  voucher  for  credit  taken  therein;  in  the  case  of  tobacco  manufactures,  the  credit 
on  the  bond  will  be  allowed  in  the  office  of  the  Commissioner,  to  whom  the  col- 
lector will  forward  the  original  certificate  of  receipt  immediately  after  it  is 
received  ])y  him.     (T.  D.  2!)S2;  Jan.  22,  1920.) 

Departmental  requisition. 

Whenever  oleomxrgarine,  tobacco,  or  tobacco  manufactures  are  purchased  for 
use  of  the  United  States  and  it  is  proposed  to  make  withdrawals,  tax  free,  from  the 
place  of  manufacture,  reqiusition  in  duplicate  on  Form  663,  approved  by  head  of 
department  or  head  of  bureau,  or  other  organization,  if  independent  of  a  department, 
must  be  filed  with  the  Commissioner  of  Internal  Revenue;  this  requisition  must 
specify  the  total  quantity  of  the  product  contracted  for  at  a  price  not  including 
the  tax  thereon,  the  name  of  the  manufacturer,  his  factory  niunber,  district  and 
Stite,  the  location  of  the  factory  and  the  institution  and  name  of  the  person  or 
officer  to  whom,  and  address  to  which,  shipment  or  delivery  is  to  be  made;  one 
copy  of  the  requisition  will  be  forwarded  by  the  Commiasioner  to  the  collector  of 
internal  revenue  for  the  district  in  which  is  located  the  factory  designated  to  furnish 
the  product.     (T.  D.  2982;  Jan.  22,  1920.) 


628       UNITED  STATES  COURTS— UNITED  STATES  PHARMACOPOEIA. 

Withdrawal  of  tobacco,  manuiactvires  thereof,  and  oleomargarine — Contd. 

Entries  in  manufacturer's  records  and  reports. 

Eich  witlidrawal  of  a  product  from  the  factory  shall  be  entered  by  the  manufac- 
turer in  his  revenue  book  on  the  day  withdrawal  is  made  and  shall  be  included  in 
his  monthly  or  annual  report  under  an  appropriate  heading  and  carried  in  the 
recapitulation  as  a  special  credit.     (T.  D.  2982;  Jan.  22,  1920.) 

— —  Packing,  branding,  or  stenciling. 

Oleomargarine,  put  up  in  cartons  or  other  packages  of  less  than  10  pounds  each, 
must  be  inclosed  in  packages  of  not  less  than  10  pounds  each,  as  required  by  section 
6,  act  of  August  2,  1886,  and  each  such  statutory  packaire  shall,  in  addition  to  brand- 
ing and  stenciling  required  by  other  regulations,  have  branded  or  stenciled  thereon 
"For  use  of  U.  S.  Government,''  together  with  number  of  permit  and  date  thereof, 
the  letters  and  figures  therein  to  correspond  in  size  and  style  with  other  stenciling 
required  by  such  other  regulations.  Each  individual  package  of  tobacco  manu- 
fa'tures  shall  be  labeled  or  branded  "'For  use  of  U.  S.  Government,  "  together  uith 
number  of  permit  and  the  date  thereof,  the  letters  and  figures  of  such  printing  to  be 
conspicuous,  in  bold-face  type,  of  not  leas  than  one-fourth  of  an  inch  in  height. 
(T.  T).  2382;  Jan.  22,  1920.) 

. Permit. 

Reqviisition  and  bond  having  been  filed,  permit  in  duplicate  on  Form  666  for  each 
n-ithdrawal.  for  which  application  is  made  and  approved,  ^s'ill  be  issued  by  the 
Commissioner  and  forwarded  to  the  collector,  and  the  original  permit  will  be  de- 
livered by  the  collector  to  the  manufacturer  to  be  retained  as  authority  for  making 
the  withdrawal;  no  more  than  the  quantity  named  in  the  permit  may  be  withdrawn 
thereunder  and  no  -withdrawal  shall  be  made  in  advance  of  the  issue  of  a  permit; 
withdrawals  must  be  made  within  a  reasonable  time  after  receipt  of  permit  or  else 
request  should  be  made  for  cancellation  of  such  permit;  all  products  withdrawn  in 
advance  of  issue  of  permit  will  be  held  subject  to  tax  and  a  manufacturer  who 
vio'ates  the  law  by  withdra\\'in2  products  on  which  tax  has  not  been  paid,  without 
permit,  will  be  liable  also  to  statutory  penalties.     (T.  D.  2982;  Jan.  22,  1920.) 

UNITED  STATES  COURTS. 

Judges — Income  tax. 

Compensation  of  all  judge.s  of  the  Supreme  and  inferior  courts  of  the  United 
States  in  office  September  8,  1916,  and  October  3,  1917,  shall  not  be  included  as 
income,  compensation  of  judges  of  those  courts  appointed  subsequent  to  September 

8.  1916,  being  subject  to  tax  under  act  of  that  date  but  not  under  act  of  October  3, 
1917;  compensation  of  judges  of  such  courts  appointed  subsequent  to  October  3, 
1917.  are  subject  to  tax  under  both  acts.     (T.  D.  2690;  art.  5.) 

Retired  pay  of  judges  of  United  States  courts  is  subject  to  income  tax.  (T.  D, 
2690;  art.  4.) 

UNITED  STATES  PHARMACOPCEIA. 

Alcoholic  compounds. 

Apothecaries  are  allowed  to  carry  distilled  spirits  and  wine  in  stock  and  use 
them  in  preparation  of  tinctures  and  other  U.  S.  P.  preparations  and  in  compound- 
ing of  bona  fide  prescriptions  without  paying  special  tax.     (T.  D.  2760;  Oct.  9. 1918.) 

Preparations  such  a^  aromatic  elixirs,  tincture  of  aromatica,  and  similar  prepara- 

'  tions  used  by  physicians  and  pharmacists  principally  as  vehicles,  even  though 

potable,  may  be  sold  in  good  faith  for  legitimate  uses  without  payment  of  special 

tax.  provided  they  are  made  in  conformity  with  U.  S.  P.  or  N.  F.     (T.  D.  2760;  Oct. 

9,  1918.     T.  D.  2788;  Feb.  6,  1919.) 

^^llen  it  is  desired  to  use  nonbeverage  alcohol  in  making  flavoring  extract  for 
which  no  specific  standard  or  process  has  been  prescribed  by  Secretary  of  Agri- 
culture, manufacturer  must  furnish,  in  duplicate,  data  required  by  T.  D.  2576 
with  respect  to  alcoholic  medicinal  compounds  not  conforming  to  U.  S.  P.  or  N.  F. 
Samples  of  product  will  be  required  when  doubt  exists  as  to  nonbeverage  character 
of  same,  which  samples  will  be  forwarded  by  express,  charges  prepaid,  to  Di\ision 
of  Chemistry,  Office  of  the  Commiaeioner  of  Internal  Revenue.  (T.  D.  2760:  Oct. 
9,  1918.) 


UNIVERSITIES.  (i29 

Alcoholic  coiupoun4s — rontinucd. 

Where  nonbeverage  alcohol  is  used  in  manufacture  of  U.  S.  P.  or  N.  F.  prepara- 
tions, such  as  aromatic  elixirs,  tincture  of  aromatica,  etc.,  container  must  bear 
label  upon  which  shall  appear  pro.'^cribed  statement.     CT.  T).  2760;  Oct.  9,  1918.  i 

Alcoholic  solutions  of  Jamaica  }i:inger  must  always  be  made  in  accordance  w  ith 
the  process  and  comply  with  standards  of  the  U.  S.  P.     (T.  D.  2760;  Oct.  9,  1918.) 

In  the  case  of  alcoholic  medicinal  compounds  which  are  not  in  conformity  with 
the  United  States  Pharmacopcpia  or  Jsational  Formulary,  the  manufacturer  will  tile 
with  collector,  when  requesting  permit  for  use  of  nonbeveray;e  alcohol  or  nc«n- 
beverage  wines,  the  following  data  in  duplicate:  The  name  of  the  preparation,  by 
■whom  manufactured,  for  whom  manufactured  in  cases  where  same  is  not  placed  on 
the  market  by  the  manufacturer,  the  advertising  matter  distributed  -with  the  prepa- 
ration, and  the  percentage  of  alcohol  by  volume  contained  in  the  finished  product. 
(T.  D.  2788;  Feb.  6,  1919.) 

Where  manufacturer  desires  to  make  United  States  rharniacnixj'ia  or  National 
Formulary  products,  permit  may  be  approved  by  collector  of  internal  revenue  with- 
out submitting  the  matter  to  this  office;  and  as  to  such  products  a  statement  of  tlie 
names  by  classes,  such  as  ''tinctures,"  extracts,'"  etc.,  and  that  they  conform  to 
the  standards  specified,  will  be  sufficient  without  any  further  description  or  state- 
ment of  formula.     (T.  D.  2788;  Feb.  6,  1919.) 

The  commercial  labels  that  are  placed  on  containers  of  all  pre]>arations  other  than 
United  States  Pharmacopoeia  or  National  Formulary  must  be  filed  with  application 
for  permit  for  use  of  nonbeverage  distilled  spirits  or  -nines,  otherwise  permit  will 
not  be  granted.     (T.  D.  2940;  Oct.  29,  1919.) 

Standards  adopted  by  Bureau  of  Internal  Revenue  for  alcoholic  preparations  in 
which  nonbeverage  alcohol  niay  be  used  stated;  these  preparations  include  United 
States  Pharmacopaia  and  National  lormulary  preparations,  medicinal  prepara- 
tions, tincture  of  Jamaica  ginger,  flavoring  extracts,  perfumes,  toilet  waters,  etc. 
(T.  D.  2940;  Oct.  29,  1919.)" 

Instructions  with  reference  to  permit  to  make  United  States  Phairoacopoeia  or 
National  Formulary  products;  also,  with  reference  to  alcoholic  medicinal  com- 
pounds not  in  conformity  to  United  States  Pharmacopoeia  or  National  Formulary; 
statement  required  of  manufacturers;  demand  for  formula  and  process  by  which 
article  is  manufactured;  reference  of  matter  of  whether  compound  is  beverage  to 
Commissioner  of  Internal  Revenue.  (T.  D.  2576:  Nov.  10,  1917.  T.  D.  2788; 
Feb.  6,  1919.) 

Such  United  States  Pharmacopoeia  or  National  Formulary  preparations  as  aro- 
matic elixirs,  tincture  of  aromatica,  and  similar  preparations,  which  are  used  by  phy- 
sicians and  pharmacists  principally  as  vehicles,  and  which  are  potable,  may  be  made 
with  nonbeverage  alcohol  and  sold  in  good  faith  for  legitimate  uses;  container  to 
bear  stated  label.     (T.  D.  2699;  Apr.  16,  1918.     T.  D.  2788;  Feb.  6, 1919.) 

£xcise  tax — Scope  of  tax. 

Preparations  made  in  accordance  with  formulas  contained  in  United  States  Phar- 
macopoeia and  National  Formulary  by  pharmaceutical  manufacturers,  when  not 
held  out  or  recommended  as  proprietary  medicines  or  medicinal  proprietary  articles 
or  preparations,  or  as  remedies  or  specifics,  are  not  subject  to  tax;  but  if  so  held  out 
or  recommended  thev  are  taxable  although  not  identified  by  any  name,  trade-mark, 
or  otherwise.     (T.  D.  2719;  art.  20.) 

TTNIVERSITIES. 

Admissions  to  entertainment. 

Admissions  to  school  or  college  athletic  contests  and  other  college  entertainments 
are  not  taxable  if  proceeds  go  to  the  school  or  the  college,  but  they  are  if  proceeds 
are  used  for  support  of  athletics  or  other  separate  purposes.  (T.  D.  2681;  Mar.  26, 
1918.) 

Every  institution,  claiming  exemption  from  collecting  tax  on  admissions  by  reason 
of  being  educational,  required  to  file  with  collector  of  district  affidavit  upon  stated 
form,  prior  to  conducting  any  entertainment  or  amusement  or  permitting  either  to 
be  conducted  for  its  benefit;  unless  affidavit  shall  be  filed  sufficiently  before  date 
of  entertainment  to  permit  of  full  advance  investigation  of  circumstances  and  a  deci- 
eion  thereon,  managers  of  entertainment  shall  keep  and  exhibit  to  internal  revenue 
officers  complete  record  of  admissions  to  each  performance,  and  will  be  held  respon- 
sible for  collection  of  tax  in  case  claim  for  exemption  is  not  allowed.  (T.  D.  2681; 
Mar.  26,  1918.) 


630  UTILITIES. 

Alcohol  withdrawn  for  use  in. 
See  "Alcohol." 

Income  taxes — Salaries  received  under  Smith-Lever  Act. 

Where  employees  of  universities  receiving  salaries  paid  in  part  or  in  whole  from 
funds  received  under  the  Smith-Lever  Act  of  May  8,  1914,  are  otlicers  or  employees 
of  a  State,  they  are  not  required  to  include  in  their  income  tax  returns  as  taxable 
income  the  salaries  so  received ;  if  organization  of  college  is  one  which  belongs  to  State 
and  which  State  governs,  legislature  may  vacate  offices,  elect  new  professes,  and 
do  whatever  it  thinks  necessary  in  management  of  the  college,  but  if  colleges  are 
governed  by  trustees  not  directly^  responsible  to  State  legislatures,  employees  receiv- 
ing salaries  paid  in  part  from  Smith-Lever  funds  are  not  employees  of  the  State,  and 
are  not  exempt  from  tax  on  that  ground.     (T.  D.  2668;  Mar.  9,  1918.) 

UTILITIES. 

Excess  profits  tax — Affiliated  corporations. 

Railroads,  gas,  electric,  water,  or  other  public  service  corporations  when  operated 
independently  and  not  physically  connected  or  merged — particularly  when  situ- 
ated in  different  jurisdictions,  and  subject  to  regulation  by  pubUc  service  com- 
missions— ^will  not  be  required  or  penuitted,  ^^ithout  special  permission,  obtained 
in  advance,  to  make  a  consolidated  return;  when  public  utility  is  owned  by  indus- 
trial corporation,  and  is  operated  as  a  plant  facility,  or  as  an  integral  part  of  a  g  oup 
organization  of  affiliated  corporations,  and  such  corporations  are  required  to  file  con- 
BoUdated  return,  return  of  such  pubUc  utility  shall  be  included  therein.  (T.  D. 
2662;  Mar.  6,  1918.) 

Excise  taxes. 

]\foneys  received  for  service  connections  and  pipe  extensions  are  not  permitted 
to  be  deducted  from  gross  amount  of  income,  as  they  do  not  come  within  any  of  the 
permitted  classes  of  deductions  mentioned  in  the  act  of  August  5,  1909;  moneys  so 
expended  are  invested  in  permanent  improvements  which  tend  to  enhance  the 
rental  and  the  market  value  of  the  water  system.     (T.  D.  2475;  Apr.  4,  1917.) 

Fact  that  corporation  was  a  public  utilities  corporation  which,  under  the  laws 
of  the  State  of  California,  was  not  owner  of  property  but  merely  intrusted  with  use 
thereof,  which  it  must  deAote  to  the  public,  does  not  entitle  it  to  more  favorable 
treatment  than  other  corporations,  it  being  a  corporation  organized  for  profit,  having 
a  capital  stock  represented  by  shares,  and  the  act  of  August  5,  1909,  making  no 
exceptions  in  favor  of  public  utilities.     (T.  D.  2475;  Apr.  4,  1917.  Ct.  Dec.) 

Income  taxes. 

Public  utilities  whose  income  inures  to  benefit  of  any  State,  Territory,  or  political 
subdivision  thereof  are  exempt  from  tax  without  condition;  collector,  being  satis- 
fied that  organization  comes  within  exempted  class,  is  authorized  to  eliminate  it 
from  his  list  and  relieve  it  from  necessity  of  making  returrs.     (T.  D.  2690;  art.  68.) 

\^Tiere  public  utility  constructed,  operated,  or  maintained  by  corporation  under 
contract  with  any  city.  State,  Territory,  or  the  District  of  Columbia,  agrees  that 
portion  of  net  earnings  shall  be  paid  to  such  city.  State,  Territory,  or  the  Distri(  t 
of  Cohunbia,  amount  so  paid  may  be  deducted  by  the  public  utility  company  as 
necessary  expense  of  transacting  business.     (T.  D.  2690;  art.  142.) 

Telegraph,  etc.,  messages — Official  business. 

Lender  section  502  of  act  of  October  3,  1917,  radio  messages,  telegraph  messages, 
and  telephone  messages  relating  to  Government  business,  which  originate  in  United 
States  and  which  are  a  charge  against  the  Treasury  of  the  LTnited  States,  the  Dis- 
trict of  Columbia,  a  State,  Teiritory,  or  any  political  subdivision  of  a  State  or  Terri- 
tory, and  are  paid  from  funds  thereof,  are  exempt  from  tax  imposed  by  section  500 
(e)  of  such  act;  messages  not  paid  from  such  funds  are  not  exempt  from  tax  even 
though  they  relate  to  Government  business.     (T.  D.  2619;  Dec.  19,  1917.) 

All  telegraph,  telephone,  or  radio  messages  of  officers  and  employees  of  United 
States  on  official  business  are  exempt  from  tax  imposed  by  section  500  of  act  of 
October  3,  1917,  and  should  not  be  reported  in  monthly  return  of  telegraph,  tele- 
phone, or  radio  company;  officer  or  employee  sending  "telegraph  or  radio  message 
should  certify  thereon  that  it  is  on  account  of  official  business  and  not  for  private 
purposes;  form  of  certificate  indicated.     (T.  D.  2551;  Oct   2'2,  1917.) 


VAUDEVILLE — VERMUTH.  631 

Telegraph,  etc.,  messages — ^Official  business — Continued. 

Exemption  from  tax  imposed  by  section  500,  subdivision  (e),  act  October  3, 
1917,  on  telephone,  telegraph,  and  radio  messages,  may  be  claimed  when  amounts 
paid  for  such  messages  are  finally  to  be  paid  by  the  Cjovernment  under  cost-plus 
contract;  this  does  not  apply  where  contractor  is  doing  work  for  Government  under 
lump-sum  contract;  form  of  exemption  certificate.     (T.  D.  2742;  July  1,  1918.) 

Transportation  of  persons  and  property. 
See  "Transportation  Tax." 

VAUDEVILLE. 
Admissions. 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act  of 
October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con- 
siderable variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  itinerant  amusement 
enterprises  within  temporary  inclosures  or  on  vacant  lots.  (T.  D.  2681;  Mar.  26, 
1918.) 

"Cabaret  or  other  similar  entertainment,"  as  used  in  section  700  of  the  act  of 
October  3, 1917,  includes  every  hotel  or  room  therein,  restaurant,  hall,  or  other  public 
place  at  or  in  which,  in  connection  with  the  service  or  sale  of  food,  or  other  refresh- 
ments or  merchandise,  any  vaude\dlle  or  other  performance  or  diversion  in  the 
way  of  acting,  singing,  declamation,  or  dancing,  is  conducted.  (T.  D.  2681;  War. 
26,  1918.) 

VEHICLES. 

See  "Motor  Vehicles." 

VERMUTH. 
Bonds. 

Manufacturers  manufacturing  vermuth  or  taxable  liqueurs,  etc.,  required  under 
paragraph  (h)  of  section  402  of  tha  act  of  September  8,  1916,  to  execute  a  tax  bond 
m  stated  form  and  to  keep  all  such  taxable  articles  separate  and  apart  from  nontax- 
able articles;  bond  to  be  executed  in  duplicate  with  sureties  satisfactory  to  collector 
in  a  penal  sum  at  least  equal  to  tax  on  estimated  quantity  of  articles  named  remain- 
ing on  hand  at  any  one  time,  but  in  no  case  less  than  $5,000;  in  case  of  insufficiency, 
new  or  additional  bond  will  be  required  by  collector.     (T.  D.  2404;  Nov.  27,  1916.) 

Cordials. 

Vermiith  in  hands  of  retail  dealers  September  8,  1916,  is  subject  to  tax  under  act 
of  October  22,  1914,  as  a  cordial.     (T.  D.  2387;  Oct.  30,  1916.) 

Floor  taxes. 

All  vermuths  made  exclusively  with  distilled  spirits  are  subject  to  floor  tax  of 
$2.10  additional  on  each  proof  gallon  or  fraction  of  a  gallon  of  the  full  alcoholic  con- 
tent thereof;  when  manufactured  A\nth  mixtures  of  wine  and  spirits,  additional  tax 
will  be  due  solely  on  distilled  spirits  cont:iined  therein,  and  not  on  spirits  con- 
tained in  fermented  wines  used;  where  distilled  spirits  exclusively  have  not  been 
used,  but  compound  contains  fermented  spirits,  compound  will  be  considered  as 
having  15  ])er  cent  alcohol  by  volume  produced  by  natural  fermentation  and  tax 
will  therefore  be  due  only  on  alcoholic  content  in  excess  of  15  per  cent;  all  genuine 
imjiorted  vermuths  may  be  considered  as  having  a  wine  base,  unless  there  is  reason 
for  believing  otherwise,  and  domestic  vermuths  manufactured  in  same  manner  as 
imported  vermuths  will  be  inventoried  accordingly.     (T.  D.  2579;  Nov.  5,  1917.) 

Wine. 

Cordials,  including  cocktails,  are  subject  to  tax  only  when  containing  wine  forti- 
fied under  the  act  of  September  8,  1916;  vermuth,  while  taxed  under  the  act  of 
October  22,  1914,  as  a  cordial,  is  now  subject  to  tax  as  a  wine.  (T.  D.  2387;  Oct.  30, 
1916.) 

Wines  used  in  manufacture  of  vermuth  must  be  first  tax  paid,  and  vermuth,  as 
such,  is  subject  also  to  tax  imposed  by  act  of  September  8, 1916.  (T.  D.  2387;  Oct. 
30,  1916.) 

Unfortified  wines  if  not  mixed  with  distilled  spirits  may  be  used  in  manufacture 
of  vermuth,  but  such  wines,  as  also  the  vermuths  so  manufactured,  are  each  subject 
to  tax;  still  wines  fortified  under  the  act  of  October  22,  1914,  may  be  used  in  the 


632  VESSELS — VIRGIN   ISLANDS. 

Wine — Continued, 
manufacture  of  vermuth  subject  to  the  conditions  above  named.     (T.  D.  2387;  Oct. 
30,  1916.) 

Tax-paid  still  wines,  domestic  and  foreign,  and  tax-paid  distilled  spirits  may  be 
used  by  rectifiers  in  the  manufacture  of  vermuths  under  stated  conditions;  bond 
given  by  rectifier;  marking  of  containers;  notice  and  records;  gauging  of  products 
after  rectification;  marking,  branding,  and  stamping  compounds.  (T.  D.  2403;  Nov. 
29,  1916.) 

VESSELS. 
Distilled  spirits. 

Section  303,  revenue  act  of  1917,  imposing  floor  taxes  on  distilled  spirits,  applies  to 
distilled  spirits  held  on  hoard  American  ships  and  intended  for  sale,  whether  the 
vessel  on  which  thev  were  held  was  at  dock  in  this  country,  on  the  high  seas,  or  in 
foreign  waters.     (T."D.  3098;  Dec.  7,  1920.) 

Excise  taxes. 

See  "Excise  Taxes."  , 

Transportation  charges. 

See  "Transportation  Tax. " 

VINEGAR. 

Taxability. 

Wines  which  have  become  so  soured  as  to  admit  of  their  sale  or  use  only  as  vinegar 
may  be  removed  or  may  be  destroyed,  free  of  tax,  in  presence  of  deputy  collector 
who  will  certify  to  fact  on  dealer's  monthly  statement;  so-called  wine  vinegar  if 
containing  2  per  cent  or  more  of  alcohol  will  not  be  regarded  as  vinegar.  (T.  D. 
2387;  Oct.  30,  1916.) 

VIRGIN   ISLANDS. 
Distilled  spirits. 

Distilled  spirits  produced  in  the  Virgin  Islands  and  held  for  sale  in  the  United 
States  on  October  3,  1917,  are  subject  to  additional  taxes  imposed  by  act  of  October 
3,  1917,  as  in  case  of  domestic  spirits.     (T.  D.  2570;  Nov.  6,  1917.) 

Excise  taxes — ^Exports. 

Taxes  imposed  by  sections  313,  315  and  600  of  act  of  October  3,  1917,  apply  to 
articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory  or  else- 
where in  the  United  States  than  in  a  State,  and  to  articles  sold  in  commerce  between 
United  States  and  any  of  its  island  or  other  possessions  except  the  West  Indian 
Islands  acquired  from  Denmark.     (T.  D.  2739;  June  24,  1918. ) 

Taxes  imposed  by  such  sections  313,  315,  and  600  of  the  act  of  October  3,  1917, 
apply  to  articles  sold  in  foreign  commerce  by  manufacturer  located  in  a  Territory 
elsewhere  in  the  United  States  than  a  State  and  to  articles  going  from  United  States 
to  any  of  its  island  or  other  possessions,  including  the  Canal  Zone,  except  that 
under  acts  of  Congress  articles  going  from  United  States  into  the  West  Indian 
Islands,  or  into  the  Philippine  Islands  or  Porto  Rico,  are  exempt  to  same  extent 
as  articles  exported  from  a  State  to  a  foreign  country.     (T.  D.  2781;  Dec.  20,  1918.) 

Stamp  tax. 

The  stamp  tax  imposed  by  subdivision  (b)  of  Schedule  A  of  the  act  of  October 
3,  1917,  attaches  to  time  drafts  covering  articles  slupped  from  a  State  of  the  United 
States  to  the  Territory  of  Alaska,  the  Territory  of  Hawaii,  and  the  Canal  Zone,  and, 
although  time  drafts  covering  shipments  to  the  Vii^n  Islands,  the  Philippine 
Islands,  and-  Porto  Rico  are  not  subject  to  the  tax,  time  drafts  covering  articles 
shipped  to  the  United  States  from  the  Virgin  Islands  or  Philippine  Islands  or 
Porto  Rico  must  he  stamped  upon  coming  into  the  United  States;  T.  D.  2739  modi- 
i;ed.     (T.  D.  2782:  Dec.  24,  1918.^ 

(leneral  rule  that  time  drafts  are  subject  to  stamp  tax  imposed  by  act  of  October 
3,  1917,  when  delivered  wi1:hin  territorial  jurisdiction  of  United  States,  and  not 
otherwise,  is  applicable  to  time  drafts  used  between  the  territorial  jurisdiction  of 
the  United  States  (including  the  States,  the  District  of  Columbia,  the  Territory  of 
Hawaii,  and  the  Territory  of  Alaska),  and  the  Canal  Zone,  Philippine  Islands,  the 
Virgin  Islands,  or  Porto  Rico,  whether  covering  shipments  or  not.  (T.  D.  2795; 
Feb.  26, 1919.) 


VOCATION AVAR.  633 

Temporary  government. 

Extract  from  act  of  March  3,  1917,  to  provide  temporary  government  for  West 
Indian  Islands,  published  for  information  of  internal-revenue  officers  and  others 
concerned.     (T.  D.  2463;  Mar.  24,  1917.) 

Transportation  tax. 

Transportation  of  property  by  water  from  port  of  the  United  States  to  Porto 
Rico,  Philippine  Islands,  the  Virgin  Islands,  and  the  Canal  Zone  is  not  subject 
to  transportation  tax  imposed  by  section  500  of  act  of  October  3,  1917;  rail  trans- 
portation of  property  from  interior  point  in  United  States  for  transshipment  to 
Philippine  Islands,  Porto  Rico,  and  Virgin  Islands  is  transportation  of  property 
"consigned  from  one  point  in  the  United  States  to  another,"  but  is  exempt  from 
internal-revenue  taxes  by  reason  of  special  acts  of  Congress:  such  transportation  of 
property  destined  to  the  Canal  Zone  is  not  exempt.     (T.  D.  2795;  Feb.  26,  1919.) 

VOCATION. 
Dellnition. 

■  Vocation"  is  defined  as  the  occupation  or  pursuit  to  which  one  devotes  his  time 
or  life;  a  calling.     (T.  D.  2690;  art.  8.) 

VOTING  TRUSTS. 

Certificates — Stazap  taxes. 

Tax  imposed  by  act  October  3,  1917,  on  issue  of  capital  stock,  does  not  apply  to 
issue  of  voting-trust  certificates,  representing  stock  certificates  already  issued,' nor 
to  mere  issue  of  new  certificates  in  place  of  old  certificates  for  stock  previous  out- 
standing.    (T.  D.  2752;  Aug.  14,   1918.) 

Tax  imposed  by  act  October  3, 1917,  on  transfer  of  capital  stock  applies  to  transfer 
01  dtock  to  or  from  voting  trustees  and  to  transfer  of  voting-trust  certificates.  (T.  D, 
2752;  Aug.  14,  1918.) 

WAGES. 

See  "Compensation." 

WAIVER. 

Income  taxes — Expiration  of  time  limit  of  assessment. 

Where  further  tax  is  found  to  be  due  as  result  of  audit  of  return  or  agent's  report, 
amended  return  or  waiver  will  not  be  lequked,  except  where  discovery  of  tax  is 
made  subsecjuent  to  expiration  of  three-vear  period  of  limitation.  (T.  D.  2690; 
art.  38.) 

Where  limitation  of  statute  as  to  assessment  has  run  and  written  waiver  of  ex- 
emption from  assessment  is  given  by  taxpayer,  ad  valorem  penalties  of  50  per  cent, 
addition  to  tax,  is  not  to  be  assessed  for  delinquency  in  filing  return.  (T.  D.  2690; 
art.  .52.) 

Though  Government  may  recover  unpaid  taxes  by  suit,  it  is  desijable  that  col- 
lection be  made  as  result  of  formal  assessment,  and  in  order  that  this  may  be  done 
corporations  owing  additional  taxes  for  any  period  antedating  the  three-year  limita- 
tion should  file  amended  returns,  together  with  statement  formally  waiving  such 
limitation  and  consenting  to  assessment;  in  executing  such  amended  returns  or 
waivers  corporations  forfeit  none  of  their  rights  under  the  law,  and  no  penalty  is 
incurred  which  might  not  otherwise  be  enforced  by  suit.     (T.  D.  2690;  art.  233.  i 

If  corporation  against  which  additional  tax  liability  is  discovered  formally  ac- 
cepts findings  of  examining  officer  and  agrees  to  voluntarily  pay  additional  tax 
and  does  so  pay  additional  tax,  amended  returns  or  waivers  will  not  be  required. 
(T.  D.  2690;  art.  234.) 

WAR. 

See  "Army  and  Xavy." 

Destruction  of  property — Excess  profits  and  income  taxes. 

In  case  of  property  title  to  which  has  been  requisitioned  for  war  use,  or  prop- 
erty which  has  been  lost  or  destroyed  in  whole  or  in  part  through  war  hazards,  exc<'.?s 
of  amount  received  by  owner  as  compensation  for  property  over  value  thereof  oa 
March  1,  1913,  or  over  its  cost  if  it  was  acquired  after  that  date,  except  so  far  as 
actuallv  used  for  replacement  of  property  in  kind,  is  subject  to  excess-profits  taxes. 
(T.  D.  2706;  Apr.  25,  1918.) 


634  WAR  RISK    INSURANCE WAREHOUSES. 

Destruction  of  property — Excess  profits  and  income  taxes — Continued. 

Although  intention  or  obligation  of  owner  of  property  requisitioned  for  war  uses, 
or  lost  or  destroyed  through  war  hazards,  may  be  to  use  entire  amount  received  aa 
compensation  for  replacement  in  kind  of  such  property,,  such  replacement  may  not 
be  practicable  for  a  considerable  time,  owing  to  war  conditions;  in  such  case  tax- 
payer may  establish  "replacement  fund"  in  which  entire  amount  of  compensation 
shall  be  held,  and  pending  disposition  thereof  accounting  for  gain  or  loss  may  be 
deferred  for  reasonable  time,  to  be  determined  by  Commissioner  of  Internal  Revenue. 
(T.  D.  2706;  Apr.'25,  1918.) 

Where  property  requisitioned,  lost,  or  damaged,  constitutes  all  or  part  of  security 
under  mortgage  or  trust  indenture,  amount  carried  to  replacement  fund  may,  sub- 
ject to  approval  of  commissioner,  be  amount  of  compensation  received,  less  amount, 
if  any,  which  becomes  payable  out  of  such  compensation  under  terms  of  such  instru- 
ment or  obligations  thereby  secured;  in  such  case  taxpayer  should  apply  to  com- 
missioner for  pennission  to  establish  such  fund,  reciting  in  his  application  all  facts 
relating  to  transaction  and  undertaking  to  proceed  as  expeditiously  as  possible  to 
replace  or  restore  property;  taxpayer  required  to  furnish  bond  with  security,  or 
make  deposit;  when  replacement  or  restoration  is  made,  new  or  restored  property 
shall  not  be  valued  in  accounts  of  taxpayer  at  amount  in  excess  of  that  at  which  the 
requisitioned,  damaged,  or  destroyed  property  was  carried,  except  and  to  extent 
that  such  new  or  restored  property  has  an  increased  productive  capacity.  (T.  D. 
2706;  Apr.  25,  1918.) 

Fonns  of  application  for  permission  to  establish  replacement  fund  and  of  permit 
therefor  prescribed.     (T.  D.  2733;  June  17,  1018.) 

Only  active  depositaries  of  public  moneys  and  surety  companies  holding  cer- 
tificates of  authority  from  Secretary  of  Treasury  as  acceptable  sureties  on  Federal 
bonds  will  be  approved  as  sureties  or  depositaries  under  Schedules  B  and  C  of 
Form  1114,  prescribed  by  T.  D.  2733,  on  application  for  establishment  of  replace- 
ment fund  in  case  of  property  requisitioned  for  war  uses  or  lost  or  destroyed  in  whole 
or  in  part  through  war  hazards,  as  permitted  by  T.  D.  2706.  (T.  D.  2755;  Aug.  26, 
1918.) 

Particular  w^ar  taxes. 

See  specific  heads. 

WAR  mSK  INSURANCE. 
Insurance  tax. 

Tax  imposed  by  section  504  of  the  act  of  October  3,  1917,  does  not  apply  to  sol- 
diers' and  sailors'  insurance  written  by  the  War  Risk  Insurance  Bureau;  the  act 
clearly  contemplates  that  the  tax  shall  be  paid  by  the  insurer  and  not  by  the 
insured;  not  only  is  it  impossible  in  absence  of  express  provision  to  contrary  to 
infer  that  the  United  States  intended  to  tax  itself,  but  section  505  of  the  act  obvi- 
ously limits  the  application  of  the  tax  to  persons,  corporations,  partnerships,  and 
associations,  in  none  of  which  classes  is  the  United  States  included.  (T.  D.  2563; 
Oct.  23,  1917.) 

Stamp  tax. 

Stamp  tax  imposed  on  indemnity  and  suret>  bonds  by  paragraph  2  of  Schedule  A, 
Title  VIII,  act  of  October  3,  1917,  applies  to  indemnity  bonds  made  to  the  Gov- 
ernment to  secure  issuance  of  duplicate  checks  for  allotment  and  allowance  or 
other  benefits  under  the  act  of  October  6,  1917.     (T.  D.  2795;  Feb.  26,  1919.) 

WAR  SAVINGS   CERTIFICATES. 

Exemptions  from  income  and  excess  profits  taxes. 

llolders  of  war  savings  certificates  authorized  by  act  of  September  24,  1917,  are 
entitled  to  exemption  from  all  income  and  war  excess  profits  taxes  upon  interest 
received  on  principal  amount  not  to  exceed  $5,000  face  value  of  such  obligations. 
(T.  D.  2585;  Nov.  8,  1917.) 

WAREHOUSES. 

Alcohol  and  alcoholic  liquors. 

See  "Alcohol";  "Distilled  Spirits";  "Fermented  Liquors";  "Wines." 


WARRANTS WATERS.  635 

Estate  tax — Release  of  propei'ty  by  ■warehouseman. 

Warehousemen  having  jiroperty  in  this  country  of  nonresident  decedent  may  not 
release  to  foreign  administrator  or  executor  or  foreign  beneficiary  any  property 
withiii  this  country  at  time  of  decedent's  death  until  after  tax  due  has  been  paid 
or  anc  illary  letters  have  been  taken  out  or  otherwise  provision  has  been  made  by 
estate  for  satisfaction  of  tax  lien.     (T.  D.  2454;  Feb.  28,  1917.) 

Excise  taxes — Reports  by  branch  -warehouses. 

l^ranch  warehouses  oarrpng  stock  of  taxable  articles  should,  unless  absolutely 
separate  from  the  pa"ent  house,  make  reports  to  the  parent  house,  the  latter  being 
liable  for  monthly  returns  for  the  taxes  on  the  sales.     (T.  D.  2591;  Nov.  24,  1917.) 

WARRANTS. 
Income  taxes — Claims. 

Warrants  in  payment  of  claims  allowed  will  be  drawn  in  names  of  parties  entitled 
to  money  and  shall,  unless  othe]'wise  directed,  be  sent  by  Treasurer  of  United  States 
directly  to  proper  parties  or  their  duly  authorized  attorneys  or  agents;  where  claim- 
ants are  indebted  to  United  States  for  taxes,  they  must  be  paid  before  warrants  are 
deUvered.     (T.  D.  2690;  arts.  267,  268.) 

Net  income. 

In  cases  wherein  warrants  are  issued  by  a  city  or  other  political  subdivision  of  a 
State  and  are  accepted  by  contractor  in  payment  for  public  work  done,  face  value 
of  such  warrants  must  be  returned  as  income  for  year  in  which  they  are  received; 
if  contractor  does  not  receive  and  cau  not  recover  full  face  value  of  such  v,-arranr3 
he  may  deduct  from  gross  income  for  year  in  which  warrants  are  converted  into  cash 
any  loss  sustained,  which  loss  will  be  measured  by  difference  between  face  value  of 
warrants  returned  as  income  and  amount  actually  received  for  them  in  cash  or  its 
equivalent.     (T.  D.  2690;  art.  108.) 

WATCHES. 
Excise  taxes. 

Watches  not  used  solely  for  utility  purposes  are  taxable  under  section  GOO  (e) 
of  the  act  of  October  3,  1917;  a  watch,  irrespective  of  how  it  is  to  be  worn,  is  taxable 
as  jewelry  if  its  case  or  any  attachment  sold  with  it  is  ornamented  with  precious 
or  semiprecious  stones  or  with  any  ornamentation  other  than  engraving  or  engine 
turning;  a  watch,  whether  or  not  otherwise  taxable,  is  subject  to  tax  if  sold  v.dih  a 
metal  bracelet;  a  wrist  watch  is  not  subject  to  tax  when  sold  with  a  leather  band, 
webbing,  or  silk  ribbon,  if  neither  the  watch  nor  such  attachment  is  ornamented  with 
precious  or  semi-precious  stones  or  otherwise  than  by  engraving  or  engine  turning. 
(T.  D.  2719;  Art.  XV.) 

WATERS. 
Beverages. 

The  tax  imposed  by  section  313  (b)  of  act  of  October  3,  1917,  is  1  cent  for  each 
gallon  of  carbonated  waters  and  beverages  manufactured  and  sold  by  the  manu- 
facturer of  the  carbonic  acid  gas  used  in  carbonating  same;  tax  attaches  when  person 
who  (a)  manufactures  and  (b)  sells  such  waters  and  beverages  is  also  (c)  the  manu- 
facturer, producer,  or  importer  of  the  carbonic  acid  gas  used  in  their  manufacture; 
soda  fountain  proprietor  manufacturing  his  own  carbonic  acid  gas  must  pay  tax  on 
carbonated  drinks  dispensed  at  such  fountain;  carbonated  waters  or  beverages  are 
not  taxable  when  manufacturer  buys  his  carbonic  acid  gas  and  pays  tax  of  5  cents 
per  pound.     (T.  D.  2719,  Art.  XXXIl.) 

Tax  imposed  by  section  315  of  the  act  of  October  3, 1917,  is  5  cents  for  each  pound  of 
carbonic  acid  gasin  drums  or  contixiners  sold  by  the  manufacturer,  if  intended  for  use 
in  the  manufacture  or  production  of  ca.boniited  water  or  drinks,  including  fermented 
liquors  containing  less  than  one-half  per  cent  of  alcohol;  carbonic  acid  gas  used  in 
dramng  beer  from  containers  or  in  operation  of  refrigerating  plants,  or  in  preserving 
food  products,  or  in  manufacture  of  beverages  containing  one-half  per  cent  or  more 
of  alcohol,  is  not  subject  to  the  tax;  in  all  cases  of  sales  of  carbonic  acid  gas  for  use 
other  than  in  the  manufacture  of  carbonated  water  or  other  drinks,  manufacturer 
must  prominently  stamp  on  or  affix  to  container  a  warning,  as  follows:  "Federal 
tax  not  paid.  Unlawful  to  use  in  the  manufacture  of  beverages."  (T.  D.  2719; 
Art.  XXXV.) 


636  WATER   COMPANIES — WINES. 

Excise  taxes. 

Artificial  mineral  waters,  not  carbonated,  sold  by  manufacturer,  producer,  or 
importer,  in  bottles  or  other  closed  containers,  carbonated  waters  manufactured  and 
Fold  by  the  manufacturer,  producer,  or  importer  of  the  carbonic  acid  gae  used  in 
carbonating  the  same,  and  natural  mineral  waters  and  table  waters  sold  by  the 
]>roducer,  bottler,  or  importer,  in  bottles  or  other  closed  containers  at  over  10  cents 
per  gallon,  all  of  which  are  taxed  under  section  313  of  the  act  of  October  3,  1917, 
are  not  subject  to  tax  under  section  600  (h)  if  intended  for  use  solely  as  beverages. 
(T.  D.  2719;  Art.  XXIII.) 

WATER  COMPANIES. 

Excise  taxes. 

Moneys  received  for  service  connections  and  pipe  extensions  are  not  permitted 
to  be  deducted  from  gross  amount  of  income,  as  they  do  not  come  within  any  of  the 
permitted  classes  of  deductions  mentioned  in  the  act  of  August  5. 1909;  moneys  so 
expended  are  invested  in  permanent  improvements  which  tend  to  enhance  the 
rental  and  the  market  valueof  the  water  system.    (T.  D.  2475;  Apr.  4, 1917.    Ct.  Dec.) 

Fact  that  corporation  was  a  public  utilities  corporation  which,  under  the  laws 
of  the  State  of  California,  was  not  owner  of  property  but  merely  intrusted  with  use 
thereof,  which  it  must  devote  to  the  public,  does  not  entitle  it  to  more  favorable 
treatment  than  other  corporations,  it  being  a  corporation  organized  for  profit,  having 
a  capital  stock  represented  by  shares,  an  the  act  of  August  5,  1909,  making  no  excep- 
tions in  favor  of  public  utilities.     (T.  D.  2475;  Apr.  4.  1917.     Ct.  Dec.) 

WATER  TRANSPORTATION. 

See  " Transpof tation  Tax." 

WEST  INDIAN  ISLANDS. 

See  "Virgin  Islands." 

WHISKY. 

See  "Distilled  Spirits." 

WHOLESALERS  OF  GOODS. 

Alcohol. 

See   'Alcohol.'' 
Distilled  spirits. 

See  "Distilleo  Spirits.'' 
Floor  tax. 

See  "Floor  Taxes." 
Oleomargarine. 

See  "Oleomargarine." 
Wines, 

See  "Wines." 

WIDOWS. 

Estate  tax. 

Pr.i\itrions  in  statutes  of  various  States  to  the  effect  that  the  widow  is  entitled  to 
family  pictures,  wearing  apparel,  etc.,  and  to  certain  household  goods  in  lieu  of  an 
award,  has  reference  to  the  widow's  exemption  and  has  no  application  in  determin- 
ing the  deductibility  of  an  amount  paid  for  the  support  of  dependents,  provided 
lor  by  section  203  (a)(1)  of  the  act  of  September  8, 1916.     (T.  D.  2531;  Oct.  4, 1917.) 

WINES. 
Act  published. 

Sections  401,  402  (a),  409,  and  902,  of  the  act  of  September  8,  1916,  relating  to 
taxes  on  wines,  published  for  the  information  of  interna]  revenue  officers  and  others 
concerned.     (T.  D.  2363;  Sept.  11,  1916.) 


wii^ES.  637 

Alaska. 

Extracts  from  act  of  February  14,  1917,  prohibiting  manufacture  and  sale  of  alco- 
holic liquore  in  Alaska,  publislied  for  inl'ormation  of  internal-revenue  officers  and 
others  concerned.     (T.  D.  24GG;  Mar.  27,  1917.) 

Alcoholic  content. 

In  general,  dry  wines,  such  as  claret  and  sauternes,  come  within  the  4-cent  tax 
rate,  and  sweet  wines,  such  as  sherry,  port,  and  Madeira,  come  within  the  10-cent 
rate;  certain  Bweet  wines  which  test  over  21  per  cent  are  subject  to  25-cent  rate; 
dealers  should  determine  alcoholic  strength  from  invoices  recoi^  ed  by  them.  (T. 
D.  2387;  Oct.  30,  1916.) 

So-called  sherry  material  and  grape  juice  containing  one-half  of  1  per  cent  or 
more  of  alcohol  classed  as  wine  and  subject  to  tax  as  such.  (T.  D.  2387;  Oct.  30, 
1916.) 

Articles  27  and  28,  of  Regulations  No.  28,  Supplement  No.  2,  require  gangers  and 
visiting  deputies  to  make  occasional  tests  of  wine  as  to  alcoholic  content,  but  respon- 
sibility for  proper  stamping  of  wines  is  placed  ujjon  wine  maker  or  bonded  dealer; 
samples  are  not  to  be  submitted  unless  appeal  is  taken  from  findings  of  internal 
revenue  officers  or  in  cases  where  it  is  suspected  that  the  wines  are  understamped. 
(T.  D.  2400;  Nov.  24,  1916.) 

Wines  containing  more  than  24  per  centum  of  absolute  alcohol  being  classed 
as  distilled  spirits  by  paragraph  (a),  section  402,  act  September  8,  1916,  production 
of  same  for  beverage  purposes  is  prohibited  by  act  August  10,  1917,  section  15. 
(T.  D.  2748;  July  17,  1918.) 

Beverage  spirits. 

Sour  wine  may  not  be  used  in  producing  beverage  spirits.  (T.  D.  2520;  Aug.  30, 
1917.     T.  D.  2523;  Sept.  11,  1917.     T.  D.  2559;  Oct.  26,  1917.) 

Blended  wines. 

Unstamped  wines  may  be  blended  on  bonded  premises,  but  when  removed  must 
be  stamped  according  to  the  alcoholic  strength  of  wine  as  blended.  (T.  D.  2387; 
Oct.  30,  1916.) 

"Where  wines  of  different  alcoholic  strength  are  blended,  tax  will  be  computed  and 
paid  on  resultant  product;  this  applies  to  wines  previously  tax  paid,  and  any  addi- 
tional tax  in  such  cases  must  be  paid  by  stamps  to  be  afiixed  to  packages  or  cases 
containing  such  blended  wines.     (T.  D."2387;  Oct.  30,  1916.) 

Wines  are  taxable  according  to  their  alcoholic  strength  when  placed  on  the  market, 
but  blending  on  bonded  premises  of  wines  of  different  alcoholic  strength  is  per- 
missible.    (T.  D.  2387;   Oct.  30,  1916.) 

Bonds  of  wine  makers,  etc. 

See  '•Bonds." 

Carbonated  wines. 

<  arbonated  wines  can  be  produced  only  at  the  winery  or  other  bonded  premises 
and  can  not  therefore  be  produced  on  premises  of  retail  dealer.  (T.  D.  2387;  Oct. 
30,  1916.) 

The  artificially  carbonating  of  still  wines  on  which  tax  has  been  paid  is  not  per- 
missible, as  such  carbonated  wines  are  a  distinct  product  and  must  be  produced  on 
bonded  premises.     (T.  D.  2387;   Oct.  30,  1916.) 

Distinction  between  carbonated  wine  and  sparkling  wine  is  that  former  is  arti- 
ficial Iv  carbonated  while  latter  is  carbonated  by  natural  fermentation.  (T.  D.  2387; 
Oct.  30,  1916.) 

•  Champagne. 

Making  of  champagne  or  other  sparkling  wines  must  be  carried  on  at  winery  where 
such  wines  are  produced  or  blended;  use  of  sugar  or  rock-candy  sirup  in  treatment 
of  champagne  wines  after  bottling  will  be  permitted  without  supervision  of  ganger. 
(T.  D.  2470;  Mar.  27,  1917.) 

Claims  for  refund  or  abatement. 

Pro\  isions  of  T.  D.  2fi88  do  not  govern  in  case  of  claims  for  refund  or  abatement  of 
taxes  on  distilled  spirits,  fermented  liquors,  and  wines.  (T.  D.  2926;  Sept.  29, 
1910.J 


638  WINES. 

Clarified  wines. 

Wines  returned  to  bonded  premises  in  stamped  packages  to  be  clarified  may,  when 
clarified,  he  replaced  in  such  stamped  packages  which  should  be  set  apart  for  that 
particular  purpose ;  if  otherwise  recasked  the  wines  will  be  subject  to  tax  as  if  origi- 
nally produced.     (T.  D.  2387;  Oct.  30,  1916.) 

Debonnet. 

Debonnet  is  subject  to  tax  as  wine.    (T.  D.  2387;  Oct.  30,  1916.) 

Exemptions. 

Exemption  of  200  gallons  free  of  tax  for  family  use  by  paragraph  (b)  of  section  402 
of  the  act  of  September  8,  1916,  applies  only  to  wines  made  on  premises  of  producer 
for  exclusive  use  of  his  own  family  and  not  to  wines  jn'oduced  at  a  winery  owned  and 
operated  by  several  heads  of  families  jointly.     (T.  D.  2387;   Oct.  30,  1916.) 

Each  person  entitled  to  and  desiring  to  avail  himself  of  exemption  provided  by 
section  402  (b)  of  act  September  8,  1916,  must  file  notice  with  collector  of  internal 
revenue  before  commencing  manufacture  of  wine;  such  notice  must  be  on  paper 
8  by  lOJ  inches  in  size  and  in  stated  form.     (T.  D.  2765;  Oct.  21,  1918.) 

Exemption  from  tax  on  wines  produced  for  family  use,  under  section  402  (b)  of 
act  September  8,  1916,  does  not  apply  to  (a)  wines  made  by  one  person  for  use  of 
another,  whether  consumed  on  premises  or  removed  therefrom  for  family  use  of 
owner;  (b)  wines  produced  by  a  single  person,  unless  he  is  the  head  of  a  family; 
(c)  wines  produced  by  married  man  ]i\dng  apart  from  his  family,  and  not  for  use 
of  that  family;  (d)  wines  made  by  partnership,  or  to  wines  produced  at  a  winery 
owned  and  operated  bv  several  heads  of  families  jointly;  (e)  wines  furnished  ranch 
hands  or  boarders,     (t.  D.  2765;  Oct.  21,  1918.) 

Exportation. 

Domestic  wines  mav  be  exported  to  foreign  countries  or  may  be  shipped  to  Porto 
Rico,  the  Philippine  Islands,  and  to  the  Panama  Canal  Zone,  free  of  tax;  like  ex- 
emption, however,  does  not  apply  to  shipments  to  the  island  of  Guam.  (T.  D. 
2387;   Oct.  30,  1916.) 

Withdrawal  and  export  entry  required  to  be  in  stated  form,  and  when  approved  to 
be  returned  to  exporter  and  by  him  filed  in  duplicate  mth  collector  of  customs  at  port 
from  which  mnes  are  to  be  shipped  at  least  six  hours  prior  to  shipment;  upon  issuing 
certificate  of  clearance  original  entrj^  required  to  be  returned  to  collector  of  internal 
revenue,  who  will  credit  export  bond  and  will  forward  entry  and  bill  of  lading  to 
Commissioner  of  Internal  Revenue.     (T.  D.  2416;  Dec.  12,  1916.) 

Where  domestic  wines  are  to  be  remoA^ed  from  bonded  premises  free  of  tax  for  ex- 
portation, party  intending  to  export  same  shall  file  with  collector  of  district  in  which 
such  premises  are  located  bond  in  stated  form,  to  be  executed  in  duplicate,  one  copy 
to  be  retained  by  collector,  and  one  copy  to  be  forwarded  to  Commissioner  of  Internal 
Revenue;  penal  sum  of  bond  must  be  at  least  equal  to  double  amount  of  tax  on  esti- 
mated quantity  of  wine  to  be  removed  during  period  of  three  months  and  in  no  case 
less  than  $1,000;  bond  will  be  continuing  bond,  and  an  account  will  be  kept  with 
each  bond  in  which  principal  will  be  charged  with  tax  on  each  lot  removed  for  ex- 
portation and  will  receive  credit  for  each  lot  concerning  which  satisfactory  proof  of 
exportation  is  received.     (T.  D.  2416;  Dec.  12,  1916.) 

Where  exportation  is  by  rail,  and  locks,  seals,  and  tags  on  cars  are  found  intact, 
collector  required  to  append  to  entry  or  transportation  manifest,  and  under  seal, 
specified  certificate;  return  of  entrj"^  and  transportation  manifest  to  collector  at  port 
from  which  merchandise  was  originally  shipped;  certificate  of  collector  of  port  from 
which  merchandise  was  shipped.     (T.  D.  2505;  June  25,  1917.) 

Where  exportation  is  otherwise  than  by  rail,  and  wines  are  found  to  agree  with 
what  is  specified  in  entry,  collector  required,  after  goods  have  been  duly  laden  and 
cleared,  to  append  to  entry  specified  certificate;  unless  through  bill  of  lading  has  been 
filed  with  collector  of  customs  forwarding  said  entry,  proper  bill  of  lading  must  be 
filed  with  collector  of  customs  at  port  of  transshipment.     (T.  D.  2505;  June  25, 1917.) 

^^Ttiere  wines  entered  for  export  are  to  be  transshipped  or  are  to  be  shipped  in 
sealed  cars  through  a  frontier  port,  collector  of  customs  with  whom  entry  is  filed 
required,  upon  inspection  and  lading  of  goods,  to  transmit  one  copy  of  said  entry, 
together  with  copy  of  transportation  manifest,  to  collector  of  customs  at  port  of 
transshipment;  he  will  also  note  upon  entry  so  transmitted  whether  through  bill 
of  lading  has  been  filed  in  his  office.     (T.  D.  2505;  June  25,  1917.) 


WINES.  639 

Exportation — rontinuod . 

Upon  receipt  of  entry,  collector  at  port  of  transshipment  will  direct  officer  to 
examine  wines  and  ascertain  whether  same  agree  with  entry  and  to  superintend 
lading  of  same,  or,  in  case  wines  are  shipped  in  sealed  cars,  to  examine  the  seals; 
duties  of  inspector  on  finding  the  seals  intact  and  also  where  such  seals  are  found 
not  intact.     (T.  D,  2505;  June  25,  1917.) 

All  packages  or  cases  containing  mnes  for  export  must  be  plainly  marked  or 
tagged  for  identification,  and  such  identifying  marks  must  contain  the  words  "For 
export,"  in  letters  not  less  than  two  inches  in  height.     (T.  D.  2505;  June  25,  1917.) 

In  case  of  shipment  of  wines  free  of  tax  from  bonded  premises  established  under 
section  402  of  act  of  September  8,  1916,  to  bonded  manufacturing  warehouse  to  be 
manufactured  into  articles  for  export,  proprietor  must  execute  Form  703,  in  quad- 
ruplicate; on  arrival  of  wines  at  port  of  entry  manufacturer  will  report  same  to 
collector  of  customs,  who  will  cause  wines  to  be  inspected  and  gauged  and  will 
certify  receipt  of  wines  on  blue  Form  703,  returning  one  blue  copy  to  collector  of 
internal  revenue  and  sending  other  to  commissioner;  separate  transportation  bond 
covering  tax  on  wines  need  not  be  executed;  credit  given  bond  (Form  699  or  699A) 
on  receipt  of  certificate  by  collector  of  internal  revenue  from  collector  of  customs. 
(T.  D.  2738;  June  20,  1918.) 

Regulations  contained  in  T.  Ds.  2416  and  2505  continued  in  force  and  effect  during 
war  prohibition  period.     (T.  D.  2881 ;  July  3,  1919.) 

Filtering. 

Use  of  filtering  apparatus  will  be  permitted  for  filtering  wines,  but  if  otherwise 
used  on  premises  of  dealers  such  dealers  will  thereby  incur  special  tax  as  rectifiers. 
(T.  D.  2387;  Oct.  30,  1916.) 

Fortification. 

Brandy  made  from  grape  cheese,  sweetened  as  provided  in  the  act  of  September 
8,  1916,  can  not  be  used  m  fortification  of  pure  sweet  wine  under  provisions  of  the 
act  of  October  1,  1890,  as  amended.     (T.  D.  2373;  Sept.  28,  1916.) 

Artificial  or  imitation  wines  can  not  be  fortified  under  the  pro\d8ion  of  paragraph 
(c)  of  section  402  of  the  act  of  September  8,  1916,  and  if  containing  distilled  spirits 
can  not  be  used  in  the  manufacture  of  cordials.  (T.  D.  2387;  Oct.  30,  1916.  But 
see  T.  D.  2403;  Nov.  29,  1916.) 

Use  of  condensed  must  before  fermentation  or  before  fortification  of  wine  is  per- 
missible; pending  revision  of  regulations,  fortification  of  wines  permitted  to  con- 
tinue under  existing  regulations  and  existing  form  of  bond,  if  consent  of  signers  to 
bond  is  obtained.     (T.  D.  2387;  Oct.  30,  1916.) 

Cordials  are  taxable  under  the  act  of  September  8,  1916,  only  when  containing 
wine  fortified  under  that  act;  mixing  of  wine  not  so  fortified  with  distilled  spirits 
in  the  manufacture  of  cordials  is  within  prohibition  of  paragraph  (f)  of  section  402 
of  such  act.     (T.  D.  2387;  Oct.  30,  1916.) 

Wines  fortified  under  the  act  of  September  8,  1916,  if  containing  added  sugar  and 
aromatic  substances,  under  whatever  name  sold,  will  be  subject  to  tax  as  cordials. 
(T.  D.  2387;  Oct.  30,  1916.) 

There  is  no  provision  in  the  act  of  September  8,  1916,  for  refund  of  tax  on  brandy 
used  in  fortifying  wines  or  redistillation  of  such  wines;  since  act  of  September  8, 
1916,  is  amendatorv  of  the  act  of  October  22,  1914,  refunding  pro\'ision  of  latter 
act  is  not  applicable.     (T.  D.  2387;  Oct.  30,  1916.) 

Tax  on  fortified  wines  should  be  computed  and  paid  on  alcoholic  strength  of  such 
wines  after  fortification.     (T.  D.  2387;  Oct.  30,  1916.) 

Dry  wines  when  sweetened  may  be  fortified  only  by  the  producer  and  on  the 
premises  where  actually  made;  tax-paid  grain  or  other  ethyl  alcohol  may  be  used 
in  fortifying  any  sweet  wines.     (T.  D.  238>;  Oct.  30,  1916.) 

The  abatement  and  refunding  provisions  of  section  402  of  act  of  September  8, 
1916,  apply  not  to  the  tax  collectible  on  the  finished  ^vine^  but  to  the  tax  assessed 
on  the  brandy  used  in  the  fortification  of  such  wines;  proof  as  to  use  of  brandy  and 
actual  possession  of  wines  by  producer  at  time  such  act  went  into  effect  must  be 
furnished  with  each  claim  filed;  part  of  paragraph  23  of  Regulations  No.  28,  Sup- 
plement No.  2,  revoked.     (T.  D.  2440;  Feb.  5,  1917.) 

WTiere  wines  to  which  sugar  solution  has  been  a<ldod  to  correct  natural  deficiencies 
are  to  be  fortified  under  provisions  of  section  402  of  the  act  of  September  8,  1916, 
use  of  sugar  or  condensed  grape  must  is  permissible,  where  use  is  under  supervision 
of  ganger;  wine  so  treated  and  fortified  becomes  sweet  wine  within  meaning  of  act; 


640  WINES. 

Fortification — Continued. 
Bugar  may  be  added  in  subsequent  cellar  treatment  where  needed  to  perfect  the 
wine  according  to  commercial  .standards  without  rendering  wine  makers  or  bonded 
dealers  liable  to  special  tax  as  manufa<^'turers;  champagne  wines  may  be  treated 
without  supervision  of  ganger.     (T.  D.  2470;  iiar.  27,  1917.) 

Only  brandy  produced  from  grapes  may  be  fermented  and  distilled  for  fortifying 
sweet  wines  after  September  8,  1917.     (T.  D.  2520;  Aug.  30,  1917.) 

Form  699A  may  be  executed  by  wine  makers  covering  tax  on  brandy  used  in 
fortification  of  wines,  transportation  of  brandy  to  bonded  winery,  and  its  use  in 
fortification.     (T.  D.  2525;  Sept.  24,  1917.) 

Regulation  of  October  26,  1917,  prohibiting  manufacture  of  distilled  spirits  for 
beverage  purposes  after  September  8,  1917,  does  not  apply  to  production  of  grape 
spirits  solely  for  use  in  fortification  of  sweet  wines  under  act  of  September  8,  1916. 
(T.  D.  2559;  Oct.  26,  1917.) 

Fermenting  and  distilling  of  materials  for  production  of  be^•erage  brandy  after 
September  8,  1917,  prohibited;  brandy  produced  from  grapes  may  be  distilled  for 
fortif^dng  sweet  wines  under  acts  of  September  8,  1916.  and  August  10,  1917;  brandy 
mav  be  produced  from  materials  fermented  after  September  8,  1917,  for  other  than 
beverage  purposes.     (T.  D.  2559;  Oct.  26,  1917.     T.  D.  27SS:  Feb.  6,  1919.) 

All  casks,  tanks,  or  cases  of  wine,  fortified  under  act  of  September  8, 1916,  removed 
from  bonded  premises,  must  be  conspicuously  marked  or  labeled  with  following 
legend,  in  addition  to  information  called  for  by  Regulations  No.  28,  Supplement  2, 
article  10:  "Fortified  under  act  September  8,  1916";  such  marks  or  labels  should 
be  in  reasonable  proportion  to  size  of  container,  and  label  must  be  pasted  to  con- 
tainer and  secured  thereto  by  tacks;  where  such  wine  is  transferred  to  other  con- 
tainers, new  containers  must  also  bear  similar  legend.     (T.  D.  2629;  Jan.  7,  1918.) 

Fruit  juices. 

Fnfermented  prune  juice,  unless  fortified  with  wine  or  spirits  and  sold  as  wine, 
or  imless  mixed  with  fortified  wine  and  sold  as  a  cordial,  is  not  subject  to  tax. 
(T.  D.  2387;  Oct.  30,  1916.) 

Apple  cider  or  other  fruit  juice,  fermented  naturally  or  artificially,  if  sold  as 
wine,  is  taxable  as  wine.     (T.  D.  2387;  Oct.  30,  1916.) 

Wines  made  from  berries  or  fruit,  whether  pure  or  adulterated,  are  taxable  as  wine 
(T.  D.  2387;  Oct.  30,  1916.) 

Gaugers — Assignment  to  bonded  wineries. 

Regulations  with  reference  to  assignment  to  bonded  wineries  of  gaugers  and  of 
storekeeper-gangers  as  gaugers;  compensation  and  traveling  expenses;  duties; 
proprietors  required  to  furnish  Salleron-Dujardin  ebullioscopes  for  use  of  gaugers, 
and  sweet-wine  sets  may  be  used  by  revenue  agents,  deputy  collectors,  and  others, 
for  verifying  and  testing  alcoholic  content  of  Avines.     (T.  t).  2380;  Oct.  10,  1916.) 

Gifts. 

Wines  given  awav  by  dealers  are  nevertheless  subject  to  tax  under  the  act  of 
September  8,  1916.  "  (T.  D.  2387;  Oct.  30,  1916.) 

Honey  wine. 

Honey  wine,  unless  so  sweetened  as  to  be  a  cordial,  is  subject  to  tax  as  wine. 
(T.  D.  2387;  Oct.  30,  1916.) 

Imitation  or  artificial  wines. 

Imitation  or  artificial  wines,  although  labeled  as  such,  and  all  compounds  made 
in  imitation  of  or  sold  as  wane  are  taxable.     (T.  D.  2387;  Oct.  30,  1916.) 

Imports. 

Tax  on  imported  wines  being  payable  on  removal  of  wines  from  customhouse, 
Buch  wines  can  not  be  transferred  to  bonded  premises  established  under  the  wine 
act.     (T.  D.  2387;  Oct.  30,  1916.) 

Imported  wines  when  removed  from  customhouse  must  be  tax  paid  by  stamp. 
(T.  D.  2387;  Oct.  30,  1916.     T.  D.  2391,  Nov.  6,  1916.) 

Imported  wines  transferred  in  bond  from  port  of  entry  to  another  port  will  be  tax 
paid  on  removal  from  bond  at  last-named  port.     (T.  D.  2387;  Oct.  30,  1916.) 

Tkmds  securing  payment  of  internal-revenue  tax  will  not  be  required  for  imported 
wines,  as  such  wines  remain  in  custody  of  customs  officers  until  such  tax  is  paid. 
(T.  D.  2387;  Oct.  30,  1916.) 


WINES.  641 

Imports — rontimiod. 

No  allowance  can  be  made  where  shortage  is  discovered  on  imported  wine  after 
being  tax  paid;  if  shortage  is  discovered  before  removal  from  customhouse  tax  need 
be  paid  only  on  quantity  removed.     (T.  D.  2387;  Oct.  30,  1916.) 

Importer  of  wines  or  his  agent  permitted  as  matter  of  convenience  to  affix  re- 
quired stamps  to  custom  entry  instead  of  stamping  packages  or  cases  containing  such 
wines  upon  the  compliance  with  stated  instructions;  where  importer  prefers  to 
stamp  each  package  or  case  he  mav  do  so.  (T.  D.  2391;  Nov.  6,  1916.  T.  D.  2414; 
Dec.  11,  1916.) 

Jurisdiction  to  enforce  law. 

The  Department  of  Justice  has  exclusive  jurisdiction  to  enforce  the  prohibition 
provisions  of  the  act  of  November  21,  1918.  and  inquiries  as  to  such  act  should  be 
addressed  either  to  the  Attorney  General  or  local  United  States  attorney:  apparent 
violations  of  the  act  should  he  reported  to  the  local  officers  of  the  Department  of 
Justice.     (T.  D.  2881;  July  3,  1919.) 

Labels. 

Wines  received  by  other  than  bonded  dealers  may  be  withdrawn  from  stamped 
packages  to  be  clarified  or  placed  in  other  containers,  but  all  such  new  containers 
shall  be  labeled  bv  the  dealer,  showing  the  wine  was  Avithdrawn  from  stamped 
packages.     (T.  D.  2387;  Oct.  30,  1916.) 

All  casks,  tanks,  or  cases  of  wine  fortified  under  act  of  September  8, 1916,  removed 
from  bonded  premises,  must  be  conspicuously  marked  or  labeled  with  following 
legend  in  addition  to  information  called  for  by  Regulations  No.  28,  Supplement  2, 
article  10:  "Fortified  under  act  September  8,  1916;' '  such  marks  or  labels  should  be 
in  reasonable  proportion  to  size  of  container  and  label  must  be  pasted  to  container 
and  secured  thereto  by  tacks;  where  such  wine  is  transferred  to  other  containers 
new  containers  must  also  bear  similar  legend.     (T.  D.  2629;  Jan.  7,  1918.) 

Where  wines  are  removed  in  bottles,  proprietor  of  bonded  premises  may  affix 
appropriate  stamp  to  each  case  containing  such  bottles,  in  which  event  each  bottle 
must  bear  specified  label;  if  ^vines  are  removed  from  tank  car  the  casks  or  cases 
to  which  removed  must  be  labeled  as  specified;  and  if  wine  removed  from  such  tax- 
paid  tank  cars  is  placed  in  bottles,  in  addition  to  label  required  to  be  placed  on  the 
case,  certain  specified  label  must  be  placed  on  each  bottle;  other  tax-paid  wines 
removed  from  stamped  containers,  as  also  any  unstamped  or  unlabeled  wine  here- 
tofore removed  from  original  containers  which  were  properly  stamped  or  labeled 
must  be  labeled  as  stated ;  all  labels  prescribed  must  be  provided  by  party  using 
same.     (T.  D.  2667;  Mar.  9,  191'6.) 

Liqueiu's,  cordials,*  and  similar  compounds. 

Any  domestic  wines  may  be  used  in  manufacture  of  liqueurs,  cordials,  and  similar 
compounds,  provided  no  distilled  spirits  are  added;  prohibition  against  mixing  of 
distilled  spirits  with  wines  does  not  apply  to  limited  use  of  alcohol  in  making  of 
fluid  extracts  from  herbs  which  may  be  used  in  manufacture  of  cordials;  quantity  or 
percentage  of  alcohol  permitted  in  preparation  of  such  extracts  for  manufacture  of 
cordials  must  in  all  cases  conform  to  United  States  Pharmacopoeia.  (T.  D.  2387; 
Oct.  30,  1916.) 

Cordials,  including  cocktails,  are  subject  to  tax  only  when  containing  wine 
fortified  under  the  act  of  September  8,  1916;  vermuth,  while  taxed  under  the  act 
of  October  22, 1914,  as  a  cordial,  is  now  subject  to  tax  as  a  wine.  (T.  D.  2387 ;  Oct.  30, 
1916.) 

Tax-paid  still  wines,  domestic  and  foreign,  and  tax-paid  distilled  spirits  may  bo 
used  by  rectitiers  in  the  manufacture  of  A-ermuths,  liqueurs,  cordials,  and  siinilar 
compounds  and  fluid  extracts  under  stated  conditions;  bond  given  by  rectifier; 
marking  of  containers;  notice  and  records;  gauging  of  products  after  rectification; 
marking,  branding,  and  stamping  compounds.     (T.  D.  2403;  Nov.  29,  1916.) 

So-called  cordials,  if  in  fact  wine,  or  if  sold  as  wine,  although  containing  fermented 
fruit  juices  or  distilled  spirits,  are  taxable  as  wine.     (T.  D.  2387;  Oct.  30,  1916.) 

Wines  and  cordials  in  hands  of  wholesale  dealers  September  8,  1916,  not  having 
been  removed  for  sale  directly  to  consumers,  are  not  subject  to  tax  under  act  of 
October  22,  1914.)     (T.  D.  2387;  Oct.  30,  1916.) 

Wines  and  cordials  in  hands  of  retail  dealers  September  8,  1916,  having  been 
removed  for  consumption  prior  to  that  date,  are  subject  to  tax  under  the  act  of 
October  22,  1914.     (T.  D.  2387;  Oct.  30,  1916.) 

70420°— 21 41 


642  WINES. 

Liqueiirs,  cordials,  and  similar  compounds — Continued. 

Cordials,  etc.,  held  by  wholesale  dealers  when  act  of  September  8,  1916,  took 
effect  and  those  subsequently  received  (unless  containing  sweet  wine  fortified 
under  that  act)  are  not  subject  to  tax.     (T.  D.  2387;  Oct.  30, 1916.) 

Tax-paid  wiue  fortified  under  the  act  of  September  8,  1916,  if  so  treated  as  to 
bring  it  within  class  of  cordials  is  subject  to  tax  as  a  cordial.  (T.  D.  2387;  Oct.  30, 
1916.) 

Manufacturers  manufacturing  vermuth  or  taxable  liqueurs,  etc.,  reqiiired  under 
paragraph  (h)  of  section  402  of  the  act  of  September  8,  1916,  to  execute  a  tax  bond  in 
stated  form  and  to  keep  all  such  taxable  articles  separate  and  apart  from  nontaxable 
articles;  bond  to  be  executed  in  duplicate  with  sureties  satisfactory  to  collector  in  a 
penal  sum  at  least  equal  to  tax  on  estimated  quantity  of  articles  named  remaining 
on  hand  at  any  one  time,  but  in  no  case  less  than  $5,000;  in  case  of  insufficiency  new 
or  additional  bond  will  be  required  by  collector.     (T.  D.  2404 ;  Nov,  27, 1916.) 

Losses,  allowances  for. 

Allowance  not  exceeding  3^  per  cent  of  the  quantity  of  wines  removed  tax  paid 
made  for  shrinkage,  evaporation,  soakage,  and  breakage  at  both  bonded  wineries 
and  bonded  storerooms;  allowance  extended  to  losses  occurring  in  transit;  monthly 
reports  of  proprietors  of  bonded  premises;  claim  of  losses;  inventories;  computation 
of  losses.    (T.  D.  2545;  Oct.  16,  1917.) 

Nonbeverage  wine — Application  to  vendor. 

After  December  1,  1919,  vendor  of  nonbeverage  distilled  spirits  or  wines  must, 
under  no  circumstances,  deliver  wines  (except  for  sacramental  purposes),  or  non- 
beverage spirits,  unless  on  receipt  of  application  Form  739,  duly  certified  by  prohi- 
bition enforcement  officer;  until  December  1,  1919,  approval  of  prohibition  enforce- 
ment officer  on  Form  739  will  not  be  requii'ed  prior  to  shipment  of  wines  or  spiiits, 
(T.  D.  2946;  Nov.  13,  1919.) 

Dealer  or  user  who  has  received  permit  and  posted  same  may  make  application 
for  withdrawal  or  to  purchase  from  dealers  duly  qualified  _  specific  quantities  of 
distilled  spirits  or  wines  for  nonbeverage  purposes;  requisities  of  application, 
which  must  be  made  in  triplicate,  stated;  approval  of  application;  signatures; 
form  of  appUcation.     (T.  D.  2940;  Oct.  29,  1919.) 

Applicant  for  withdrawal  of  wines  for  use  or  sale  required  to  make  out  applica- 
tion in  triplicate,  filling  in  certain  data;  application  to  be_ delivered  to  vendor  who 
will  fill  in  certain  other  data;  disposition  of  triplicates;  signature  where  applicant 
is  corporation  or  copartnership;  form;  serial  num'ber.     (T.  D.  2788;  Feb.  6,  1919.) 

All  persons  are  forbidden  to  sell  or  deliver  distilled  spirits 'or  wines  (excepting 
wines  for  sacramental  purposes)  for  use  or  sale  for  other  than  beverage  purposes, 
to  any  person,  firm,  or  corporation  not  qualified  as  a  user  or  dealer,  and  then  only 
upon  delivery  bv  person  so  qualified  of  application  therefor  in  due  form.  (T.  D. 
2788;  Feb.6,'l9i9.) 

■ Flavoring  extracts. 

Nonbeverage  alcohol  and  nonbeverage  wine  may  be  used  in  the  manufacture  of 
bona  fide  flavoring  extracts  for  culinary  purposes  and  soft  drinks  where  such  ex- 
tracts are  manufactured  in  accordance  with  the  standards  prescribed  in  the  United 
States  Pharmacopoeia  and  National  Formulary  and  by  the  Secretary  of  Agriculture; 
where  not  maniiiactured  in  accordance  with  such  standards  the  sworn  dataand 
samples  required  herein  as  to  alcoholic  and  medicinal  compounds  will  be  required. 
(T.  D.  2788;  Feb.  6,  1919.) 

— —  Labels. 

The  commercial  labels  that  are  placed  on  containers  of  all  preparations  other 
than  United  States  Pharmacopoeia  or  National  Formulary  must  be  filed  with  appli- 
cation for  permit  for  use  of  nonbeverage  distilled  spirits  or  wines,  otherwise  permit 
will  not  be  granted.     (T.  D.  2940;  Oct.  29,  1919.) 

Wines  manufactured  for  other  than  beverage  purposes  after  May  1,  1919,  and  all 
wines  sold  after  June  30,  1919,  when  removed  from  bonded  wineries  or  bonded 
storerooms,  including  such  wines  shipped  in  bond,  must  bear  printed  label  printed 
by  wine  maker  bearing  stated  legends;  label  shall  bear  date  when  affixed,  shall  be 
signed  in  wine  maker's  name  and  shall  be  pasted  to  head  of  barrel  and  secured 
by  tacks,  except  when  contained  in  metal  packages,  in  which  case  tacks  will  not 
be  required,  but  label  must  be  securely  pasted  in  conspicuous  place;  no  advertising 
matter  will  be  permitted  on  label.     (T.  D.  2788;  Feb.  6,  1919.) 


WINES.  643 

Non'beverage  wine — Continued. 

Medicinal  extracts  and  compounds. 

Under  the  act  of  September  8,  1916,  it  is  illegal  to  mix  distilled  spirits  and  wines 
for  any  purpose  except  in  the  manufacture  of  liqueurs,  cordials,  and  similar  com- 
pounds taxable  under  that  act,  but  this  does  not  prohibit  the  manufacture  of 
medicinal  extracts  with  tax-paid  nonbeverage  spirits  and  the  subsequent  addition 
of  such  extracts  to  tax-paid  wines  in  the  manufacture  of  proprietary  medicines  or 
soft  drinks  which  are  otherwise  manufactured  in  accordance  with  the  law  and 
regulations;  this  provision  removes  an  apparent  conflict  pertaining  to  the  mixture 
of  distilled  spirits  and  wines  as  contained  in  T.  D.  2387  and  T.  D.  2403.  (T.  D. 
2788;  Feb.  6,  1919.) 

Where  the  collector  is  in  doubt  as  to  whether  or  not  medicinal  compound  is  a  bever- 
age, he  will  issue  permit  and  submit  entire  matter  to  Commissioner  of  Internal 
Revenue  with  a  commercial  package  or  packages  of  not  less  than  16  ounces  of  the 
product  for  determination.     (T.  D.^2788;  Feb.  6,  1919.) 

If  an  alcoholic  compound  is  already  listed  in  T.  D.  2544,  or  subsequent  decisions 
of  similar  purport,  as  one  requiring  special  tax  for  its  manufacture  and  sale,  per- 
mit shall  not  be  issued  nor  will  permits  be  issued  to  retail  liquor  dealers,  except 
pharmacists.     (T.  D.  2788;  Feb.  6,  1919.) 

Penalties. 

The  sale  or  use  of  medicinal  and  culinary  or  flavoring  extracts  made  with  non- 
beverage  distilled  spirits  or  wines  for  beverage  purposes  or  for  manufacture  into 
alcoholic  beverages  will  subject  the  seller  or  user  to  the  penalties  provided.  (T.  D. 
2788;  Feb.  6,  1919.) 

When  there  is  evidence  that  wine  or  liquor  obtained  actually  or  ostensibly  for 
sacramental,  medicinal,  or  nonbeverage  purposes,  has  been  used  for  beverage  pur- 
poses it  shall  be  reported  to  the  Commissioner  for  assertion  of  additional  tax  liability, 
and  to  the  United  States  attorney  for  prosecution.     (T.  D.  2881;  July  3,  1919.) 

Fact  that  occupation  or  the  production  or  sale  of  a  beverage  is  prohibited  does 
not  relieve  tliose  engaged  in  such  occupation  or  producing  or  selling  the  beverage 
from  tax  liability;  payment  of  tax  in  no  way  conveys  any  right  to  act  contrary  to  or 
to  be  exempt  from  liabilities  imposed  by  the  prohibition  legislation;  result  of 
statutes  imposing  taxes  and  prohibiting  traffic  is  that  same  person  may  incur  liability 
to  tax  and  at  same  time  be  hable  to  prosecution  under  the  prohibition  laws.  (T.  D. 
2881;  July  3,  1919.) 

Permit  to  use  or  sell,  in  general. 

Collectors  required  to  exercise  utmost  caution  in  issuing  permits  where  any 
doubt  whatever  exists  as  to  sufficiency  of  medication  as  to  alcoholic  or  medicinal 
compounds  for  internal  use  or  manufacture  of  flavoring  extracts.  (T.  D.  2788; 
Feb.  6,  1919.) 

Where  manufacturer  desires  to  make  United  States  Pharmacopoeia  or  National 
Formulary  products,  permit  may  be  approved  by  collector  of  internal  revenue 
without  submitting  the  matter  to  this  office;  and  as  to  such  products  a  statement 
of  the  names  by  classes,  such  as  "tinctures,"  "extracts,"  etc.,  and  that  they  con- 
form to  the  standards  specified,  will  be  sufficient  without  any  further  description 
or  sta.tement  of  formula.     (T.  D.  2788;  Feb.  6,  1919.) 

Application  and  bond. 

All  persons,  firms,  or  corporations  (except  distillers  and  proprietors  of  bonded 
warehouses,  bonded  wineries,  and  bonded  storerooms,  making  deliveries  in  the 
original  taxpaid  packages)  desiring  to  use  or  sell  wines  for  other  than  beverage  pur- 
poses, will  be  required,  first,  to  qualify  therefor  by  filing  with  collector  of  district 
in  which  business  is  to  be  conducted  an  application,  in  duplicate,  for  a  permit,  and 
a  bond,  in  duplicate,  to  be  approved  by  collector  of  district.  (T.  D.  2788;  Feb. 
6,  1919.) 

In  the  case  of  alcoholic  medicinal  compounds  which  are  not  in  conformity  with 
the  Unites  States  Pharmacopoeia  or  National  Formulary,  the  manufacturer  will 
file  with  collector,  when  requesting  permit  for  use  of  nonbeverage  alcohol  or  non- 
beverage wines,  the  following  data  in  duplicat^:  The  name  of  the  preparation,  by 
whom  manufactured,  for  whom  manufactured  in  cases  where  same  is  not  placed  on 
the  market  by  the  manufacturer,  the  advertising  matter  distributed  with  the  prepara- 
tion, and  the  percentage  of  alcohol  by  volume  contained  in  the  finished  product. 
(T.  D.  2788;  Feb.  6,  1919.) 

Sworn  statement,  in  duplicate,  must  be  furnished  that  the  medicinal  compound 
contains  no  more  alcohol  than  ia  necessary  for  the  purposes  of  extraction,  solution, 


G44  WINES. 

Nonbeverage  wine — Continued. 

Permit  to  use  or  sell — Continued. 

. Application  and  bond — Continued. 

or  preservation:  that  it  contains  in  each  fluid  ounce  a  dose  as  a  whole  or  in  compati- 
ble combination  of  one  or  more  agents  of  recognized  therapeutic  value;  that  it  con- 
tains no  agents  either  chemically  or  physiologically  incompatible  with  the  active 
medicinal  agents  upon  which  the  medicinal  claims  are  based,  and  that  it  is  not  a 
beverage  and  is  not  to  be  sold  or  used  as  a  beverage;  Commissioner  of  Internal  Reve- 
nue reserves  the  right,  when  in  doubt  as  to  the  nonbeverage  character  of  the  prep- 
aration (and  the  applicant  must  accept  such  reservation),  to  demand  formula  and 
process  by  which  article  is  manufactured.  The  collector  immediately  after  issuing 
the  peiTiiit  will  forward  one  copy  of  the  data  above  specified  to  tliis  office  for  filing 
in  the  Division  of  Chemistry,  retaining  one  copv  for  his  files.  (T.  D.  2788;  Feb. 
6,  1919.) 

Form  of  application,  wMch  should  be  made  in  duplicate,  stated;  one  copy  after 
approval  will  be  retained  by  collector  and  other  with  approval  indorsed  thereon 
will  be  returned  to  applicant,  who  will  post  same  conspicuously  in  liis  place  of  busi- 
ness; application  so  approved  is  nontransferable  and  may  be  revoked  and  canceled. 
(T.  D.  2788;  Feb.  6,  1919.) 

Bond  with  personal  sureties,  T\ithout  justification  by  sureties,  may  be  accepted 
on  condition  th,at  any  Government  bond  or  bonds  in  an  equal  amount  to  penal  sum 
of  bond  offered  be  deposited  with  collector  as  collateral.     (T.  D.  2788;  Feb.  6,  1919.) 

Applicant  for  permit  to  use  or  sell  wines  for  other  tban  beverage  purposes  must 
furnish  bond,  in  duplicate,  with  corporate  surety  or  two  personal  sureties;  basis  of 
bond;  new  bond  required,  when;  instructions  with  reference  to  heading,  signatures, 
seals,  witnesses,  sureties,  alterations  and  erasiires;  form  of  bond  stated;  cancellation. 
(T.  D.  2788;  Feb.  6.  1919.) 

Full  names  of  individuals  must  be  signed  to  application  for  permit  for  use  of 
nonbeverage  distilled  spirits  or  wines,  written  exactly  as  in  heading  thereof:  in 
case  of  copartnership  firm  name  must  be  signed  preceding  names  of  members, 
and  any  member  authorized  may  sign  the  firm  name;  in  case  of  corporation  the 
corporate  name  must  be  written,  followed  by  name  and  title  of  officer  duly  author- 
ized to  sign  for  company,  together  with  impression  of  corporate  seal.  (T.  D.  2940; 
Oct.  29,  1919.) 

WTiere  manufactiuing  pharmacists  or  manufacturing  chemists  who  have  obtained 
permit  subsequent  to  November  1,  1919,  to  use  nonbeverage  spirits  or  wines  in 
manufactm-e  of  certain  preparations,  desire  to  use  such  spirits  or  wines  in  manu- 
facturing other  preparations  according  to  private  formulae  submitted  to  them  by 
others,  they  must  file  supplemental  application,  if  total  quantity  produced  during 
90  days  exceeds  5  gallons,  but  if  total  quantity  does  not  exceed  5  gallons,  special 
permit  will  not  be  required,  but  manufacturer  will  be  held  responsible  as  to  suffi- 
ciency of  medication;  additional  application  must  be  made  where  it  is  desired  to 
use  nonbeverage  spirits  or  wines  in  manufacture  of  additional  preparations  not 
stated  in  original  permit.     (T.  D.  2940;  Oct.  29,  1919.) 

All  persons,  firms,  or  corporations  (except  distilleries  and  proprietors  of  bonded 
warehouses,  bonded  wineries,  and  bonded  storerooms,  making  deliveries  in  original 
packages),  desiring  to  use  for  maniifactiiring  purposes  or  sell  distilled  spirits  or 
wines  for  medicinal  or  nonbeverage  purposes,  required  to  qualify  by  filing  appli- 
cation for  permit  and  bond;  duly  licensed  practitioners  of  medicine  may  secure 
permit  without  giving  bond  for  purchase  of  not  in  excess  of  two  quarts  of  alcohol 
or  alcoholic  preparations  during  period  of  one  year  by  filing  Form  737  and  executing 
sworn  statement  that  such  alcohol  or  preparations  are  to  be  used  in  their  practice; 
form  of  appUcation  and  data  to  be  included  therein;  serial  nimiber;  approval  of 
application;  posting  of  permits  by  holders.     (T.  D.  2940;  Oct.  29,  1919.) 

Prohibition  enforcement  officers  must  not  issue  permit  for  use  of  nonbeverage 
distilled  spirits  or  wines  subsequent  to  November  1.  1919.  without  first  receiAdng 
approval  of  Commissioner  of  Internal  Revenue;  new  permits  %vill  be  issued  imder 
proA-isions  of  T.  D.  2788  until  November  1.  1919;  permits  issued  prior  to  November 
1,  1919,  must  be  renewed;  if,  before  application  for  renewal,  permit  holder  desires 
to  have  permit  extended  to  cover  preparation  not  heretofore  approved,  prohibition 
enforcement  officer  ^vill  forward  copy  of  old  permit,  together  with  new  application, 
for  approval  of  the  Commissioner.     (T.  D.  2940;  Oct.  29,  1919.) 

Applicant  for  permit  to  use  nonbeverage  distilled  spirits  or  wines  must  furnish 
bond,  in  duplicate,  conditioned  that  he  shall  comply  with  laws  and  regulations 
restricting  sale  or  use  of  distilled  spirits  or  -wines  for  other  than  beverage  piu'poses; 
bond  must  have  corporate  surety  or  two  personal  siueties  and  must  be  approved 


WINES.  645 

Nonbeverage  wine — rontinucd. 

Permit  to  use  or  sell — Continued. 

Application  and  bond — Continued. 

by  prohibition  eniorceinent  officer  of  the  State;  personal  bond  may  be  accepted 
also  if  Government  bonds  in  amount  equal  to  penal  sum  of  bond  offered  shall  Ikj 
duly  assigned  to  Commissioner  of  Internal  Revenue  and  deposited  with  prohibition 
enforcement  officer  as  collateral  security;  contents  of  bond;  signatures;  alterations 
and  erasures;  forms;  cancellation.     (T.  D.  29  !0;  Oct.  29.  1919.) 

Holders  of  permits  for  use  of  nonbeverage  distilled  spirits  and  wines  issued  prior 
to  November  1,  1919,  required  to  give  new  bond  not  later  than  December  31,  1919; 
however,  no  new  bond  need  be  filed  where  satisfactorv  bond  was  filed  prior  to 
November  1,  1919.  on  latest  revised  Form  738  published  in  T.  D.  2788  or  T.  D. 
2840,  in  sufficient  penal  sum  to  meet  requirements  of  T.  D.  2940,  and  in  no  case 
less  than  $1,000;  existing  permits  expire  on  December  31,  1919,  unless  new  bond  is 

.    furnished  as  required.     (T.  D.  2946;  Nov.  13,  1919.) 

Basis  of  penal  sum  of  bond  covering  use  or  sale  of  nonbeverage  spirits  is  $4.20 
per  proof  gallon  on  quantity  of  spirits  which  will  be  received  during  any  quarterly 
period  of  calendar  year,  plus  amount  of  nonbeverage  spirits  on  hand  at  end  of 
preceding  quarter;  penal  sum  of  bond  covering  wines  mil  be  computed  at  rate 
$100  for  each  200  gallons,  or  any  fractional  part  thereof;  penal  sum  of  bond  covering 
both  nonbeverage  spirits  and  wines  shall  be  aggregate  sum  of  amounts  required 
for  each;  provided,  however,  that  penal  siun  of  anv  bond  shall  be  not  less  than 
$1,000.  nor  more  than  $100,000.     (T.  D.  2946;  Nov.  13,  1919.) 

Revocation. 

If  it  should  appear  on  proper  showing  made  at  any  time  that  the  party  to  whom 
permit  has  been  isigued  has  willfully  ^dolated  any  of  the  provisions  of  the  laM-  or 
regulations  relating  to  using  or  handhng  of  spirits  or  mnes,  it  shall  be  the  duty 
of  the  collector  to  recall  and  cancel  the  permit  and  report  the  facts  to  the 
Commissioner  of  Internal  Revenue,  mth  his  recommendations  in  the  premises. 
(T.  D.  2788;  Feb.  6.  1919.) 

Where  manufacturer  desires  to  discontinue  manufacture  of  certain  preparations 
without  haAdng  liis  entire  permit  revoked,  he  shoTild  so  notify  the  prohibition  enforce- 
ment officer,  who  in  turn  should  notify  the  Commissioner;  names  of  such  prepara- 
tions will  then  be  stricken  out  on  all  copies  of  permit.     (T.  D.  2940;  Oct.  29,  1919.) 

Purposes  of  use. 

No  permit  should  be  granted  to  a  manufacturer  of  alcoholic  beverages  nor  where 
the  spirits  or  wines  are  intended  to  be  used  for  beverage  purposes.  (T.  D.  2788; 
Feb.  6,  1919.) 

Wines  for  other  than  beverage  purposes  may  be  used  only  in  the  arts,  sciences, 
and  trades,  where  circumstances  are  such  that  there  can  be  no  probability  that  the 
■\nnes  will  be  used  or  sold  for  beverage  purposes  or  in  the  manufacture  or  production 
of  any  article  intended  for  use  as  a  beverage;  medicinal,  culinary,  and  flavoring 
extracts;  cosmetics  and  toilet  preparations;  proprietary  medicines.  (T.  D.  2788; 
Feb.  6,  1919.) 

Notices. 

All  parties  producing  not  exceeding  1,000  gallons  of  wine  per  year,  and  who 
receive  no  wine  in  bond,  must  file  notice  on  Form  698,  two  copies  to  be  filed  with 
collector,  and  one  retained  on  -swinery  premises;  notice  must  describe  and  show 
location  of  buildings,  size  and  use  of  each,  number  of  ferinenters  and  of  wine  tanks 
respectively,  and  size  of  each,  and  estimated  quantity  of  finished  wine  to  be 
produced:  duplicate  of  notice  on  which  registry  number  will  be  noted  should  be 
forwarded  to  Commissioner  of  Internal  Revenue.     (T.  D.  2765;  Oct.  21,  1918.) 

Each  person  entitled  to  and  desiring  to  avail  himself  of  exemption  proA-ided  by 
section  402  (b)  of  act  September  8,  1916,  must  file  notice  with  collector  of  internal 
revenue  before  commencing  manufacture  of  wine ;  such  notice  must  be  on  paper  8 
inches  by  10^  inches  in  size  and  in  stated  form.     (T.  D.  2765;  Oct.  21,  1918.) 

Numbering  premises,  tanks,  etc. 

In  case  of  production  not  exceeding  1,000  gallons  of  wine  per  year  all  fermentera 
and  all  tanks  must  be  numbered  serially,  commencing  with  No.  1,  and  the  assigned 
number  and  capacity  in  wine  gallons  must  be  plainly  and  durably  marked  on  each; 
upon  receipt  of  specified  notice  collector  will  assign  registry  number  to  premi-ses, 
and  duplicate  of  notice  on  which  such  registry  number  will  be  noted  should  be  for- 
warded to  Commissioner  of  Internal  Revenue'.     (T.  D.  2765;  Oct.  21,  1918.) 


646  WINES. 

Pharmacists  and  pharmaceutical  m.aniif  acturers. 

Pharmaceutical  manufacturers  are  not  entitled,  under  the  act  of  September  8, 
1916,  to  receive  on  their  premises  untax-paid  wine  or  spirits.  (T.  D,  2387;  Oct.  30, 
1916.) 

All  wines  used  by  manufacturing  chemists  or  apothecaries  in  preparations  made 
by  them  and  all  compounds  and  preparations  sold  by  them  as  wines,  however 
specially  designated  are  subject  to  tax  as  wine.     (T.  D.  2387;  Oct.  30,  1916.) 

Apothecaries  are  allowed  to  carry  disfcUled  spirits  and  wine  in  stock  and  use  them 
in  preparation  of  tinctiu-es  and  other  U.  S.  P.  preparations  and  in  compounding 
of  bona  fide  prescriptions  without  paying  special  tax.     (T.  D.  2760;  Oct.  9,  1918.) 

Pharmacists  holding  special-tax  stamps  as  dealers  are  entitled  to  use  or  sell  alcohol 
or  wines  for  other  than  beverage  purposes.     (T.  D.  2788;  Feb.  6,  1919.) 

Wholesale  pharmacists  may  continue  to  qualify  for  sale  of  liquors  or  wines  for 
nonbeverage  purposes  in  conformity  with  T.  D.  2788.     (T.  D.  2881;  July  3,  1919.) 

Wholesale  or  retail  liquor  dealers  having  stocks  of  wines  or  liquors  on  hand  may 
sell  to  pharmacists  holding  permit,  upon  receipt  of  order  on  Form  739  and  in  con- 
foi-mity  with  T.  D.  2788,  imtil  supplies  are  exhausted;  wholesale  or  retail  dealers 
who  are  not  licensed  druggists  or  pharmacists  will  not  be  permitted  to  qualify, 
after  their  present  stocks  are  exhausted,  to  deal  in  either  beverage  or  nonbeverage 
spirits.  (T.  D.  2881;  July  3,  1919.)  Revoked  in  so  far  as  applicable  to  wholesale 
liquor  dealers  who  are  not  licensed  pharmacists  or  druggists.  (T.  D.  2959;  Jan.  5, 
1920.) 

Physicians'  prescriptions. 

Physicians  may  prescribe  wines  for  internal  use,  but  in  every  case  each  prescrip- 
tion shall  be  in  duplicate,  and  both  copies  be  signed  in  physician's  handwriting; 
quantity  prescribed  for  single  patient  at  given  time  shall  not  exceed  one  quart, 
and  in  no  case  shall  physician  prescribe  alcoholic  liquors  unless  patient  is  imder 
his  constant  personal  supervision;  all  prescriptions  shall  indicate  clearly  name  and 
address  of  patient,  condition  or  illness  for  which  prescribed,  and  name  of  pharmacists 
to  whom  prescription  is  to  be  presented  for  filling.     (T.  D.  2881;  July  3,  1919.) 

Physician  shall  keep  record  in  which  separate  page  or  pages  shall  be  allotted 
each  patient  for  whom  alcoholic  liquors  are  prescribed,  and  shall  enter  therein, 
under  patient's  name  and  address,  date  of  each  prescription,  amount  and  kind 
of  liquors  dispensed  by  each  prescription,  and  name  of  pharmacist  fiUing  same. 
(T.  D.  2881;  July  3,  1919.) 

Druggist  filling  physicians'  prescriptions  shall  preserve  in  separate,  carefully 
guarded  file  one  copy  of  every  prescription  filled  and  once  a  month  shall  transmit 
to  collector  a  list  showing  names  of  physicians,  names  of  patients,  and  total  quantity 
dispensed  to  each  patient  during  the  month;  whenever  physician  is  prescribing 
more  than  normal  quantities,  or  any  patient  is  procuiing  more  than  normal  quantity, 
collector  shall  report  facts  to  Commissioner  and  the  United  States  attorney.  (T.  D. 
2881;  July  3,  1919.) 

Any  licensed  pharmacist  or  druggist  may  fill  physicians'  prescriptions  (1)  if  his 
name  appears  on  the  prescription  in  the  physician's  handwriting,  and  (2)  if  he  has 
made  application  and  received  permit,  Form  737,  in  accordance  with  provisions  of 
T.  D.  2788,  and  (3)  if  he  has  qualified  as  retail  liquor  dealer  by  payment  of  special 
tax;  no  such  prescription  may  be  refilled.     (T.  D.  2881;  July  3,  1919.) 

Pharmacists  should  refuse  to  fill  prescriptions  if  they  have  reason  to  believe  that 
physicians  are  dispensing  for  other  than  strictly  legitimate  medicinal  uses,  or  that 
patient  is  securing  quantities  in  excess  of  amount  required  for  legitimate  uses. 
(T.  D.  2881;  July  3,  1919.) 

Rectifiers. 

Rectifiers  are  not  entitled,  under  the  act  of  September  8, 1916,  to  receive  on  their 
premises  untax-paid  wine  or  spirits.     (T.  D.  2387;  Oct.  30, 1916.) 

Retailers. 

Retail  dealers,  being  exempt  from  giving  bond,  can  not  receive  on  their  premises 
untax-paid  wines.     (T.  D.  2387;  Oct.  30,  1916.) 

Returns  and  reports. 

After  computation  of  tax  on  wines  produced  in  quantities  not  exceeding  1,000 
gallons  per  year  has  been  made,  and  necessary  stamps  affixed  and  canceled,  wine 
maker  must  render  a  report,  in  triplicate,  in  stated  form,  two  copies  of  which 
report  must  be  forwarded  to  collector,  and  one  retained  on  the  winery  premises. 
(T.  D.  2765;  Oct.  21,  1918.) 


WINES.  647 

Ketiims  and  reports — Continued. 

When  grapes  are  first  crushed  wine  maker  producing  not  to  exceed  1,000  gallons 
per  year  must  render  report  in  stated  form,  in  triplicate,  and  under  oath,  and  two 
copies  must  be  forwarded  to  collector  and  one  retained  on  winery  premises;  if 
wines  are  shipped  in  bond  from  such  wineries  to  other  bonded  premises,  each  ship- 
ment must  be  covered  by  Form  703,  in  quadruplicate,  filed  with  collector  as  pro- 
vided in  case  of  other  shipments  of  wines  in  bond.     (T.  D.  2765;  Oct.  21,  1918.) 

Sacramental  wines. 

Alcoholic  wines  for  sacramental  purposes  may  be  obtained  from  a  winery,  bonded 
storeroom,  or  person  holding  permit  for  the  sale  of  nonbevera^e  wines,  on  affidavit 
by  the  priest,  pastor,  rabbi,  or  clergyman  of  any  religious  denomination  in  good 
stending  in  the  community,  or  some  person  specifically  designated  by  him,  without 
obtaining  permit  and  giving  bond,  in  any  quantity  it  may  deem  advisable,  except 
that  the  total  quantity  received  during  any  one  calendar  year  shall  not  be  greater 
than  sufficient  to  meet  the  bona  fide  requirements  during  a  period  of  12  months; 
form  of  affidavit  and  of  application;  ■wanes  shall  not  be  delivered  until  affidavit  has 
been  received  by  proprietor  of  winery,  bonded  storeroom,  or  dealer  holding  permit. 
(T.  D.  2788;  Feb.  6,  1919.     T.  D.  2888;  July  14,  1919.     T.  D.  2912;  Aug.  19,  1919.) 

Procedure  outlined  in  T.  D.  2765  should  be  followed  where  wines  are  produced 
for  sacramental  purposes  by  churches  or  religious  orders,  and  production  and  dis- 
tribution are  entirely  under  clerical  supervision;  such  wines  may  be  removed  from 
S remises  where  produced,  in  accordance  with  T.  D.  2788;  labels  required  by  that 
ecision  may  be  omitted;  wine  used  for  sacramental  purposes  is  subject  to  tax. 
(T.  D.  2881;  July  3,  1919.) 

In  view  of  the  custom  during  many  centuries  for  Jewish  families  to  make  in 
their  homes  the  wines  used  in  religious  rites  connected  with  the  Sabbath  observance, 
or  observance  of  the  Passover  and  other  similar  feasts,  the  propriety  of  permitting 
the  continuance  of  such  customs  is  recognized  and  members  of  congregations  affili- 
ated under  the  Union  of  Orthodox  Rabbis  may  execute  the  form  prescribed  in 
T.  D.  2765,  paragraph  1,  which  form  should  be  countersigned  by  the  district  rabbi 
for  said  Union;  15  gallons  a  year  is  deemed  a  sufficient  maximum  for  established 
religious  usage.     (T.  D.  2940;  Oct.  29,  1919.) 

Kosher  wines  which  have  been  made  under  the  supervision  of  the  Union  of  Ortho- 
dox Rabbis  may  be  obtained  from  duly  certified  manufacturer  of,  or  dealer  in,  such 
wines  who  has  the  certification  of  the  president  of  such  Union,  under  regulations 
stated.     (T.  D.  2940;  Oct.  29,  1919.) 

Wines  for  sacramental,  medicinal,  and  other  nonbeverage  purposes  may  be  pro- 
duced on  bonded  winery  premises,  and  wines  intended  for  such  purposes  may  be 
removed  from  bonded  winery  or  bonded  storeroom  only  in  accordance  with  reg- 
ulations; application  to  be  used  where  sacramental  ^vines  are  produced  by  and 
distributed  under  clerical  supervision  stated.     (T.  D.  2940;  Oct.  29,  1919.) 

Alcoholic  wines  for  sacramental  purposes  may  be  obtained  from  winery  not 
operated  under  clerical  supervision,  bonded  storeroom,  or  person  holding  permit 
for  sale  of  nonbeverage  wines,  on  afiida^dt  of  priest,  pastor,  rabbi,  or  clergyman  of 
any  religious  denomination  in  good  standing  in  the  community,  or  some  person 
specifically  designated  by  him,  mthout  obtairdng  permit  and  giving  bond,  in 
sufficient  quantity  to  meet  legitimate  needs  of  regular  congregation  for  reasonable 
period,  but  not  to  exceed  one  year;  form  of  affidavit  for  such  purpose  stated;  veri- 
fication of  affidavit.    (T.  D.  2940;  Oct.  29,  1919.) 

Samples. 

Wines  furnished  as  samples  by  dealers  are  nevertheless  subject  to  tax  under  the 
act  of  September  8,  1916,     (T.  D.  2387;  Oct.  30,  1916.) 

Articles  27  and  28  of  Regulations  No.  28,  Supplement  No.  2,  require  gangers  and 
visiting  deputies  to  make  occasional  tests  of  wine  as  to  alcohoUc  content,  but  respon- 
eibility  for  proper  stamping  of  wines  is  placed  upon  wine  maker  or  bonded  dealer; 
samples  are  not  to  be  submitted  unless  appeal  is  taken  from  findings  of  internal- 
revenue  officers  or  in  cases  where  it  is  suspected  that  the  wines  are  underetamped. 
(T.  D.  2400;  Nov.  24,  1916.) 

Signs,  winery  premises. 

Owner  or  occupant  of  winery  premises  producing  not  to  exceed  1,000  gallons  per 
year  must  keep  conspicuously  on  outside  of  building  nearest  street  or  highway 
sign  in  plain  letters  and  figures,  of  not  less  than  3  inches  in  length  and  of  corre- 
sponding width,  indicating  the  premises  and  the  registry  number.  (T.  D.  2765; 
Oct.  21,  1918.) 


648  WINES. 

Sparkling  wines. 

Wines  received  by  dealers  which,  by  subsequent  fermentation,  are  converted 
into  sparkling  \vines,'are  subject  to  tax  as  sparkling  wines  and  should  be  so  accounted 
for  by  such  dealers.     (T.  D.  2387;  Oct.  30,  1916.) 

Imported  or  domestic  still  \nnes  on  which  tax  has  been  paid,  but  which  when 
subsequently  bottled  become  carbonated  by  secondary  fermentation,  are  subject  to 
tax  as  sparkling  wines;  where  such  change  in  wine  is  not  produced  by  addition  of 
sugar  for  purpose  of  starting  secondary  fermentation  and  is  merely  incidental  to  bot- 
tling, dealer  in  such  case  not  regarded  as  producer;  to  avoid  double  taxation  addi- 
tional tax  found  to  be  due  may  be  paid  by  affixing  additional  stamps  to  bottles 
containing  such  wines  with  label  showing  wines  to  have  been  bottled  without  treat- 
ment.    (T.  D.  2387;  Oct.  30,  1916.) 

Distinction  between  carbonated  wine  and  sparkling  wine  ie  that  former  is  artifi- 
cially carbonated  while  latter  is  carbonated  by  natural  fermentation.  (T.  D.  2387; 
Oct.  30,  1916.) 

Stamps  and  stamp  taxes. 

Tax  on  unstamped  wines  removed  from  or  to  premises  not  bonded  should  be  re- 
ported for  assessment  against  shipper  of  such  wines.     (T.  D.  2387;  Oct.  30,  1916.) 

Transfers  of  wines  by  wholesale  dealers  from  stamped  to  unstamped  packages 
should  be  reported  by  such  dealers  in  their  monthlv  statements.  (T.  D.  2387 
Oct.  30,  1916.) 

Unstamped  wines  in  hands  of  wholesaler  or  received  by  retailers  on  and  after 
September  9,  1916,  are  subject  to  tax  imposed  by  the  act  of  September  8,  1916. 
(T.  D.  2387;  Oct.  30,  1916.) 

Stamps  of  appropriate  denominations  should  be  securely  affixed  to  all  casks  or 
cases  containing  wine,  and  where  value  of  any  stamp  exceeds  30  cents  initials  of 
wine  maker  or  dealer  at  date  of  cancellation  should  be  plainly  marked  thereon.  (T. 
D.  2387;  Oct.  30,  1916.) 

Wines  may  be  removed  from  stamped  packages  to  show  casks  if  on  inspection  of 
premises  by  deputy  collector  all  wines  are  found  to  be  duly  stamped.  (T.  D.  2387; 
Oct.  30,  1916.) 

Wine  stamps  issued  imder  emergency  revenue  act  of  October  22,  1914,  may  be 
used  for  wines,  cordials,  etc.,  taxable  under  the  act  of  September  8,  1916;  such 
stamps  may  be  affixed  to  the  casks  or  outer  cases  containing  the  taxable  wines; 
bottles  of  wine  removed  from  stamped  cases  should,  however,  be  labeled  by  the 
dealer  as  containing  wine  removed  from  stamped  packages  or  cases;  bottles  removed 
from  unstamped  cases  should  be  stamped.     (T.  D.  2387;  Oct.  30,  1916.) 

Tax  due  on  all  wines  removed  from  bonded  ^vineries  or  bonded  storerooms  for  con- 
sumption or  sale  must  be  paid  by  stamp,  and  stamps  must  be  affixed  to  all  containers 
so  removed  and  duly  canceled,  regardless  of  size  of  such  containers,  except  in  case  of 
shipment  in  tank  cars,  when  stamps  must  be  affixed  to  bill  of  lading,  as  required  by 
T.  D.  2555;  however,  in  case  wines  are  removed  in  bottles  each  bottle  should  bear 
an  appropriate  stamp,  or,  if  proprietor  of  bonded  premises  so  desires,  proper  stamp 
may  be  affixed  to  each  case  containing  such  bottles.     (T.  D.  2667;  Mar.  9,  1918.) 

TMiere  possible,  collectors,  upon  receipt  of  reports  from  producers  of  wines  in 
quantities  not  exceeding  1,000  gallons  per  year,  should  detail  officers  to  wineries 
to  see  that  stamps  are  affixed  to  containers  and  properly  canceled  by  writing  in 
ink  or  stamping  name  or  initials  of  producer  and  date  of  cancellation  on  tax  stamps; 
stamps  must  also  be  rendered  entirely  unfit  for  reuse  by  cutting  them  through 
diagonally  or  crosswise  or  bv  perforation  so  as  to  remove  substantial  portion  of 
paper.     (T.  D.  2765;  Oct.  21,'  1918.) 

Tax  on  all  wine  produced  by  wine  maker  in  quantities  not  exceeding  1,000  gal- 
lons per  year  must  be  paid  not  later  than  90  days  after  manufacture  thereof  is  com- 
menced by  affixing  proper  stamps  to  containers,  and  cancellation  of  the  stamps, 
unless  Avine  has  been  previouslv  shipped  in  bond  to  other  bonded  premises  and 
properly  accounted  for.     (T.  D."2765;  Oct.  21,  1918.) 

In  arriving  at  amount  of  tax  to  be  paid  by  producers  on  quantities  not  exceeding 
1,000  gallons  per  year,  the  quantity  removed  in  bond,  quantitj^  set  aside  for  family 
use,  actual  quantity  of  lees  or  sediment,  and  actual  loss  resulting  from  shrinkage, 
soakage,  etc.  (not  exceeding  3J  per  cent  of  quantity  on  which  tax  is  paid),  may  be 
deducted.     (T.  D.  2765;  Oct.  21,  1918.) 

Where  regulations  relating  to  production  of  wine  in  quantities  not  exceeding 
1,000  gallons  per  year  are  not  complied  with,  penalties  provided  in  paragraph  (f), 
eection  402,  act  September  8,  1916,  will  be  incurred.     (T.  D.  2765;  Oct.  21,  1918.) 


WINES.  649 

stamps  and  stamp  taxes — Continued. 

Provision  of  section  3324,  Revised  Statutes,  relative  to  obliteration  of  stamps 
on  empty  distilled  spirits  casks  and  packages,  including  provisions  imposing  pen- 
alties, apply  to  empty  wine  packages;  therefore,  in  case  of  wines  produced  in 
quantities  not  exceeding  1,000  gallons  per  year,  unless  stamps  on  empty  packages 
are  effaced  and  obliterated,  penalties  provided  by  such  section  will  be  asserted. 
(T.  D.  2765;  Oct.  21,  1918.) 

Storage. 

Storage  on  bonded  premises  of  wines  on  wbich  tax  has  been  paid  is  not  permis- 
sible; so  much  of  premises  used  for  storage  or  treatment  of  untax -paid  wines  must 
be  bonded.     (T.  D.  2387;  Oct.  30,  1916.) 

Tax-paid  wines  may  be  temporarily  stored  for  bottling  or  shipment  in  room  speci- 
ally set  apart  for  that  purpose,  although  connected  with  rooms  in  which  untax-paid 
wines  are  stored,  but  under  no  circiunstances  should  both  tax-paid  and  untax-paid 
wines  be  stored  in  same  room.     (T.  D.  2470;  Mar.  27,  1917.) 

Time  taxes  effective. 

War  revenue  taxes  on  distilled  spirits  removed  from  place  of  production  or  storage 
in  bond  took  effect  on  and  after  morning  of  October  4,  1917.  (T.  D.  2547;  Oct.  22, 
1917.) 

Transportation. 

Wines  in  transit  September  8,  1916,  should  be  so  inventoried  by  both  shipper  and 
receiver,  tax  in  such  cases  to  be  assessed  against  shipper,  but  aVjated  if  paid  by 
receiver.     (T.  D.  2387;  Oct.  30,  1916.) 

Untax-paid  wines  can  be  lawfully  shipped  only  from  and  to  bonded  premises. 
(T.  D.  2387;  Oct.  30,  1916.) 

Shipper  required  to  make  bill  of  lading  in  triplicate,  two  copies  to  be  filed  with 
collector  of  district  from  which  wines  are  shipped,  with  luicanceled  stamps  of  re- 
quired denominations  affixed  to  one  of  such  copies;  bill  of  lading  to  which  uncan- 
celed stamps  are  attached  will  then  be  checked  with  maker's  or  dealer's  monthly 
statement,  and,  together  with  uncanceled  stamps,  will  be  forwarded  by  collector 
by  registered  mail  to  Commissioner  of  Internal  Revenue  at  close  of  each  month; 
collector  required  to  mail  one  copy  of  bill  of  lading  to  collector  of  district  to  which 
tank  cars  are  consigned,  noting  thereon  that  appropriate  stamps  have  been  received 
in  his  office,  and  third  copy  of  bill  will  be  sent  by  shipper  to  consignee,  after  noting 
thereon  that  appropriate  stamps  were  forwarded  to  collector's  office;  collector  of 
district  to  which  cars  are  consigned  will  see  that  they  are  not  released  to  consignee 
imtil  he  has  leceived  copy  of  bill  of  lading  duly  certified  by  collector  of  district 
from  which  shipped,  stating  that  proper  stamps  have  been  received  in  his  office; 
label  to  be  affixed  to  car  will,  in  addition  to  prescribed  marks,  contain  words  "Tax 
paid;"  shipiiients,  whether  in  bond  or  tax  paid,  will  be  leported  as  separate  items 
on  Form  701  or  702,  as  case  may  be;  wine  shipped  to  other  than  bonded  premises, 
on  which  tax  has  not  been  paid  by  stamp,  will  be  seized  and  shipper  thereof  will  be 
prosecuted  under  provisions  of  paragraph  (f )  of  section  402  of  the  act  of  September  8, 
1916.     (T.  D.  2474;  Apr.  4,  1917.    T.  D.  2555;  Oct.  25,  1917.) 

Treatment — Addition  of  sugar. 

Wines  to  which  sugar  is  added,  so  that  their  volume  is  materially  increased,  are 
subject  to  increase  of  tax,  to  be  paid  by  dealer  treating  such  wines;  use  of  sugar 
solution  in  excess  of  35  per  cent  of  the  volume  of  the  resultant  product  will  not  be 
permitted  under  section  401  of  the  act  of  September  8,  1916,  or  the  pure-food  laws. 
(T.  D.  2387;  Oct.  30,  1916.) 

Addition  of  sugar  solution  to  the  must  or  wine  to  correct  natural  deficiencies  author- 
ized when  such  addition  shall  not  increase  volume  of  resultant  product  more  than 
35  per  cent,  and  such  product  does  not  contain  less  than  5  parts  per  thousand  of  acid 
before  fermentation  and  not  more  than  13  per  cent  of  alcohol  after  complete  fer- 
mentation; table  showing  number  of  gallons  of  water  that  may  be  added  to  each 
thousand  gallons  of  must  or  wine.  (T.  D.  2469;  Mar.  28,  1917.  T.  D.  2470;  Mar. 
27,  1917.) 

United  States,  use  of. 

AVines  purchased  for  use  of  United  States  or  for  Panama  Canal  Commission  may 
be  delivered  free  of  tax;  applications  for  necossarv  withdrawal  permit  in  such  cases 
Bhould  be  made  under  section  3464,  Revised  Statutes.     (T.  D.  2387;  Oct.  30, 1916). 


650  WITHDEAWAIi. 

Vermutlia. 

Vermuth  is  subject  to  tax  as  wine.     (T.  D.  2387;  Oct.  30, 1916.) 

Vermuth  in  hands  of  retail  dealers  September  8,  1916,  is  subject  to  tax  under  act 
of  October  22,  1914,  as  a  cordial.     (T.  D.  2387;  Oct.  30,  1916.) 

Vermuth  made  from  tax-paid  spirits  without  addition  of  wine  is  taxable  as  wine; 
use  of  both  wine  and  spirits  is  prohibited  by  paragraph  (f )  of  section  402  of  act  of 
September  8,  1916,  unless  wine  has  been  fortified  under  the  act,  in  which  case  the 
product  is  taxable  as  a  cordial.     (T.  D.  2387;  Oct.  30,  1916.) 

Wines  used  in  manufacture  of  vermuth  must  be  first  tax  paid,  and  vermuth,  as 
such,  is  subject  also  to  tax  imposed  by  act  of  September  8,  1916.  (T.  D.  2387;  Oct. 
30,  1916.) 

Unfortified  wines,  if  not  mixed  with  distilled  spirits,  may  be  used  in  manufacture 
of  vermuth,  but  such  wines,  as  also  the  vermuths  so  manufactured,  are  each  sub- 
ject to  tax;  still  wines  fortified  under  the  act  of  October  22,  1914,  may  be  used  in 
the  manufacture  of  vermuth  subject  to  the  conditions  above  named.  (T.  D.  2387; 
Oct.  30,  1916.) 

All  genuine  imported  vermuths  may  be  considered,  for  purpose  of  collecting  floor 
tax,  as  having  a  wine  base,  unless  there  is  reason  for  believing  otherwise,  and  domes- 
tic vermuths,  manufactured  in  same  manner  as  imported  vermuths,  wall  be  inven- 
toried accordingly.     (T.  D.  2579;  Nov.  5,  1917.) 

Vinegar. 

Wines  which  have  become  so  soured  as  to  admit  of  their  sale  or  use  only  as  vinegar 
may  be  removed  or  may  be  destroj'^ed,  free  of  tax,  in  presence  of  deputy  collector, 
who  mil  certify  to  fact  on  dealer's  monthly  statement;  so-called  wine  vinegar,  if 
containing  2  per  cent  or  more  of  alcohol,  will  not  be  regarded  as  vinegar.  (T.  D. 
2387;  Oct.  30,  1916.) 

Wholesale  dealers. 

■\Vholesale  dealers  declining  to  furnish  inventories  of  wines  on  hand  September 

8,  1916,  or  to  render  required  monthly  statements  as  to  disposition  thereof,  to  be 
reijorted  to  United  States  district  attorney  for  prosecution  under  paragraph  (f)  of 
section  402  of  the  act  of  September  8,  1916.     (T.  D.  2387;  Oct.  30,  1916.) 

WTiolesale  dealers  tran.sferring  wines  to  themselves  as  retail  dealers  should  so 
enter  such  wines  on  their  wholesale  records.     (T.  D.  2387;  Oct.  30,  1916.) 

WTiolesale  dealers  who  do  not  bond  their  premises,  and  who  have  untax-paid 
wines  in  their  possession,  must  make  monthly  returns  und^r  oath  as  to  sale  of  such 
wines.     (T.  D.  2387;  Oct.  30,  1916.) 

T\Tiolesale  dealers  who  have  shipped  untax-paid  wines  subsequent  to  September 

9,  1916,  shoidd  make  returns  thereof  and  afiix  to  such  returns  necessary  tax-paid 
stamps.     (T.  D.  2387;  Oct.  30,  1916.) 

"Wholesale  dealers  are  not  required  to  bond  their  premises,  but  unless  bonded  all 
wines  received  thereon  must  be  first  tax  paid.     (T.  D.  2387;  Oct.  30,  1916.) 

^\Tiolesale  dealers  carrying  unstamped  wines  must  keep  same  separate  and  apart 
from  tax-paid  wines;  separate  buildings  or  rooms,  however,  will  not  be  required. 
(T.  D.  2387;  Oct.  30,  1916.) 

"\ATiere  all  wines  held  by  wholesale  dealers  have  been  duly  tax  paid,  monthly 
statements  will  not  thereafter  be  required  of  such  dealers.  (T.  D.  2387;  Oct.  30, 
1916.) 

Collectors  instructed  to  notify  wholesale  wine  dealers  that  tax  on  all  unstamped 
wines  held  on  unbonded  premises  must  be  fully  tax-paid  on  or  before  May  1,  1917, 
and  that  all  untax-paid  wines  found  on  unbonded  premises  at  that  date  will  be 
seized  for  forfeiture;  inconsistent  provisions  of  Regulations  28,  Supplement  2, 
revoked.     (T.  D.  2459;  Mar.  13,  1917.) 

WITHDRAWAL. 

Alcohol  for  scientific  purposes. 

See  "Alcohol." 

Distilled  spirits. 

See  "Distilled  Spirits." 

Tobacco  or  manufactures  thereof. 

See  "Cigars";  "Cigarettes";  "Snuff";  "Tobacco." 


WITHHOLDING WOEDS  AND  PHRASES.  651 

WITHHOLDING. 
Income  taxes. 

See  "Income Taxes  (Corporations)";  "Income  Taxes  (Individuals).'! 

WOOD  ALCOHOL. 

See  "Alcohol." 

WORDS  AND  PHRASES. 
"Accept." 

The  word  "accept"  is  used  in  the  penal  provision  in  section  802  of  the  act  of 
October  3,  1917,  in  the  general  sense  of  "receive"  not  in  the  special  sense  peculiar 
to  drafts.     (T.  D.  2682;  Mar.  26,  1918.) 

"AflSHated." 

Two  or  more  corporations  are  not  "affiliated  "  merely  because  all  or  substantially 
all  of  the  stock  therein  is  owned  by  the  same  corporation,  individual,  or  partner- 
ship; they  must  also  be  engaged  in  the  same  or  a  closely  related  business.  (T.  D. 
2662;  Mar.  6,  1918.) 

"Agricultural  fairs. " 

The  term  "agricultural  fairs,"  as  used  in  section  700  of  the  act  of  October  3, 
1917,  includes  live  stock  and  similar  shows  for  promotion  of  agricultural  interests, 
but  not  bench  shows  or  other  indoor  exhibitions,     (T.  D.  2681;  Mar.  26,  1918.) 

"All  or  substantially  aU  of  the  stock." 

The  words  "all  or  substantially  all  of  the  stock"  as  used  in  the  definition  of  an 
affiliated  corijoration  in  Regulations  No.  41,  article  77,  interpreted  as  meaning  an 
ownership  of  95  per  cent  or  more  of  such  stock  by  the  same  taxpayer  during  the 
taxable  year.     (T.  D.  2662;  Mar.  6,  1918.) 

"AU  the  proceeds." 

The  term  "all  the  proceeds,"  as  used  in  section  700  of  the  act  of  October  3,  1917, 
means  the  net  proceeds  after  payment  of  actual  reasonable  expenses.  (T.  D.  2681; 
Mar.  26,  1918.) 

"Any  part  thereof." 

"Any  part  thereof,"  as  used  in  section  301  of  the  act  of  September  8,  1916,  is  any 
article  relatively  complete  within  itself  and  designed  or  manufactured  for  special 
purpose  of  being  used  as  comi^onent  part  of  completed  munition,  and  which,  by 
reason  of  some  peculiar  characteristic,  loses  its  identity  as  a  commercial  commodity, 
and  which,  without  further  treatment,  can  not  be  used  for  any  purpose  other  than 
that  for  which  it  was  designed;  stock  or  commercial  commodity  purchasable  in 
general  trade  or  upon  market,  if  adapted  to  use  in  manufacture  of  munition,  is  not 
"part,"  and  will  be  treated  as  raw  material,  provided  that  articles  which  ordi- 
narily would  be  classed  as  commercial  commodities  become  "parts"  when  they 
are  manufactured  specially  for  and  sold  to  manufacturer  to  be  by  him  incorporated 
in  and  made  essential  part  of  any  munitions  enumerated  in  said  section  301.  (T. 
D.  2384;  art.  13.) 

"Appendages." 

The  word  "appendages, "  as  used  in  paragraph  (d)  of  article  2  of  Regulations  No. 
39,  includes  those  adjuncts  or  accessories  which  may  be  attached  to  and  become 
in  effect  parts  of  firearms.     (T.  D.  2714;  May  14,  1918.) 

"Automobile. " 

An  automobile  is  a  self-propelling  vehicle  usually  designed  to  run  on  a  road,  con- 
taining the  means  of  propulsion  mthin  itself.     (T.  D.  2719;  Art.  VIII.) 

An  automobile  truck  or  wagon  is  an  automobile  used  primarily  for  transporting 
articles.     (T.  D.  2719;  Art.  VIII.) 

*'Avocation." 

"Avocation"  is  that  which  takes  one  from  his  regular  calling;  a  minor  occupa- 
tion.    (T.  D.  2690;  art.  8.) 


652:  WORDS  AND  PHEASES. 

"Bad  debt." 

Bad  debt  or  worthless  debt,  as  contemplated  by  income-tax  law  and  which  may 
be  deducted  in  return  of  income,  is  one  which  has  been  actually  acertained  to  be 
worthless  and  charged  off  within  taxable  year.     (T.  D.  2690;  art.  8.) 

"Bonds." 

Instruments  containing  essential  features  of  promissory  note,  but  issued  by  cor- 
porations in  numbers  under  trust  indenture  either  in  registered  form  or  with  coupons 
attached,  embodjdng  provisions  for  acceleration  of  maturity  in  event  of  default 
by  obligor  for  optional  registration  in  case  of  bearer  bonds  for  authentication  by 
trustee  and  sometimes  for  redemption  before  maturity  or  similar  provisions  are 
bonds  within  meaning  of  Schedule  A  of  Title  VII  of  act  of  October  3,  1917,  whether 
called  bonds,  debentures,  or  notes.     (T.  D.  2713;  May  14,  1918.) 

•'Bottler." 

A  '  'bottler"  is  a  producer  or  anv  person  who  puts  a  liquid  in  bottles  or  other  closed 
containers  and  sells  it.     (T.  D.  2719;  Art.  XXXIII.) 

"Business." 

In  case  of  corporation  or  partnership  all  income  from  whatever  source  deri\-ed 
is  deemed  to  be  from  its  trade  or  business,  and  the  terms  '  'trade, ' ' '  'business, ' '  and 
'  'trade  or  business, ' '  as  used  in  war  excess-profits  tax  regulations,  include  all  sources 
of  income,  and  unless  otherwise  indicated  by  the  context,  the  terms  will  be  deemed 
to  be  used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  7.) 

In  case  of  an  individual  the  terms  '  'trade, ' ' '  'business, ' '  and  '  'trade  or  business, " 
as  used  in  war  excess-profits  tax  regulations,  comprehend  all  his  activities  for  gain, 
profit,  or  livelihood  entered  into  with  sufficient  frequency  or  occupying  such  por- 
tion of  his  time  or  attention  as  to  constitute  a  vocation,  including  occupations  and 
professions;  when  such  activities  constitute  a  vocation  they  shall  be  construed  to 
be  a  trade  or  business  whether  continuously  carried  on  during  taxable  year  or  not; 
unless  otherwise  indicated  by  the  context  terms  will  be  deemed  to  be  used  only 
with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  8.) 

The  word  "business, "  as  used  in  act  September  8,  1916,  is  a  very  comprehensive 
term  and  embraces  everything  about  which  a  person  can  be  employed;  fair  test  as 
to  whether  or  not  a  corporation  is  doing  business  is  whether  the  corporation  has 
reduced  its  activities  to  the  owning  and  holding  of  property  and  the  distribution  of 
its  avails  and  doing  only  the  acts  necessary  to  continue  that  status,  or  is  still  active 
and  is  maintaining  its  organization  for  purpose  of  continued  efforts  in  pursuit  of 
profit  and  gain  and  such  activities  as  are  essential  to  those  purposes.  (T.  D.  2750, 
art.  4;  Aug.  9,  1918.) 

"Cabaret." 

The  words  '  'cabaret  or  other  similar  entertainment,"  as  used  in  section  700  of  the 
act  of  October  3,  1917,  include  eA^ery  hotel,  or  room  therein,  restaurant,  hall,  or 
other  public  place,  at  or  in  which,  in  connection  with  service  or  sale  of  food  or  other 
refreshments  or  merchandise,  any  vaudeville  or  other  performance  or  diversion  in 
way  of  acting,  singing,  declamation,  or  dancing,  either  with  or  without  instrumental 
or  other  music,  is  conducted;  every  form  of  entertainment  so  conducted  is  included, 
except  that  furnished  by  orchestras  such  as  were  usual  in  hotels  and  restaurants 
before  advent  of  cabarets,  performing  instrumental  music  only,  unaccompanied 
by  any  other  form  of  entertainment;  hotel,  restaurant,  or  hall,  affording  in 
connection  with  service  of  refreshment,  food,  or  merchandise,  entertainment  in 
form  of  dancing  by  its  patrons,  is  included;  performance  must  be  public  and 
for  profit;  where  there  is  entertainment  in  one  dining  room  and  not  in  an  entirely 
separate  dining  room  of  same  hotel  or  restaurant,  only  admissions  to  first  room  are 
taxable.     (T.  D.  2681;  Mar.  26,  1918.) 

"Capital  invested." 

The  words  "capital  invested,  "  as  used  in  sections  5  and  12  of  Title  I,  act  of  Sep- 
tember 8,  1916,  is  meant  the  fair  market  value  of  the  properties  as  of  March  1,  1913, 
if  acquired  prior  to  that  date,  or  their  actual  cost  is  acquired  subsequent  to  that 
date,  as  it  relates  to  the  owner  in  fee  of  the  properties  leased.  (T.  D.  2447;  Feb.  8. 
1917.) 

^'Carbonated  wine." 

Distinction  between  carbonated  wine  and  sparkling  wine  is  that  former  is  arti- 
ficially carbonated  while  latter  is  carbonated  by  natural  fermentation.  (T.  D. 
2387;  Oct.  30,  1916.) 


WORDS   AND  PHRASES.  653 

"Carrier." 

The  word  "carrier,' '  as  used  in  Title  V  of  the  act  of  October  3,  1917,  means  every 
person,  corporation,  partnership,  or  association  who  or  which  for  hire  furnishes  any 
of  the  transportation  services  or  facilities  described  or  referred  to  in  subdivisions 
(a),  (b),  (c),  and  (d),  of  section  500;  person,  corporation,  etc.,  engaged  in  logging, 
manufacturing,  mining,  or  any  other  business,  furnishing  any  of  the  ser\T.ce8  referred 
to  in  such  .''Ubdivisious  for  hire  for  account  of  anv  other  person,  corporation,  etc..  is 
a  carrier  within  the  meaning  of  Title  V.     (T.  D^  2670;  .Mar.  18,  1918.) 

"Certificates  of  indebtedness.',' 

<  'ertificate  of  indebtedness  is  ordinarily  any  instrument  acknowledging  liability 
for  payment  of  money  not  in  recognized  form  of  a  promissory  note  or  bill  of  exchange. 
(T.  D.  2713;  May  14,  1918.) 

"Charged  off." 

The  phrase  "charged  off,"  as  used  in  the  second  paragraph  under  section  12  of 
Title  1,  of  act  of  September  8,  1916,  contemplates  that  the  reasonable  allowance 
deducted  from  gross  incomes  on  account  of  depreciation  or  depletion  shall  be  credited 
to  proper  reserve  accounts  and  carried  as  a  liability  against  the  assets,  to  the  end  that 
when  the  total  of  these  credits  equals  the  capital  investment  account  no  further 
deductions  on  these  accounts  will  be  allowed.     (T.  D.  2481;  Apr.  10,  1917.) 

"Chemical  laboratory." 

The  term  "chemical  laboratory,"  as  used  in  section  3297.  Revised  Statutes,  in- 
cludes any  allied  laboratory,  such  as  physical  or  electrical  laboratory,  belonging  to 
such  institution  or  college  in  which  the  alcohol  withdrawn  from  bond  is  used  purely 
for  scientific  purposes.     (T.  D.  1971;  Apr.  20,  1914.     T.  D.  249G;  May  31,  1917.) 

"Clearing  house." 

The  terms  "clearing  house,"  "clearing-house  corjjoration,  "  and  "clearing-house 
association' '  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes  on  sales  and 
transfers  of  shares  of  stock  and  like  securities,  includes  each  and  every  association 
of  individuals,  partnerships,  and  associations,  engaged  in  business  of  clearing, 
settUng,  or  adjusting  transactions  in  the  purchase,  sale,  receipt,  or  delivery  of  shares 
of  stock,  whether  or  not  the  same  be  a  part  or  department  of  an  exchange  or  an  inde- 
pendent body.     (T.  D.  2608;  Nov.  30,  1917.) 

The  term  "clearing  house"  within  Regulations  No.  40,  Part  2,  relating  to  stamp 
taxes  upon  sales  of  produce  or  merchandise  on  exchanges  for  future  delivery,  includes 
eA'ery  clearing-house  corporation,  clearing-house  association,  or  incorporated  or 
unincorporated  association  carried  on  for  purpose  of  clearing,  settling,  and  adjusting 
transactions  in  purchasing,  selUng,  receiving,  or  delivering  produce  or  merchandise, 
whether  such  clearing  house  be  a  part  or  department  of  an  exchange  or  an  independ- 
ent body.     (T.  D.  2608;  Nov.  30,  1917. 

"Comnaon-law  partnership." 

Common-law  partnerships  are  not  associations  within  the  meaning  of  the  income- 
tax  law.     (T.  D.  2690;  art.  63.) 

"Commutation  tickets." 

The  term  '  'commutation  or  season  tickets."  as  used  in  section  500,  subdivision  (c) 
of  the  act  of  October  3,  1917,  includes  all  forms  of  tickets  issued  and  intended  for 
use  lor  a  certain  number  of  trips  between  two  given  termini,  whether  limited  or 
unlimited  as  lo  the  time  in  which  they  are  to  be  used.     (T.  D.  2676;  Mar.  18,  1918.) 

"Contract  of  sale." 

-  The  term  "contract  of  sale' '  within  Regulations  No.  40,  Part  2,  relating  to  stamp 
taxes  upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery, 
includes  all  sales  or  asceements  of  sale,  or  agreements  to  sell,  including  so-called 
transfers  or  "scratched  sales. "    (T.  D.  2608;  Nov.  30,  1917.) 

"Corporation." 

The  term  "corporations,"  as  used  in  T.  D.  2382,  covers  corporations,  joint-stock 
companies  or  associations,  and  insurance  companies.     (T.  D.  2382:  Oct.  19,  1916.  i 

"Corporation"  or  ■"corporations,"  as  used  in  Regulations  No.  33,  relating  to  in- 
come tax,  construed  lo  include  all  corporations,  joint-stock  companies  and  a.s.so- 
ciations,  and  all  insurance  companies  coming  within  the  terms  of  the  law,  as  well 
as  all  business  trusts  organized  or  created  to  engage  in  commercial  or  industrial 


654  WOEDS  AND   PHRASES. 

"Corporation" — Continued . 
enterprises,  capital  of  which  is  evidenced  by  certificates  or  shares  of  interest  issued 
or  issuable  to  members  on  the  basis  of  which  profits  are  distributed  or  distributable. 
(T.  D.  2690;  art.  bl.') 

The  te^m  "corporation,"  as  used  in  war  excess  profits  tax  regulations,  includes 
joint-stock  companies  or  associations,  no  matter  how  created  or  organized,  insurance 
companies,  and  limited  partnerships,  and  unless  otherwise  indicated  by  the  context, 
term  will  be  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D.  2694;  arts. 
1,2.) 

"Day  this  act  is  passed." 

The  words  "on  the  day  this  act  is  passed,"  used  in  section  602  of  act  of  October 
3, 1917,  construed,  in  connection  with  section  1302,  to  mean  day  law  becomes  effec- 
tive, that  is,  October  4,  1917.     (T.  D.  2570;  Nov.  6,  1917.) 

"Dealer." 

The  term  "dealer,"  as  used  in  Article  XXXVII,  of  Regulations  No.  44,  relating 
to  war  excise  taxes,  and  war  tax  on  beverages,  does  not  refer  to  or  include  a  purchaser 
for  his  own  use,  unless  such  use  is  the  manufacture  or  production  of  another  article 
intended  for  sale.    (T.  D.  2719;  Art.  XXXVII.) 

"Debenture." 

The  term  "debenture"  ordinarily,  though  not  necessarily,  refers  to  an  unsecured 
bond.     (T.  D.  2713;  May  14,  1918.) 

Instruments  containing  essential  features  of  promissory  note  but  issued  by  corpo- 
rations in  numbers,  under  trust  indenture,  either  in  registered  form  or  with  coupons 
attached,  embodying  provisions  for  acceleration  of  maturity  in  event  of  default  by 
obligor,  for  optional  registration  in  case  of  bearer  bonds,  for  authentication  by  trus- 
tee, and  sometimes  for  redemption  before  maturity,  or  similar  provisions,  are  bonds 
within  meaning  of  Schedule  A  of  Title  VIII,  of  act  of  Octoner  3,  1917,  whether 
called  bonds,  debentures,  or  notes.     (T.  D.  2713;  May  14,  1918.) 

"Depreciation." 

"Depreciation,"  as  used  in  sections  5  (a)  and  12  (a)  of  Title  I,  act  of  September 
8,  1916,  comprehends  loss  due  to  exhaustion,  wear  and  tear  of  physical  property 
other  than  natural  deposits,  and  the  annual  allowance  contemplated  on  this  account 
will  be  ascertained  by  spreading  ratably  the  cost  of  the  property  over  the  probable 
number  of  years  constituting  its  life.     (T.  D.  2446;  Feb.  7,  1917.) 

The  expression  "depreciation  of  property,"  as  used  in  corporation-tax  act  of 
August  5,  1909,  is  used  in  its  ordinary  and  usual  sense,  as  understood  by  business 
men.     (T.  D.  2436;  Jan.  19,  1917.     Ct.  Dec.) 

"Dividend." 

The  term  "dividend,"  within  the  income-tax  law,  means  any  distribution  made 
or  ordered  to  be  made  by  a  corporation,  joint-stock  company  or  association,  or  in- 
surance company,  out  of  its  earnings  or  profits  accrued  since  March  1,  1913,  and 
payable  to  its  shareholders  whether  in  cash  or  in  stock  of  the  corporation,  joint-stock 
company  or  association,  or  insurance  company.     (T.  D.  2690;  art.  106.) 

The  term  "dividend,"  as  used  in  war  excess  profits  tax  regulations,  has  the  same 
meaning  as  in  section  31  of  the  act  of  September  8,  1916,  aa  amended  by  the  act  of 
October  3,  1917,  to  wit,  any  distribution  made  or  ordered  to  be  made  by  a  corpora- 
tion, joint-stock  company,  association,  or  insurance  company,  out  of  its  earnings  or 
profits  accrued  since  March  1,  1913,  and  payable  to  its  stockholders,  whether  in  cash 
or  in  stock,  which  stock  dividends  shall  be  considered  income,  to  the  amount  of 
earnings  or  profits  so  distributed;  unless  otherwise  indicated  by  the  context,  term 
will  be  deemed  to  be  used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1, 9.) 

The  act  of  September  8, 1916,  and  theactof  October  3, 1917,  in  excluding  dividends 
declared  out  of  earnings  or  profits  that  accrued  prior  to  March  1,  1913,  are  not  in- 
tended to  be  declaratory  of  the  meaning  of  the  term  "dividends"  in  the  act  of 
October  3,  1913.    (T.  D.  2731;  June  11,  1918.    Ct.  Dec.) 

Periodical  refunds  by  cooperative  organizations,  which  are  sometimes  called 
"dividends,"  are  wholly  different  from  ordinary  dividends  based  on  stock  hold- 
ings, and  need  not  be  listed  as  income  by  recipient;  where  recipient  claims  right  to 
deduct  as  business  expenses  any  expenditures  on  which  refund  is  based,  sum  claimed 
as  deduction  must  be  reduced  in  proportion  to  refund  received.  (T.  D.  2737: 
June  19, 1918.) 


WOBDS  AND  PHKASES.  655 

"Doing  business." 

The  definition  of  the  term  "doing  business,"  as  used  in  corporation-tax  act  of 
August  5,  1909,  which  has  been  judicially  approved,  is  that  which  occupies  the 
time,  attention,  and  labor  of  man  for  the  purpose  of  a  livelihood  or  profit.  (T.  D. 
2436;  Jan.  19,  1917.     Ct.  Dec.) 

The  word  "business,"  as  used  in  act  September  8,  1916,  is  a  very  comprehensive 
term  and  embraces  everything  about  which  a  person  can  be  employed;  fair  test 
as  to  whether  or  not  a  corporation  is  doing  business  is  whether  the  coiporation  has 
reduced  its  activities  to  the  owning  and  holding  of  property  and  the  distribution  of 
its  avails  and  doiag  only  the  acts  necessary  to  continue  that  status,  or  is  still  active 
and  is  maintaining  its  organization  for  purpose  of  continued  efforts  in  pursuit  of 
profit  and  gain  and  such  activities  as  are  essential  to  those  purposes.  (T.  D.  2750, 
art.  4;  Aug.  9,  1918.) 

"  Domestic." 

The  term  "domestic,"  as  used  in  war  excess  profits  tax  regulations,  means  created 
under  the  law  (statutory  or  other)  of  United  States  or  any  State  thereof,  Alaska, 
Hawaii,  or  the  District  of  Columbia,  and  unless  otherwise  indicated  by  the  context, 
term  will  be  deemed  to  be  used  only  with  this  scope  or  meaning.  (T.  D.  2694;  arts. 
1,3.) 

"Exchange." 

The  word  "exchange"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes 
on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  each  and  every 
agent  or  agency,  auction  place,  or  other  meeting  place  at  which  stocks  are  publicly 
bought,  sold,  bid  for,  offered  or  exchanged,  and  includes  all  incorporated  and 
imincorporated  associations,  individuals,  partnerships,  and  corporations,  engaged 
in  business  of  pubUcly  selling,  buying,  or  exchanging  shares  of  stock  or  interests 
therein.     (T.  D.  2608;  Nov.  30,  1917.) 

The  word  "exchange"  within  Regulations  No.  40,  Part  2,  relating  to  stamp  taxes 
upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  includes 
each  and  every  agent  or  agency,  auction  place,  or  other  meeting  place,  at  which 
produce  or  other  merchandise  for  future  delivery  is  publicly  bought,  sold,  bid  for, 
offered,  or  exchanged,  or  contracts  for  such  future  delivery  are  made,  and  includes 
all  associations  or  individuals,  partnerships,  and  corporations  engaged  in  business  of 
publicly  selling,  buying,  or  exchanging  products  of  merchandise  for  future  delivery. 
(T.  D.  2608;  Nov.  30,  1917.) 

"Extract." 

An  "extract"  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3,  1917, 
is  a  preparation  supposed  to  possess  the  characteristic  propert>-  or  virtue  of  the  origi- 
nal substance  in  concentrated  form,  and  includes  essences,  flavoring  extracts,  and 
the  like.     (T.  D.  2719;  Art.  XXIX.) 

A  flavoring  extract  is  a  solution,  in  ethyl  alcohol  of  proper  strength,  of  the  sapid 
and  odorous  principles  derived  from  an  aromatic  plant  or  parts  of  the  plant,  Mdth 
or  mthout  its  coloring  matter,  and  conforms  in  name  to  the  plant  used  in  its  prepa- 
ration.    (T.  D.  2940;  Oct.  29,  1919.) 

Almond  extract  is  the  flavoring  extract  prepared  from  oil  of  bitter  almonds,  free 
from  hydrocyanic  acid  and  contains  not  less  than  1  per  cent  by  volimie  of  oil  of 
bitter  almonds.     (Id.) 

Anise  extract  is  the  flavoring  extract  prepared  from  oil  of  anise,  and  contains  not 
less  than  3  per  cent  by  volume  of  oil  of  anise.     (Id.) 

Celery-seed  extract  is  the  flavoring  extract  prepared  from  celery  seed  or  the  oil 
of  celery  seed,  or  both,  and  contains  not  less  than  0.3  of  1  per  cent  by  volume  of  oil 
of  celery  seed.     (Id.) 

Cassia  extract  is  the  flavoring  extract  prepared  from  oil  of  cassia,  and  contains 
not  less  than  2  per  cent  by  volume  of  oil  of  cassia.     (Id.) 

Cinnamon  extract  is  the  flavoring  extract  prepared  from  oil  of  cinnamon,  and 
contains  not  less  than  2  per  cent  by  volume  of  oil  of  cinnamon.     (Id.) 

Clove  extract  is  the  flavoring  extract  prepared  from  oil  of  cloves,  and  contains 
not  less  than  2  per  cent  by  volume  of  oil  of  cloves.     (Id.) 

Tincture  of  Jamaica  ginger  is  held  to  be  a  medicinal  preparation  and  must  be 
made  according  to  the  U.  S.  P.     It  is  held  not  to  be  a  flavoring  extract.     (Id.) 


656  WOEDS  AND   PHRASES. 

"Extract" — Continued. 

Lemon  extract  is  the  flavoring  extract  prepared  fi'om  oil  of  lemon  or  from  lemon 
peel,  or  both,  and  contains  not  less  than  5  per  cent  by  volume  of  oil  of  lemon.  Ter- 
peneless  extract  of  lemon  is  the  flavoring  extract  prepared  by  shaking  oil  of  lemon 
Avith  diluted  alcohol,  or  by  dissolving  terpeneless  oil  of  lemon  in  diluted  alcohol 
and  contains  not  less  than  0.2  of  the  per  cent  by  weight  of  citral  derived  from  oil  of 
lemon.     (.Id.) 

Nutmeg  extract  is  the  flavoring  extract  prepared  from  oil  of  nutmeg,  and  con- 
tains not  less  than  2  per  cent  by  volume  of  oil  of  nutmeg.     (Id.) 

Orange  extract  is  the  flavoring  extract  prepared  from  oil  of  orange  or  from  orange 
peal,  or  both,  and  contains  not  less  than  5  per  cent  by  volume  of  oil  of  orange.  Ter- 
peneless extract  of  orange  is  the  flavoring  extract  prepared  by  shaking  oil  of  orange 
Avith  diluted  alcohol,  or  by  dissolving  terpeneless  oil  of  orange  in  diluted  alcohol, 
and  corresponds  in  flavoring  strength  to  orange  extract.     (Id.) 

Peppermint  extract  is  the  flavoring  extract  prepared  from  oil  of  peppermint  or 
from  peppermint,  or  both,  and  contains  not  less  than  3  per  cent  by  volume  of  oil  of 
peppermint.     (Id.) 

Rose  extract  is  the  flavoring  extract  prepai'ed  from  otto  of  roses  with  or  without 
red  rose  petals,  and  contains  not  less  than  0.4  of  1  per  cent  by  volume  of  otto  of  roses. 
(Id.) 

Savory  extract  is  the  flavoring  prepared  from  oil  of  savory  or  from  savory,  or  both, 
and  contains  not  less  than  0.35  of  1  per  cent  by  volume  of  savory.     (Id.) 

Spearmint  extract  is  the  flavoring  extract  prepared  from  oil  of  spearmint  or  from 
spearmint,  or  both,  and  contains  not  less  than  3  per  cent  by  volume  of  oil  of  spear- 
mint.    (Id.) 

Star  anise  extract  is  the  flavoring  extract  prepared  fi-om  oil  of  star  anise,  and 
contains  not  less  than  3  per  cent  by  volume  of  oil  of  star  anise.     (Id.) 

SAveet  basil  extract  is  the  flavoring  extract  prepared  from  the  oil  of  sweet  basil  or 
from  sweet  basil,  or  both,  and  contains  not  less  than  0.1  of  1  per  cent  by  volume  of 
oil  of  sweet  basil.     (Id.) 

Sweet  marjoram  extract  is  the  flavoring  extract  prepared  from  the  oil  of  marjoram, 
or  both,  and  contains  not  less  than  1  per  cent  by  A^olume  of  oil  of  marjoram.     (Id.) 

Thyme  extract  is  the  flavoring  extract  prepared  from  oil  of  thyme  or  from  thyme, 
or  both,  and  contains  not  less  than  0.2  of  1  per  cent  by  volume  of  oil  of  thyme.     (Id.) 

Tonka  extract  is  the  flavoring  extract  prepared  from  tonka  bean.  Avith  or  Avithout 
sugar  or  glycerin,  and  contains  not  less  than  0.1  of  1  per  cent  by  weight  of  coumarin 
extracted  from  the  tonka  bean,  together  with  the  corresponding  proportion  of  the 
other  soluble  matters  thereof.     (Id.) 

Vanilla  extract  is  the  flavoring  extract  prepared  from  vanilla  beans,  Avith  or 
Avithout  sugar  or  glycerin,  and  contains  in  100  cubic  centimeters  the  soluble  matter 
.  from  not  less  than  10  grams  of  vanilla  beans.     (Id.) 

Wintergreen  extract  is  the  flavoring  extract  prepared  from  oil  of  Avintergreen, 
and  contains  not  less  than  3  per  cent  by  volume  of  oil  of  Avintergreen.  Imitation 
wintergreen  extract  or  methyl  salicylate  contains  not  less  than  3  per  cent  by  volume 
of  methyl  salicylate.     (Id.) 

"False." 

The  word  "false,"  as  used  in  the  fifth  subdivision  of  section  38  of  the  act  of  August 
5, 1909,  means  "untrue"  or  "incorrect,"  and  does  not  necessarily  mean  intentionally 
or  fraudulently  false.    (T.  D.  2697;  Apr.  16,  1918.    Gt.  Dec.) 

"Farm." 

The  term  "farm,"  as  used  in  instructions  governing  preparation  of  income-tax 
returns  by  farmers,  held  to  embrace  farm  in  the  ordinarily  accepted  sense,  and  in- 
cludes plantations,  ranches,  stock  farms,  dairy  farms,  poultry  farms,  truck  farms, 
and  all  land  used  for  similar  purposes.     (T.  D.'  2665;  Mar.  8,  1918.) 

"Farmers." 

All  corporations,  partnerships,  or  individuals  who  cultivate,  operate,  or  manage 
farms  for  gain  or  profit,  either  as  owners  or  tenants,  are  farmers  for  the  purposes  of 
instruction  governing  preparation  of  income-tax  returns  by  farmers.  (T.  D.  2665: 
Mar.  8,  1918.)  y  k  , 

Persons  cultivating  or  operating  farm  for  recreation  or  pleasure  on  basis  other  than 
recognized  principles  of  commercial  farming,  result  of  which  is  a  continuous  loss 
from  year  to  year,  is  not  regarded  as  a  farmer.     (T.  D.  2690;  art.  4.) 


WORDS   AND   PHRASES.  657 

"Fiduciary." 

"Fiduciary"  is  a  term  which  applies  to  all  persona  or  corporationa  that  occupy 
positions  of  peculiar  confidence  toward  others,  such  as  trustees,  executors,  or  ad- 
ministrators; fiduciary  for  income-tax  purposes  is  anj-  person  or  corporation  that 
holds  in  trust  an  estate  of  another  ])ersun  or  persons;  there  may  be  fiduciary  relation- 
.  ship  between  an  agent  and  a  i)rincipal,  but  the  word  'agent"  does  not  denote  a 
"fiduciary"  within  meaning  of  income  tax  law.     (T.  D.  2690;  art.  29.) 

"Foods  and  fruits." 

Foods,  fruits,  food  materials,  or  feeds  prohibited  for  use  in  producing  beverage 
spirits,  include  all  cereals,  tubers,  fruits,  molasses,  grape  cheese,  apple  cheese,  fruit 
parings,  cannery  refuse,  beet-sugar  molasses,  sour  wine,  and  all  other  foods,  feed, 
fruits,  food  materials,  and  the  by-products  thereof.  (T.  D.  2520;  Aug.  30,  1917. 
T.  D.  2523;  Sept.  11,  1917.) 

"For  trade." 

The  words  "for  trade,"  as  used  in  section  C03  of  act  October  3,  1917,  means  for 
business,  particularly  the  business  of  buying  and  selling,  or  for  commerce.  (T. 
D.  2753;  Aug.  23,  1918.) 

"Foreign." 

The  term  "foreign,"  as  used  in  war  excess  profits  tax  regulations,  means  created 
under  the  law  (statutory  or  other)  of  any  possession  of  the  United  States  other  than 
Alaska,  Hawaii,  or  the  District  of  Columbia,  or  of  any  foreign  country  or  government 
and  unless  otherwise  indicated  by  the  context,  term  will  be  deemed  to  be  used  only 
with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  3.) 

"Foreign  corporation." 

The  term  'foreign  corporation,"  as  used  in  article  35  of  Regulations  No.  33,  Re- 
vised, means  one  not  organized  and  existing  under  the  laws  of  the  United  States  or 
of  any  State  or  Territory  thereof,  or  of  the  District  of  Columbia,  Porto  Rico,  or  the 
Philippine  Islands.     (T.  D.  2759;   Oct.  2,  1918.) 

"Foreign  item." 

The  term  "foreign  item,"  as  used  in  article  35  of  Regulations  No.  33,  Revised, 
means  any  dividend  upon  stock  of  foreign  corporation  or  any  item  of  interest  upon 
bonds  of  foreign  countries  or  foreign  corporations,  whether  such  dividend  or  interest 
is  paid  in  the  United  States  or  by  check  drawn  on  a  domestic  bank.  (T.  D.  2759; 
Oct.  2,  1918.) 

"  Gifts." 

To  constitute  a  valid  gift  there  must  be  an  absolute  transfer  of  property  from  donor 
to  donee,  taking  effect  immediately,  and  fully  executed  by  delivery  of  property  of 
donor,  and  acceptance  thereof  by  donee;  it  is  essential  that  transactions  should  be 
fully  executed  by  delivery  of  property  to  donee  or  to  some  person  for  him.  (T.  D. 
2529;  Oct.  4,  1917.) 

"Good  will." 

Good  will  is  an  intangible  asset  whose  value,  separate  and  apart  from  business  with 
which  it  is  connected,  is  not  capable  of  determination;  it  does  not  represent  a  value 
attaching  to  physical  property.     (T.  D.  2690;  art.  8.) 

Good  will  represents  value  attached  to  business  over  and  above  value  of  physical 
property.     (T.  D.  2690;  art.  167.)  . 

"Gross  incoane." 

Gross  income,  with  reference  to  income  tax  imposed  upon  corporations,  embraces 
not  only  operating  revenues  but  also  income,  gains,  or  profits  from  all  other  sources, 
such  as  rentals,  royalties,  interest,  and  dividends  from  stock  owned  in  other  corpora- 
tions; also  profits  made  in  other  coqwrations;  also  profits  made  from  sale  of  assets, 
investments,  etc.     (T.  D.  2690;   art.  88.) 

"Gross  income,"  as  used  in  Regulations  No.  39,  relating  to  munition  manufac- 
turer's tax,  means  gross  receipts  from  sale  or  disposition  of  munitions  or  parts  thereof 
enumerate  in  section  301,  Title  111,  act  of  September  8,  1916.  (T.  D.  2384; 
art.  10.) 

70120°— 21 42 


658  WORDS  AND   PHRASES. 

"  Head  of  family." 

Head  of  a  family  is  person  who  actually  giipports  and  maintainfl  one  or  more  indi- 
viduals who  are  closely  connected  with  him  by  blood  relationship,  relationship  by 
marriage,  or  by  adoption,  and  whose  right  to  exercise  family  control  and  provide  for 
these  dependent  individuals  is  based  upon  some  moral  or  legal  obligation.  (T.  D. 
2690;  art.  14.) 

"Held  out  or  recommended." 

"Held  out  or  recommended,"  as  used  in  section  600  (h)  of  the  act  of  October  3, 
1917,  includes  representation  by  any  means,  personal  canvass,  and  statements  on  the 
labels,  in  pamphlets,  or  advertisements,  or  otiierwise;  a  holding  out  or  recommenda- 
tion intended  for  physicians  only  is  a  holding  out  to  the  public.  (T.  D.  2719;  Art. 
XXI.) 

"Imjnediate  or  prom.pt  delivery." 

The  term  "immediate  or  prompt  delivery,"  as  used  in  Regulation  No.  40.  Part  2, 
providing  that  no  tax  is  imposed  on  cash  sales  of  products  or  merchandise  for  imme- 
diate or  prompt  delivery,  which,  in  good  faith,  are  actually  intended  to  be  delivered, 
means  delivery  at  once  or  as  soon  as  practicable,  and  in  any  event  within  20  days 
of  the  date  of  sale  or  agreement.    (T.  D.  2608;  Nov.  30,  1917.) 

"  Im.porter." 

An  "importer,"  within  Regulations  No.  44,  relating  to  war  excise  taxes,  is  a  person 
who  causes  an  article  to  be  brought  into  the  United  States  from  a  foreign  country; 
a  retailer  may  be  also  an  importer.     (T.  D.  2719;  Art.  II.) 

"Income." 

"Income"  means  what  has  come  in  or  receipts.     (T.  D.  2451;   Feb.  20,  1917.    Ot. 
Dec.) 

The  word  "income,"  as  used  in  the  corporation  excise  tax  act  of  1909,  imports 
something  entirely  distinct  from  principal  or  capital,  either  as  a  subject  of  taxation  or 
as  a  measure  of  the  tax,  conveying  rather  the  idea  of  gain  or  increase  arising  from 
current  activities.     (T.  D.  2723;  June  4,  1918.    Ct.  Dec.) 

"Intangible  property." 

The  term  "other  intangible  property,"  as  used  in  section  207  of  the  act  of  October 
3,  1917,  means  property  of  character  similar  to  good  w  ill,  trade-marks,  and  the  other 
specific  kinds  of  property  enumerated  in  the  same  clause;  stocks,  bonds,  bills,  and 
accounts  receivable,  notes  and  other  evidences  of  indebtedness  construed  to  b« 
"tangible  property"  within  meaning  of  such  section.  (T.  D.  2610;  Dec.  20,  1917. 
T.  D.2694;  art.  47.) 

"Invested  capital." 

The  term  "invested  capital,"  as  used  in  excess  profits  tax  law,  means  the  invested 
capital  of  the  present  owner.     (T.  D.  2694;  art.  42. ~) 

The  term  "invested  capital,"  when  used  Avith  reference  to  a  foreign  corporation  or 
partnership  or  a  nonresident  alien  individual,  means  that  proportion  of  the  entire 
invested  capital  as  defined  and  limited  by  Regulations  No.  4,  which  the  net  income 
from  sources  within  the  United  States  is  of  the  entire  net  income.  CT.  D.  2694; 
art.  48.) 

The  term  "invested  capital,"  as  used  in  section  209  of  the  act  of  October  3,  1917, 
includes  all  working  capital  consisting  of  money  or  property  employed  in  the  busi- 
ness or  for  its  benefit,  and  furnished  or  paid  in  by  one  or  more  of  the  partners.  (T.  D. 
3080;  Oct.  19,  1920.    Ct.  Dec.) 

"Jewelry." 

Jewelry  includes  ornaments  made  of  gold,  silver,  or  platinum,  or  any  imitation 
thereof,  and  the  precious  or  semiprecious  stones,  or  imitations  thereof,  used  for  per- 
sonal adornment;  an  article  may  be  jewelry,  although  servii^  a  useful  as  well  as 
ornamental  purpose.     (T.  D.  2719;  Art.  XIII.) 

**  Joint-stock  companies  or  associations." 

Term  "joint-stock  company  or  association"  as  used  in  Regulations  No.  33,  relating 
to  income  tax,  includes  associations,  common-law  trusts,  or  organizations,  by  what- 
ever name  known  which  carry  on  or  do  business  in  an  organized  capacity,  net  in- 


WORDS   AND   PHRASES.  659 

"Joint-stock  companies  or  associations" — Continued, 
come  of  which ,  if  any,  is  distributed  or  diatributable  among  members  or  shareholders 
on  basis  of  capital  stock  which  each  holds,  or,  where  there  is  no  capital  stock,  on 
basis  of  proportionate,  share  or  capital  which  each  has,  or  has  invested,  in  business 
or  property  of  organization.     (T.  D.  2690;  art.  58.) 

"Last  due  date." 

"Last  due  date,"  as  used  in  Regulations  No.  33,  mean  last  day  upon  which  a 
return  is  required  to  be  filed  in  accordance  with  provisions  of  the  law,  or  last  day 
of  period  covered  by  an  extension  of  time  granted  bv  the  collector  or  Commissioner 
of  Internal  Revenue.     (T.  D.  2690;  art.  218.) 

' '  Lecture  lyceums. " 

The  term  "lecture  lyceums,"  as  used  in  clause  8,  of  section  3,  of  the  act  of  Octo- 
ber 22,  1914,  defines  no  well-known  method  of  public  entertainment  save  as  the 
meaning  may  be  gathered  from  the  aggregation  of  the  two  words;  there  is  no  system 
of  entertainments  known  as  lecture  lyceums;  it  does  not  include  mere  independent 
show  units  engaged  for  the  occasion,  whether  shown  alone  or  as  an  antidote  for 
somnolence.     (T.  D.  2684;  Mar.  28,  1918.     Ct.  Dec.) 

"Linaited  partnership. " 

Limited  partnership  is  partnership  having  one  or  more  special  partners  who  may 
share  in  profits  of  firm  but  whose  liability  for  debts  of  company  is  limited  to  amount 
of  capital  invested  by  such  special  partner  or  partners.     (T.  t).  2690;  art.  62.) 

Limited  partnerships  of  the  Pennsylvania  type,  which  offer  opportunity  for  lim- 
iting liability  of  all  the  members,  provide  for  transferability  of  partnership  shares, 
and  capable  of  holding  real  estate  and  bringing  suit  in  common  name,  are  corpora- 
tions or  joint-stock  companies;  limited  partnerships  of  New  York  type,  which  can 
not  limit  liability  of  general  partners,  although  special  partners  enjoy  limited  lia- 
bility so  long  as  they  observe  statutory  conditions,  and  which  are  dissolved  by 
death  or  attempted  transfer  of  interest  of  general  partner,  and  which,  can  not  take 
real  estate  or  sue  in  partnership  name,  are  partnerships;  in  doubtful  cases  limited 
partnerships  will  be  treated  as  corporations  unless  they  submit  satisfactory  proof 
that  they  are  not  in  effect  bo  organized.     (T.  D.  2711;  Ma>  9,  1918.) 

"Lodges." 

A  society  or  association  "operating  tmder  the  lodge  system"  is  one  oi^anized 
under  a  charter  or  dispensation  with  properly  appointed  or  elected  officers,  with 
an  adopted  ritual  or  ceremonial,  holding  meetings  at  stated  intervals.  (T.  D. 
2690;  arts.  77,  239.) 

"Manufacturer. " 

A  "manufacturer"  within  Regulations  No.  44,  relating  to  war  excise  taxes,  is  a 
person  who  prepares  an  article  in  final  marketable  form  and  sells  or  markets  it;  if 
goods  partly  manufactured  by  one  person  are  further  manufactured  by  another 
before  being  marketed  to  consiuners  for  use,  latter  is  manufacturer  for  purpose  of 
tax;  a  retailer  may  be  also  a  manufacturer.     (T.  D.  2719;  Art.  II.) 

Within  the  meaning  of  section  600  (h)  of  the  act  of  October  3,  1917,  a  manufac- 
turer or  producer  is  a  person  who  prepares  an  article  or  has  it  prepared  and  sells 
it,  and  who  identifies  the  article  by  a  commercial  name,  trade-mark,  or  trade 
name,  or  by  other  means,  or  holds  out  or  recommends  the  article  as  a  proprietary 
medicine  or  a  medicinal  proprietary  article  or  preparation,  or  as  a  remedy  or  spe- 
cific.    (T.  D.  2719;  Art.  XXI.) 

"Medicinal  preparation. " 

A  medicinal  preparation  is  a  preparation  of  any  substance  whatever  intended 
to  be  applied  for  the  cure  or  mitigation  of  pain  or  disease.     (T.  D.  2719;  Art.  XXII.) 

"Money  or  other  property  borrowed. " 

The  tarm  "money  or  other  property  borrowed,"  as  used  in  section  207  of  the 
act  of  October  3,  1917,  and  Regulations  No.  41,  includes  not  only  cash  or  other 
borrowed  jiroperty  which  can  be  identified  as  such,  but  current  liabilities  and 
temporary  indebtedness  of  all  kiiicKs,  and  any  permanent  indebtedness  upon  which 
taxpaver  is  entitled  to  an  interest  deduction  in  computing  net  income.  (T.  D. 
2694;  "art.  44.) 


660  WORDS  AND   PHRASES. 

"Motorcycle." 

A  motorcycle  is  a  motor-driven  bicycle.     (T.  D.  2719;  Art.  VIII.) 

"Net  income." 

Net  income  is  difference  between  gross  income  and  the  sum  of  allowable  deduc- 
tions.    (T.  D.  2690;  art.  6.) 

"Nominal  capital. " 

The  term  "nominal  capital,"  as  used  in  section  209  of  the  act  of  October  3,  1917, 
means  in  general  a  small  or  negligible  capital  whose  use  iu  a  particular  trade  or 
business  is  incidental;  certain  businesses  not  construed  as  having  nominal  capital 
for  purposes  of  excess-profits  tax,  named.     (T.  D.  2694;  art.  74.) 

"Nonresident  alien  corporation." 

The  term  "nonresident  alien  corporation,"  as  used  in  T.  D.  2382,  covers  all  cor- 
porations, joint-stock  companies  or  associa,tions,  and  insurance  companies  organ- 
ized, autnorized.  or  existing  imder  the  laws  of  a  foreign  coimtrv,  and  having  no 
office  or  place  ot  business  in  the  United  States.    (T.  D.  2382;  Oct.  19,  1916.) 

"Oil." 

The  word  "oil,"  as  used  in  subdivision  (d)  of  section  500  of  the  act  of  October 
3,  1917,  means  crude  petroleiun  and  such  of  its  products  as  may  be  transported  by 
pipe  line.     (T.  D.  2676;  Mar.  18,  1918.) 

"Orgajiization  expenses." 

"Organization  expenses"  constitute  a  capital  investment,  such  expenses  being 
offset  by  the  asset  value  of  the  corporate  franchise,  an  intangible  asset  of  a  some- 
what permanent  character,  and  in  many  instances,  of  substantial  value.  (T.  D. 
2499;  June  11,  1917.) 

"Organized  for  profit." 

A  corporation  is  organized  for  profit,  within  act  September  8,  1916,  if  its  stock- 
holders or  members  may  benefit  pecuniarily  from  its  operations.  (T.  D.  2750; 
art.  2;  Aug.  9,  1918.) 

*' Other  similar  places." 

"Other  similar  places,"  as  used  in  section  313  (a)  of  the  act  of  October  3,  1917, 
includes  all  places  where  soft  diinks  are  sold.     (T.  D.  2719;  Art.  XXIX.) 

•'Outdoor  general  amusement  parks. " 

The  term  "outdoor  general  amusement  parks,"  as  used  in  section  700  of  the  act 
of  October  3,  1917,  applies  only  to  such  permanent  outdoor  parks  as  include  a  con- 
siderable variety  of  entertainments,  such  as  mechanical  shows,  musical  attractions, 
riding  devices,  and  vaudeville  shows,  and  not  to  carnivals  or  entertainment  enter- 
prises with  temporary  Enclosures  or  on  vacant  lots;  outdoor  amusement  parks 
include  similar  enterprises  conducted  on  piers,  but  not  motion  picture  or  other 
theaters  known  as  "airdromes."     (T.  D.  2681;  Mar.  26,  1918.) 

''Outstanding  stock. " 

Capital  stock  that  has  once  been  issued  by  a  corporation  is  regarded  as  being 
"outstanding, "  even  though  it  is  afterwards  acquired  by  the  company  for  value, 
and  carried  on  the  books  as  treasury  stock.     (T.  D.  2417;  Dec.  16,  1916.) 

**Paid." 

"Paid"  or  "actually  paid"  within  meaning  of  Title  I,  of  the  act  of  September 
8,  1916,  as  amended  by  the  act  of  October  3,  1917,  does  not  necessarily  contemplate 
that  there  shall  be  an  actual  disbursement  in  cash  or  its  eqTiivalent;  if  amount 
involved  represents  actual  expense  or  element  of  cost  in  production  of  income  of 
year,  it  will  be  properly  deductible  even  though  not  actually  disbursed  in  cash, 
provided  it  is  so  entered  upon  books  of  company  as  to  constitute  a  liability 
against  its  assets,  and  provided  further  that  income  is  returned  upon  an  accrued 
basis.     (T.  D.  2690;  art.  126.) 

**P aid-up  capital  stock." 

Definition  of  "paid-up  capital  stock"  by  a  local  State  statute  is  not  controlling 
on  a  Federal  court  construing  the  corporation  excise  tax  act  of  1909,  which  is 
applicable  to  all  States.     (T.  D.  3004;  Apr.  21,  1920.     Ct.  Dec.) 


WORDS   AND   PHRASES.  661 

"Person." 

The  word  "person"  within  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes  on 
sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  the  plural  as  well 
as  the  singular,  and  shall  be  taken  to  refer  to  individuals,  partnerships,  associations, 
and  corporations,  excej)!  where  it  is  plain  from  the  context  that  different  meaning 
is  intended.     (T.  D.  2G08;  Nov.  30,  1917.) 

The  word  "person"  within  Regulations  No.  40,  Part  2,  relating  to  stamp  taxes 
upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  includes 
the  plural  as  well  as  the  singular,  and  refers  to  individuals,  partnerships,  associa- 
tions, and  corporations,  except  where  it  is  plain  from  the  context  that  different 
meaning  is  intended.     (T.  D.  2G08;  Nov.  30.  1917.) 

Term  "person,"  when  used  in  Regulations  No.  38,  includes  such  partnerships, 
corporations,  or  associations  as  are  engaged  in  manufacture  in  the  United  States 
and  in  the  sale  or  disposition  of  articles  enumerated  in  section  301  of  Title  III  of 
the  act  of  September  8,  1916,  or  parts  thereof.     (T.  D.  2384;  art.  1.) 

"Place." 

The  word  "place"  as  used  in  section  700  of  the  act  of  October  3,  1917,  is  not  de- 
fined in  the  section,  but  the  context  indicates  that  in  general  only  admissions  to 
places  of  amusement  and  entertainment  were  intended  to  be  taxable.  (T.  D.  2681; 
Mar.  26,  1918.) 

"Political  subdivision." 

Term  "political  subdivision,"  as  used  in  article  83  of  Regulations  No.  33,  relating 
to  exemption  of  incomes  from  interest  upon  obligations,  denotes  every  di\dsion  of 
the  State  made  by  proper  authorities  thereof  acting  within  their  constitutional 
powers  for  purpose  of  carrying  out  portions  of  those  functions  of  State  which  by 
long  usage  and  inherent  necessities  of  government  have  always  been  regarded  as 
public;  the  term  includes  special  assessment  districts  so  created,  such  as  road, 
water,  sewer,  gas,  Ught,  reclamation,  drainage,  irrigation,  levee,  school,  harbor, 
port  improvement,  and  similar  districts  and  divisions  of  State.  (T.  D.  2715;  May 
20,  1918.) 

"Prepared  sirup." 

A  "prepared  sirup,"  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3, 
1917,  is  a  simple  sirup  with  flavoring  and  perhaps  other  materials.  (T.  D.  2719; 
Art.  XXIX.) 

"Prewar  period." 

The  term  "prewar  period,"  as  used  in  war  excess-profits  tax  regulations,  means 
the  calendar  years  1911,  1912,  and  1913,  or  if  a  corporation  or  partnership  was  not 
in  existence  or  an  individual  was  not  engaged  in  the  trade  or  business  during  the 
whole  of  such  three  years,  then  as  many  of  such  years  during  the  whole  of  which 
the  corporation  or  partnership  was  in  existence  or  the  individual  was  engaged  in 
the  trade  or  business,  and  unless  otherwise  indicated  by  the  context,  term  will  be 
deemed  to  be  used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  6.) 

"Private  home." 

The  words  "private  home,"  as  used  in  act  of  September  8,  1916,  were  intended  to 
be  taken  in  their  common  and  ordinary  meaning  as  describing  individual  or  family 
residences;  it  has  accordingly  been  held  that  occupation  tax  is  applicable  to  pool 
or  billiard  tables  and  bowling  alleys  in  clubs,  fraternity  houses,  lodge  halls,  chari- 
table institutions,  Y.  M.  C.  A.  buildings,  hotels,  boarding  houses,  etc.  (T.  D. 
2462;  Feb.  16,  1917.) 

"Producer." 

The  term  "producer,"  as  used  in  Regulations  No.  44,  relating  to  war  excise  taxes, 
is  a  broader  term  than  "manufacturer,'"  which  is  defined  as  a  person  who  prepares 
an  article  in  final  marketable  form  and  sells  or  markets  it;  a  retailer  may  be  also  a 
producer.     (T.  D.  2719;  Art.  II.) 

Within  the  meaning  of  section  600  (h)  of  the  act  of  October  3,  1917,  a  manufacturer 
or  producer  is  a  person  who  prepare.s  an  article  or  has  it  prepared  and  sells  it  and 
who  identifies  the  article  by  a  commercial  name,  trade-mark,  or  trade  name,  or  by 
other  means,  or  holds  out  or  recommends  the  article  as  a  proprietary  medicine  or  a 
medicinal  proprietary  article  or  preparation,  or  as  a  remedy  or  specific.  (T.  D. 
2719;  Art  XXI.) 


662  WORDS   AND   PHRASES. 

'♦Projectiles." 

"Projectiles,"  as  used  in  Title  III  of  the  act  of  September  8,  1916,  include  any 
and  all  missiles  to  be  projected  from  a  gun,  cannon,  mortar  or  other  firearm,  and 
will  include  bullets,  balls,  shot,  ormissilea.     (T.  D.  2384;  art.  2.) 

"Promissory  note." 

luBtruments  containing  essential  features  of  promissory  note  but  issued  by  corpo- 
rations in  numbers,  under  trust  indenture,  either  in  registered  form  or  with  coupons 
attached,  embodying  pro\dsion3  for  acceleration  of  maturity  in  event  of  default  by 
obUgor,  for  optional  registration  in  case  of  bearet  bonds,  for  authentication  by 
trustee,  and  sometimes  for  redemption  before  maturity,  or  similar  provisions,  ar« 
bonds  within  meaning  of  Schedule  A  of  Title  VIII  of  act  of  October  3,  1917,  whether 
called  bonds,  debentures,  or  notes.     (T.  D.  2713;  May  14,  1918.) 

"Railroad  system." 

The  term  "railroad  system,"  as  used  in  subdivision  (b)  of  section  501  of  the  act 
of  October  3,  1917,  means  two  or  more  railroads  and  such  other  carriers  as  may  be 
operated  in  conjunction  there\vith,  all  such  raikoads  and  other  carriers  being  under 
one  general  operating  management,  and  even  though  each  such  railroad  or  other 
carrier  maintains  its  corporate  identity.     (T.  D.  2676;  Mar.  18,  1918.) 

♦'Raw  materials." 

As  used  in  section  302  of  the  act  of  September  8,  1916,  raw  materials  are  cnide  or 
elemental  products  or  substances  necessary  to  the  manufacture  of  any  parts  of  the 
articles  enumerated  in  paragrajjhs  (b)  to  (e),  inclusive,  of  section  301,  and  which, 
without  any  application  of  skill  or  science,  can  not  become  component  parts  or 
elements  in  the  finished  article  or  unit;  as  applied  to  manufacture  of  completed 
munitions,  raw  materials  include  not  only  such  crude  products  and  elemental  sub- 
stances, but  all  essential  finished  or  unfinished  parts  as  well;  cost  of  raw  materials 
authorized  as  deduction  will  not  include  any  expenditures  made  for  raw  materials 
used  in  manufacture  of  articles  other  than  munitions,  or  parts  thereof,  where  manu- 
facture of  such  munitions  or  parts  is  carried  on  in  connection  Avith  any  other  busi- 
ness.    (T.  D.  2384;  art.  15.) 

"Reasonable  caiise." 

The  words  "reasonable  cause,"  as  used  in  section  3176,*  Revised  Statutes,  as 
amended  by  the  act  of  September  8,  1916,  providing  that  if  after  delinquency  baa 
ensued  and  before  receiving  notice  from  collector  of  such  delinquency  and  request 
for  return,  delinquent  shall  have  filed  his  return,  accompanied  with  showing  that 
failure  to  file  in  time  was  due  to  reasonable  cause,  no  such  addition  shall  be  made  to 
the  tax,  is  held  to  be  such  a  condition  of  fact  as  had  the  taxpayer  in  default  exer- 
cised ordinary  business  care  and  prudence  it  would  have  been  impracticable  or 
impossible  for  him  to  have  fiied  return  on  prescribed  time.     (T.  D.  2690;  art.  54.) 

"Receipt." 

Actual  receipt  is  reduction  to  possession;  constructive  receipt  is  where  income 
is  credited  to  or  made  available  to  recipients,  and  is  to  be  reported  as  income.  (T.  D. 
2690;  art.  4.) 

"Regular  established  line." 

"Regular  established  line,"  as  used  in  act  of  October  3,  1917,  construed  to  mean 
a  regularity  of  opeAtion  of  transportation  facilities  by  motor  power  between  definite 
points;  casual  or  intermittent  transportation  of  passengers  by  automobile  betv\'een 
two  points  would  not  constitute  a  regular  established  line;  automobile  that  is  merely 
for  hare  and  which  takes  passenger  to  anv  point  he  directs  does  not  constitute  regular 
established  line.     (T.  D.  2795;  Feb.  26',  1919.) 

"Reserve  fimds." 

The  words  "reserve  funds,"  as  used  in  act  of  August  5,  1909,  have  reference  to 
the  funds  ordinarily  held  as  against  the  contingent  Uability  on  outstanding  policies. 
(T.  D.  2501;  June  18,  1917.     Ct.  Dec.) 

"Resident  alien  corporation." 

The  term  "resident  alien  corporations,"  as  used  in  T.  D.  2382,  covers  such  foreign 
organizations  as  have  an  office  or  place  of  business  in  the  United  States.  (T.  D. 
2382;  Oct.  19,  1916.) 


WORDS   AKD    PKRASES.  663 

"Retailer." 

A  "retailer"  who  is  not  also  a  wholesaler  is  one  who  scIIb  only  to  personal  cub- 
tomere  and  does  not  solicit  or  seek  to  make  sales  to  other  dealers  for  resale.  (T.  D. 
2573;  Nov.  1,  1917.) 

"Sales." 

The  word  "sales,"  within  Rc^ilations  No.  40,  Part  1.  relating  to  stamn  taxes  on 
sales  and  transfers  of  sliares  of  stock  and  like  securitiet;,  includes  all  sales,  agree- 
ments to  sell,  memoranda  of  salos,  and  all  delivpriee  or  transfers  of  legal  title,  except 
as  otherwise  specifically  provided  in  such  regulations.     (T.  D.  2C08;  Nov.  30, 1917.) 

The  word  ^'sale,"  within  Regulations  No.  40,  Part  2,  relating  to  stamp  taxes 
upon  sales  of  products  or  merchandise  on  exchanges  for  future  delivery,  includes 
lui  sales  or  agreements  of  sale,  or  agieements  to  sell,  including  so-called  transfers  or 
"scratched  sales."     (T.  D.  2608;  Nov.  30,  1917.) 

"Season  tickets." 

The  term  ' '  commutation  or  season  tickets,"  as  used  in  section  500.  subdivision  (c), 
of  the  act  of  October  3,  1917,  includes  all  forms  of  tickets  issued  and  intended  for 
use  for  a  certain  number  of  trii)s  between  two  given  termini,  whether  limited  or 
unlimited  as  to  the  time  in  which  they  are  to  be  used.     (T.  D.  2C76;  Mar.  18,  1918.) 

"Shall  not  include," 

Congress  used  the  words  "shall  not  include"  (Sec.  II  G  (b\  act  Oct.  3,  1913), 
as  applied  to  the  annually  ascertained  ovei-pa>iiients  of  premium  paid  back  or 
credited  to  the  policyholder,  because  it  elindnated  them  from  the  aggregate  of 
taxable  premiums  as  being  the  equivalent  of  abatement  of  premiums.  (T.  D. 
3046;  July  19,  1920.     Ct.  Dec.) 

"  Shares  of  stock." 

The  term  "share  or  shares  of  stock,"  within  Regulations  No.  40,  Part  1,  relating 
to  stamp  taxes'on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes 
shares  and  certificates  for  shares  of  stock  representing  interests  in  corporations  and 
in  incorporated  and  unincorporated  associations,  as  well  as  voting  trust  certificates 
for  shares  and  certificates  for  shares  or  interests  in  shares  "if,  as,  and  when  issued" 
and  for  "rights"  therein.     (T.  D.  2608;  Nov.  30,  1917.) 

"SheUs." 

The  term  "sheila,"  as  used  in  Title  III  of  the  act  of  September  8,  1916,  compre- 
hends any  receptacle  used  to  inclose  an  explosive  charge,  or  the  receptacle  and 
charge  combined.    (T.  D.  2384;  art.  2.) 

"Sirup." 

A  "simple  sirup  "  which  is  not  taxable  under  section  313  (a)  of  the  act  of  October 
3,  1917,  is  a  preparation  of  sugar  and  water  or  rock  candy  and  water.  (T.  D.  2719; 
Art.  XXIX.) 

A  "prepared  sirup"  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3, 
1917,  is  a  simple  sirup  with  flavoring  and  perhaps  other  materials.  (T.  D.  2719; 
Art.  XXIX.) 

"Social  club." 

A  ny  organization  which  maintains  quarters  or  arranges  periodical  dinners  or  meet- 
ings for  purpose  of  affording  its  members  opportunity  of  congregating  for  social  inter- 
course, is  a  social  club  witMn  the  meaning  of  section  701  of  the  act  of  October  3,  1917, 
unless  its  social  features  are  subordinated  and  merely  incidental  to  the  furtherance 
of  business  or  other  special  interests;  Commissioner  of  Internal  Revenue  shall  deter- 
mine whether  club  or  organization  comes  within  words  'social,  athletic,  or  sport- 
ing," upon  being  furnished  charter  or  constitution  and  by-laws  of  organization, 
statement  as  to  its  actual  activities  and  practices,  and  such  other  information  as  he 
may  deem  pertinent.     (T.  D.  2681;  Mai".  26,  1918.) 

"Soft  drink." 

A  '  'soft  drink  "  within  the  meaning  of  section  313  (a)  of  the  act  of  October  3,  1917, 
is  a  nonintoxicating  be\'erage  containing  less  than  one-half  per  cent  of  alcohol. 
(T.  I).  2719;  Art.  XXIX.) 


gg4  WORDS  AND   PHRASES. 

"Sold." 

An  article  is  sold,  within  Regulations  No.  44,  relating  to  war  excise  taxes,  when 
title  to  it  passes  from  the  seller  to  the  buyer  pursuant  to  a  previous  contract  of  sale 
or  upon  a  sale  without  previous  contract.     (T.  D.  2719;  Art.  IV.) 

•'Sold  or  leased." 

The  words  '  'sold  or  leased,"  as  used  in  section  600  of  act  of  October  3,  1917,  mean 
when  first  sold  or  leased,  and  payment  of  tax  upon  films  sold  or  leased  by  the  manu- 
facturer, producer,  or  importer, 'is  required  but  once.     (T.  D.  2568;  Oct.  30,  1917.) 

"Sparkling  wine." 

Distinction  between  carbonated  wine  and  sparkhng  wine  is  that  former  is  artifi- 
cially carbonated,  while  latter  is  carbonated  by  natural  fermentation.  (T.  D.  2387; 
Oct.  30,  1916.) 

"State." 

The  word  "State,"  as  used  in  section  502  of  the  act  of  October  8,  1917,  includes 
political  subdivisions  thereof,  such  as  counties,  cities,  towns  and  other  municipali- 
ties.    (T.  D.  2676;  Mar.  18,  1918.) 

"Stock  dividend." 

A  dividend  declared  and  paid  by  one  corporation  in  the  stock  of  another  is  not  a 
"stock  dividend"  within  the  accepted  meaning  of  that  term.  (T.  D.  2732;  June 
11,  1918,  Ct.  Dec.) 

"Submarine  or  submersible  vessels." 

Submarine  or  submersible  vessels,  within  the  meaning  of  Title  III  of  the  act  of 
September  8,  1916,  include  all  craft,  no  matter  how  propelled,  manufactured  for 
purpose  of  being  at  will  submerged  beneath  surface  of  water.     (T.  D.  2384;  art.  2.) 

"Taxable  person." 

Term  "taxable  person,"  when  used  in  Regulations  No.  39,  includes  such  partner- 
ships, corporations,  or  associations  as  receive  any  profit  from  the  manufacture  and 
sale  of  articles  enumerated  in  section  301  of  Title  III  of  the  act  of  September  8, 
1916.     (T.  D.  2384;  art.  1.) 

"Taxable  year." 

The  term  "taxable  year,"  as  used  in  war  excess-profits  tax  regulations,  means  the 
twelve  months  ending  December  31  of  each  year,  except  in  case  of  corporation  or 
partnership  which  has  fixed  its  own  fiscal  year,  in  which  case  it  means  such  fiscal 
year,  and  unless  otherwise  indicated  by  the  context,  term  will  be  deemed  to  be 
used  only  with  this  scope  or  meaning;  first  taxable  year  is  year  ending  December 
31,  1917,  except  that  in  case  of  corporation  or  partnership  which  has  fixed  its  own 
fiscal  year,  first  taxable  year  is  fiscal  year  ending  during  calendar  year  1917.  (T.  D. 
2694;  arts.  1,  5.) 

"Territory." 

The  word  '  'Territory,"  as  used  in  section  502  of  the  act  of  October  3, 1917,  includes 
political  subdivisions  thereof,  such  as  counties,  cities,  towns  and  other  municipali- 
ties.    (T.  D.  2676;  Mar.  18,  1918.) 

"Torpedoes." 

The  term  "torpedoes,"  as  used  in  Title  III  of  the  act  of  September  8,  1916,  com- 
prehends any  receptacle  to  inclose  an  explosive  charge,  or  the  receptacle  and  charge 
combined.     (T.  D.  2384;  art.  2.) 

"Trade." 

In  case  of  corporation  or  partnership  all  income  from  whatever  source  derived  ia 
deemed  to  be  from  its  trade  or  business,  and  the  terms  "  trade,"  "  business,  "  and 
"trade  or  business,"  as  used  in  war  excess-profits  tax  regulations,  include  all  sources 
of  income,  and  unless  otherwise  indicated  by  the  context,  the  terms  will  be  deemed 
to  1)0  used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,  7.) 

In  case  of  an  individual,  the  terms  "trade,"  "business,"  and  "trade  or  business," 
as  used  in  war  excess-profits  tax  regulations,  comprehend  all  his  activities  for  gain, 


WORK    AND   LABOR.  665 

"Trade"— Con  tinuod. 
profit,  or  livelihood  entered  into  with  miffirdent  frequency  or  occupying  Buch  por- 
tion of  his  time  or  attention  as  to  constitute  a  vocation,  including  occupations  and 
professions;  when  such  activities  constitute  a  vocation  they  shall  be  construed  to  be 
a  trade  or  business  whether  continuously  carried  on  during  taxable  year  or  not; 
unless  otherwise  indicated  by  the  context,  terms  will  be  deemed  to  be  used  only 
with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,8.) 

*TraiiBfer8." 

The  word  "transfers"  mthin  Regulations  No.  40,  Part  1,  relating  to  stamp  taxes 
on  sales  and  transfers  of  shares  of  stock  and  like  securities,  includes  all  sales,  agree- 
ments to  sell,  memoranda  of  sales,  and  all  deliveries  or  transfers  of  legal  title,  except 
as  otherwise  specifically  provided  in  such  regulations.     (T.  D.  2608;  Nov.  30, 1917.) 

"Transportation. " 

The  word  "transportation,"  as  used  in  Title  V  of  the  act  of  October  3, 1917,  means 
the  movement  of  persons  and  property  by  a  carrier,  including  all  services  and  facili- 
ties rendered,  furnished,  or  used  m  connection  with  such  movement  by  or  on  behalf 
of  a  carrier;  it  includes  receipt,  delivery,  elevation,  transfer  in  transit,  ventilation, 
refrigeration,  icing,  storage,  trimming  of  cargo  in  vessels,  wharfage,  handling  of 
property  transported,  feeding  and  watering  live  stock,  and  all  other  incidental  serv- 
ices and  facilities,  but  does  not  include  cartage  or  passengers'  meals  or  hotel  accom- 
modations.    (T.  D.  2676;  Mar.  18,  1918.) 

"Treasury  stock." 

Where  treasuiy  stock,  defined  to  mean  stock  which  had  been  previously  issued  by 
corporation,  and  which  had  been  repossessed  by  it  through  purchase  or  other\Wse, 
and  then  carried  on  its  books  as  an  asset,  is  resold  at  a  price  in  excess  of  its  cost  upon 
repossession,  such  excess  shall  be  returned  as  income  for  year  in  which  resold;  unis- 
sued stock  retained  by  corporation  for  future  sale  will  not  be  considered  treasury 
stock,  and  when  sold  no  part  of  proceeds  will  be  considered  taxable  income.  (T. 
D.  2690;  art.  98.) 

•'Trips  less  than  30  miles." 

The  phrase  "for  trips  less  than  30  miles,"  as  used  in  subdivision  (c)  of  section  500 
of  the  act  of  October  3,  1917,  in  connection  \vith  commutation  and  season  tickets, 
means  for  less  than  30  constructive  miles  in  instances  where  the  rate  for  transporta- 
tion is  fixed  on  the  constructive  mileage.     (T.  D.  2676;  Mar.  18,  1918.) 

•'United  States." 

The  term  "United  States,"  as  used  in  Title  V  of  the  act  of  October  3, 1917,  means 
only  the  States,  Alaska,  Hawaii,  and  the  District  of  Columbia.  (T.  D.  2676;  Mar. 
18,  1918.) 

The  term  "United  States,"  as  used  in  war  excess-profits  tax  regulations,  (when 
used  in  a  geographical  sense)  means  only  the  States  thereof,  Alaska,  Hawaii,  and 
the  District  of  Columbia,  and,  unless  otherwise  indicated  by  the  context,  term  will 
be  deemed  to  be  used  only  with  this  scope  or  meaning.     (T.  D.  2694;  arts.  1,4.) 

"United  States,"  as  used  in  r  gulations  No.  38  (revised),  includes  the  States,  the 
Territories  of  Alaska  and  Hawaii,  and  the  District  of  Columbia.  (T.  D.  2750,  art. 
24;  Aug.  9,  1918.) 

"Vocation." 

"Vocation  "  is  defined  as  the  occupation  or  pursuit  to  which  one  devotes  his  time 
or  life;  a  calling.     (T.  D.  2690;  art.  8.) 

••Worthless  debt." 

"Worthless  debt,"  as  contemplated  by  the  income-tax  law,  is  one  which  has  been 
actually  ascertained  to  be  worthless  and  charged  off  within  taxable  year.  (T.  D 
2690;  art.  8.) 

WORK  AND  LAB  OB. 

See  '  Master  and  Servant. " 

Contracts  for  services — Stamp  tax. 

Contracts  for  performance  of  services  are  not  subject  to  stamp  tax.  (T.  D.  2599; 
Dec    3,  1917.) 


666  WORTHLESS   DEBTS ZOOLOGICAL  PARKS. 

Labor  organizations — ^Capital  stock  tax. 

Labor  organizationa  are  specifically  exempt  from  tax  imposed  by  section  407  of 
the  act  of  September  8,  1916.  (T.  D.  2382;  Oct.  19,  191G.  T.  D.  2750,  art.  12;  Aug.  9, 
1918.) 

Income  taxes. 

Labor  organizations  are  exempt  from  tax  without  condition;  collector,  being 
satisfied  that  organization  comes  within  exempted  class,  is  authorized  to  eliminate 
it  from  his  list  and  relieve  it  from  necessity  of  making  returns.     (T.  D.  2690;  art.  68.) 

WORTHLESS  DEBTS. 
Definition. 

Worthless  debt,  as  contemplated  by  the  income-tax  law  and  which  may  be  deducted 
in  return  of  income,  is  one  which  has  been  actually  ascertained  to  be  worthless  and 
charged  off  within  taxable  year.     (T.  D.  2690;  art.  8.) 

Income  taxes — Deductions. 

See  "Income  Taxes  (Corporations)";  "Income  Taxes  (Individuals)." 

Y.  M.  C.  A. 
Excise  tax  on  boats  used  by. 

Boat  used  by  Y.  M.  C.  A.  in  transporting  its  religious  workers  and  others  is  not 
ustd  for  trade,  but  for  other  serious  purpose,  and  is  subject  to  tax  imposed  by 
section  603  of  the  act  October  3,  1917.     (T.  D.  2753;  Aug.  23,  1918.) 

Occupational  taxes — Pool  tables,  etc. 

Pool  tables  and  bowling  alleys  are  exempt  under  act  of  September  8,  1916,  if  tax 
would  fall  upon  State  treasury;  otherwise  tax  is  due  on  account  of  pool  tables  and 
bowling  alleys  in  State  armories,  etc.,  and  also  in  Y.  M.  C.  A.  buildings.  (T.  D. 
2462;  Feb.  16,  1917.) 

YEAST. 
Com  used  in  manufacture. 

Where  distiller  is  primarily  and  essentially  a  manufacturer  of  yeast  he  may  use 
such  quantity  of  sound  corn  as  may  be  necessary  to  meet  legitimate  demands  of  his 
trade,  provided  he  first  obtains  written  consent  of  Commissioner  of  Internal  Revenue. 
(T.  D.  2642;  Jan.  28,  1918.) 

Burveys  of  distilleries. 

Instructions  relative  to  making  surveys  of  distilleries  using  the  filtration-aeration 
process  and  operating  on  the  sweet-mash  principle  for  the  commercial  manufacture 
of  yeast  only,     (T.  D.  2393;  Oct.  7,  1916.) 

ZOOLOGICAL  PARKS. 
Admissions. 

Admissions  to  public  zoological  parks  and  other  entertainment  enterprises  con- 
ducted by  or  under  direction  of  Government  or  State,  or  political  subdivision  of 
either,  are  not  taxable.     (T.  D.  2681;  Mar.  26,  1918.) 


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